Since 1 April 2015, the UK financial services community has awaited with some trepidation the use by the FCA of its new "concurrent competition law powers". These enable the FCA to investigate and sanction companies for breaching the UK/EU competition law rules on anti-competitive agreements and abuse of dominance (behavioural competition rules). The FCA can also carry out market studies and make market investigation references to the Competition and Markets Authority (CMA) where it has concerns about how particular markets are functioning for consumers. In order to regulate the way in which they go about their concurrent functions, the FCA and the CMA have entered into a formal MoU. The expectation is, however, that the FCA should exercise these powers where they relate to financial services.
To date, it has been a case of "watch this space" with the FCA carrying out various market studies, including those on which it had already been engaged pre-concurrency, but not otherwise (as far as we are aware) engaging in any investigatory activities under the behavioural competition rules. However, the sizeable competition team at the FCA has not been idle with various guidance notes having been published. These include most recently (on 15 July) the final version of its Concurrency Guidance and Handbook Amendments (Policy Statement)1, on which it had originally consulted industry in January 2015.
The original consultation document elicited a high number of responses, which are summarised in the Policy Statement along with a "red-line" showing the actual changes made by the FCA to the draft Policy Statement. For the most part these are fairly minimal, but the explanation given by the FCA for the lack of any significant drafting changes is in many ways as important as any new drafting. Further, as set out below, the Policy Statement includes guidance on several key issues and also explains the important changes that will be made imminently to the Supervision Manual of the FCA Handbook.
FCA Handbook changes: disclosure requirements
Amongst the most contentious of the proposals set out in the draft Policy Statement were those to amend Part 15 of the Supervision Manual of the FCA Handbook, in particular the requirement on authorised firms to disclose "suspected" competition law infringements. This change elicited a significant amount of comment, not least because the notification obligation was stated to apply as soon as the firm concerned:
"becomes aware or has information which reasonably suggests that an infringement has, or may have, occurred".
The above language suggests that a firm would have to notify the FCA upon receiving any suspicion of a competition law infringement, before it would have time to properly consider its legal position and irrespective of the seriousness of the alleged offence. Concerns have also been raised as to how the disclosure requirement can be consistent with the leniency regime (which the FCA has subscribed to) that encourages companies to come forward with information about competition law infringements they have committed in return for a reduction in financial penalties. Companies deciding whether or not to apply for leniency could find themselves bound by the notification requirement before they have decided what course to take, potentially prejudicing themselves in any later proceedings where the initial notification to the FCA would be disclosable.
The Policy Statement expresses some sympathy with these points. Nevertheless, the FCA notes that Principle 11 of the Handbook already requires authorised firms to be open and transparent with the regulator (including by self-reporting potential breaches of their legal obligations). Ostensibly, it sees the new Handbook changes as a logical extension of these obligations to incorporate the competition law rules.
Similarly, the FCA sees no inconsistency between the Handbook changes and the competition law leniency regime on the basis that the reporting obligation can only add to firms' incentives not to engage in serious competition law infringements (or to report if they do so). However, the FCA does state that it will work with firms and the CMA in order to deal with any concerns raised by individual cases.
The one concrete concession made by the FCA in the Policy Statement is to import a condition that the self-reporting obligation only applies where the infringement that has or may have occurred is significant. This is intended to avoid "fail-safe" notifications. However, there is no absolute test of what constitutes a significant infringement and the FCA expects firms to consider the actual or potential impact of the infringement on customers, competitors and the reputation of the firm itself.
This obligation therefore remains an onerous one which all authorised firms will need to consider carefully as part of their compliance policies. This is particularly so as the rules apply to infringements of "any applicable competition law", including possible breaches by the firm outside the EU and breaches of competition law in non-EU jurisdictions, to the extent that these are relevant to the FCA's remit.
Other key aspects of the Policy Statement
As well as the Handbook changes, the Policy Statement also clarifies (without materially altering) other matters relating to the exercise of the FCA's concurrent powers.
Interaction with CMA guidance notes:
The FCA notes that the Policy Statement is not intended to provide detailed substantive guidance on the application of the competition law rules in the financial services sector. In part, this reflects the detailed guidance already available from the CMA, which the FCA says it will take into account, as appropriate. It states that "in principle" competition law (and economics) applies to financial services in the same way as to other economic sectors.
Interestingly, the FCA also states that it will consider providing more detailed substantive guidance in due course. This is clearly to be welcomed, particularly in relation to matters such as the law around unlawful information exchange, where firms are already grappling with the application of the competition law rules to well-established commercial practices.
Primacy obligations/interaction with the FCA's regulatory powers:
One of the "known unknowns" about the application of the new regime is when the FCA will decide to use competition law powers as opposed to its regulatory powers. Section 234K of the Financial Services and Markets Act provides that the FCA is under an obligation to give "primacy" to competition law enforcement when considering the exercise of certain of its specified powers. This means it must first consider whether it would be more appropriate to proceed under the behavioural competition rules.
The Policy Statement attempts to clarify the FCA's position by giving concrete examples of cases where it is more likely to investigate under the competition law rules, in particular price fixing or customer allocation infringements or in the case of unilateral conduct to exclude rivals. However, it otherwise emphasises that the FCA will make its decision as to which powers to exercise on a case-by-case basis.
Avoiding double jeopardy:
As we have previously noted, there is technically nothing to stop the competition enforcement arm of the FCA granting immunity on the basis of a leniency application and the financial regulation arm of the FCA coming back and imposing fines. Indeed, ICAP is currently appealing an EU Commission fining decision concerning EURIBOR on the basis that it had already been penalised for the same behaviour by the FCA. No doubt in recognition of these issues, the Policy Statement expressly states that the FCA will take into account any fines levied by authorities in "connected cases".
The Policy Statement is an important landmark. Whilst much of the guidance provided remains to be tested, firms will need to take immediate account of the amendments to the Supervision Manual, which take effect on 1 August 2015.
More broadly, it seems certain that the FCA will start baring its teeth soon in order to exercise the new powers it has assumed under the new competition concurrency regime affecting financial services in the UK.