The FCA has announced its first decision under its competition enforcement powers, finding three asset management firms have breached competition law. The decision follows a statement of objections issued to Artemis Investment Management LLP (Artemis), Newton Investment Management Limited (Newton), Hargreave Hale Ltd, and River and Mercantile Asset Management LLP (RAMAM) in November 2017 alleging breaches of competition law. Newton, RAMAM and Hargreave Hale were found by the FCA to have infringed competition law by sharing strategic information during an IPO and a placing as prices were being set. The FCA found these firms to have accepted or disclosed otherwise confidential bidding intentions in relation to prices and volumes they were willing to pay, allowing one firm to know another's plans when they should have been competing. However, the FCA found that there were no grounds for action in respect of conduct between Artemis and Newton that took place between April and May 2014 in relation to an IPO. A non-confidential version of the FCA's decision under the Competition Act 1998 will be published in due course. An appeal of the decision can be made to the Competition Appeal Tribunal. RAMAM was fined £108,600 and Hargreave Hale was fined £306,300. The FCA used the same criteria in calculating the fines and the different penalties reflect their respective turnovers in the UK. The FCA did not impose a fine on Newton as it was granted immunity under the FCA's competition leniency policy in return for reporting cartel activity and assisting the FCA with its investigation. It is hoped that the non-confidential decision, when published, will provide firms with some guidance on the implementation and practical effects of this policy.

Comment

The Competition Act 1998 prohibits agreements, practices and conduct that have the object or effect of restricting competition in any market in the UK, and under the Act the FCA has the power to take action against anti-competitive behaviour in relation to financial services. This decision is an important assertion of the FCA's intention to use its competition powers – previous matters which involved the FCA were subsequently taken over by the European Commission under EU competition law. In its announcement, the FCA emphasised its commitment to taking enforcement action to protect competition, issuing a warning to the asset management industry to avoid undermining the proper process for setting the prices of shares in IPOs and placings and the potential impact failure to do so has on the UK's capital markets. The FCA noted that asset managers sharing detailed, confidential information about bids can undermine the price setting process, reducing the pressure to make bids to reflect the asset manager's actual views of the true value of the company. This could reduce the value of a share price on IPO or raise the cost of raising equity for companies. The FCA raised the broader risk that this illegal activity could increase the cost of investments to companies or even make them unviable. Details on the exact nature of the breaches of competition law that took place are awaited; however, the related final notice imposed on Paul Stephany sheds some light on some of the practices which are likely to have concerned the FCA.

Paul Stephany – an insight into anti-competitive behaviour in asset management

On 5 February 2019 the FCA fined Mr Stephany, a former portfolio fund manager at Newton, £32,200 for breaches of Statements of Principle 2 and 3 of the Statements of Principle and Code of Practice for Approved Persons. The FCA made clear in its final notice that the case against Mr Stephany did not require an analysis of competition law because behaviour that seeks to influence persons so that they submit bids at a certain price, using their collective power, undermines the proper price formation process and is behaviour that is below proper standards of market conduct. On 21 September 2015, Mr Stephany sent an email to 14 fund managers at 11 competitor firms that included the following statement regarding an IPO: “I wanted to urge those considering or in for the OTB IPO to think about moving to a 260m pre money valuation limit. I have done that first thing this morning with my 17m order.”     Previously, on 9 July 2015, Mr Stephany had telephone conversations with two fund managers at competitor firms regarding a placing in which he engaged in similar communications. In one of those exchanges he stated the following: “…I think push them for it to kind of 220 price rather than 230 plus they’re talking about.” Mr Stephany then stated, “[I] will be submitting a chunky order at that 220 level."   Mr Stephany was found to have failed to observe proper standards of market conduct by attempting to influence fund managers at competitor firms to cap their orders for an allocation of shares at the same price limit as his order. This was an attempt to get them to use their collective power and thereby undermine the proper price formation process for the benefit of the funds that he managed, which risked causing harm to other market participants. The FCA also found he demonstrated a lack of due skill, care and diligence by failing to give adequate consideration to the risks associated with engaging in communications with external fund managers at competitor firms in this way and for these purposes. While he gave some consideration to whether his email regarding the IPO was appropriate, he failed to search for, or identify, relevant guidance from Newton. He also did not consult his compliance department or line manager, either in relation to the IPO or the placing. His communications with fund managers were also a breach of internal policies and procedures. The FCA was clear in its final notice that an attempt to influence competitors to use their collective power by sharing confidential information is a breach of the proper standards of market conduct. Mr Stephany's failure to properly raise these issues internally at Newton is a reminder to market participants of the importance of escalating competition and other conduct related issues where appropriate, and that failure to do so may have consequences for the individuals involved. Further, while Mr Stephany was clearly sanctioned as the author of the communications in question, it is noteworthy that the FCA's statement relating to its action in respect of the asset management firms suggests that the sanctions issued to them relate to receiving as well as providing information ("The firms disclosed and/or accepted otherwise confidential bidding intentions…." (emphasis added)).