Monopoly Power in UK Financial Markets - Does it Matter?
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Last updated 3 Mar 2023
To what extent is monopoly power in financial industries a cause of market failure? And what are some of the possible consequences for consumers who engaged in different financial markets?
There is evidence to suggest that significant monopoly power exists in certain UK financial markets.
Here are some examples, along with relevant data:
- Payment systems: The payment systems industry in the UK is dominated by a small number of firms, with the largest three - Mastercard, Visa, and BACS - accounting for over 95% of transactions by value in 2020, according to the Payment Systems Regulator. This concentration of market power has led to concerns about high fees and limited competition.
- Investment banking: The investment banking industry in the UK is also highly concentrated, with the five largest firms - Goldman Sachs, JPMorgan Chase, Morgan Stanley, Bank of America Merrill Lynch, and Deutsche Bank - accounting for around 80% of revenues in 2020, according to Statista. This concentration of market power has led to concerns about excessive risk-taking and conflicts of interest.
- Stock exchanges: The stock exchange industry in the UK is dominated by the London Stock Exchange Group (LSEG), which operates the London Stock Exchange as well as several other exchanges and trading platforms. In 2020, the LSEG accounted for around 40% of global exchange trading revenues, according to the Financial Times.
- Credit rating agencies: The credit rating agency industry in the UK is dominated by three firms - Moody's, S&P Global, and Fitch Ratings - which together account for around 95% of the global market, according to the Financial Times. This concentration of market power has led to concerns about conflicts of interest and inadequate regulation.
- Commercial banks: The UK banking sector is dominated by a small number of large banks. According to the Competition and Markets Authority, the four largest banks - Lloyds Banking Group, Barclays, Royal Bank of Scotland (RBS), and HSBC - accounted for around 70% of personal current accounts and 80% of small business accounts in 2018.
- Insurance industry: The UK insurance industry is also highly concentrated. According to the Association of British Insurers, the top five insurance groups - Aviva, Prudential, Legal & General, RSA Insurance Group, and AIG - accounted for around 61% of the UK insurance market in 2020.