US investment banks charge the highest fees - and the UK regulator isn't sure why

American investment banks consistently charge clients more for capital markets services, such as raising debt or equity, and the UK's Financial Conduct Authority isn't sure why.

The regulator is investigating whether possible anti-competitive behaviour from investment banks is driving up costs for corporate clients, and published its interim report on Wednesday.

Embarrasingly for some banks, the FCA found that they "carry out loss-making transactions purely to generate a higher position in league tables." But they don't not even fool potential clients with this tactic.

"Furthermore, banks routinely present league tables to clients in a way that inflates their own position. Many clients are aware of these practices; nonetheless we believe they impede effective client choice," the FCA said.

Meanwhile, the regulator also found that US investment banks such as Goldman Sachs or JP Morgan routinely charge a higher fee for the same work as their European or Asian competitors.

Here's the FCA (emphasis ours):

"Fees in the US are in general higher than in EMEA and South East Asia. This is particularly true for IPOs, follow-on ECM transactions, investment grade bonds and high yield bonds.

We do not know of any significant cost reasons for these differences and no stakeholders gave such reasons in our discussions. However, we welcome views on the reasons for these differences in fee levels, such as differences in legal costs. We also welcome views on whether the fact that fees are in some cases lower in Asia than in EMEA (and the UK) suggests there is scope for fees to be driven down further in the UK."

And here's the chart showing the cost disparity for initial public offerings:

The FCA hasn't ruled out coming up with new rules to increase competition in the UK.

"We will continue to develop our thinking on whether we should intervene in this market, and what interventions would be most effective in improving competition to the benefit of issuing and investor clients, and ultimately end consumers," the FCA said.