On 1 April 2015, the FCA assumed powers to regulate competition in the financial services sector.
The powers, conferred by the Financial Services (Banking Reform) Act 2013, are to:
- conduct Market Studies where markets do not appear to function well for consumers;
- refer such markets to the Competition & Markets Authority (the “CMA”) for a more detailed Market Investigation; and
- conduct investigations into individual firms’ possible non-compliance with competition law.
The powers are concurrent as they also continue to vest in the CMA. The two authorities have published a Memorandum of Understandingas to how they will work together, but the powers are likely to be exercised by the FCA in the financial sector.
The FCA has:
- published finalised Guidance relating to the exercise of the powers;
- published specific Guidance on Market Studies and Market Investigation references; and
- updated the Supervision Manual (the "SUP" section) of its Handbook.
Scope of jurisdiction
Under concurrency, the FCA has obtained the powers of a competition regulator in the financial services sector. “Financial Services” is not defined but, according to §1.2 of the Guidance, the FCA considers it to include any service of a financial nature such as banking, credit, insurance, personal pensions or investments. The activity falling under its competition jurisdiction is therefore wider than the activity falling under its pre-existing jurisdiction as financial services regulator.
With effect from 1 August 2015, SUP15 of the Supervision Manual has been amended to introduce at SUP15.3.32[R] a new obligation on firms to notify the FCA if they have (or may have) committed a significant infringement of competition law.
This obligation arguably exists anyway by virtue of Principle 11 of the Handbook, which imposes a more general requirement on firms to disclose anything of which the regulator would reasonably expect notice.
However, SUP15.3.32[R] is controversial because of its additional detail, which imposes the disclosure obligation on the firm as soon as it becomes aware, or has information which reasonably suggests, a significant competition law infringement may have occurred.
The obligation does not sit easily with the leniency programme in Section 6 of the Guidance, under which a firm that is party to an anticompetitive arrangement can inform the regulator in return for a reduced penalty. Leniency applications are frequently made when responsible officers in the firm become aware of the questionable behaviour of colleagues. The obligation to inform the FCA of such behaviour arises before the firm has an opportunity to form its own view of whether the behaviour amounts to an infringement or to consider a leniency application.
These objections were raised during a consultation after the draft Guidance was published. The FCA responded in a Policy Statement published alongside the final Guidance, §1.18 of which denies any conflict between the disclosure obligation and the leniency regime.
In summary: the firm needs to make immediate disclosure, even if this does not allow time to consider the position.
- The Policy Statement says (under §4.27) that such disclosure would not prevent a firm subsequently applying for leniency, and even obtaining full immunity.
- Conversely, there is no reason why the disclosure required by SUP15 should be delayed by a possible leniency application which, ultimately, is not made.
This may be logical enough, but it is a new reality for leniency applicants who are accustomed to regulators being unaware of their behaviour prior to their application. Those who inform the FCA of behaviour under their SUP15 obligation may feel they do not have a completely free rein in deciding whether or not to pursue leniency.
The FCA was also satisfied that the disclosure obligation does not violate the privilege against self-incrimination, for reasons set out under §4.13 of the Policy Statement.
The obligation does, however, only relate to “significant” infringements; a word that was inserted in response to objections raised in the consultation. There will inevitably be uncertainty in some cases as to whether the infringement or possible infringement is “significant”, although SUP15.3.34[G] gives some guidance, that:
In determining whether a matter is significant, a firm should have regard to the actual or potential effect on competition, any customer detriment, and the duration of any infringement and implications for the firm's systems and controls.
The FCA’s leniency regime is covered in Section 6 of the Guidance.
The FCA will apply the CMA’s leniency policy (§6.2), but it expects leniency applications to be made to the CMA because the FCA does not have power to offer immunity in relation to the criminal cartel offence under s188 of the Enterprise Act 2002 (§6.3).
The CMA will, subject to certain restrictions, share leniency information with the FCA (§6.5), but the FCA will use that information only for the purpose of enforcement of competition law unless the leniency applicant agrees otherwise (§6.6).
Another controversial aspect of the Guidance is that, if a party wants to settle with the FCA, it may have to waive its right of appeal.
Settlement in this context differs from that in civil disputes where the settlement gives certainty of outcome. Parties who settle a competition investigation into their conduct know only the maximum fine they face (provided they follow the settlement).
Per §6.9 of the Guidance, settlement is a voluntary process in which:
- a party admits that it has been involved in an infringement of competition law;
- it agrees to a streamlined procedure for the remainder of the investigation; and
- the FCA issues an infringement decision but impose a reduced penalty on the settling party.
It is this infringement decision which a settling party may be required to confirm that it will not appeal to the Competition Appeal Tribunal (§6.14).
The FCA therefore differs from the CMA, which permits settling parties to appeal its infringement decision, although an unsuccessful appellant will lose its settlement discount. As can be seen from §14.23 of the CMA’s Guidance, the authority has latitude in the content on the decision, so a party might wish to appeal, for example, if the decision is reached on a different basis from the settlement agreement.
The use of CMA guidance
The FCA Guidance is not a detailed substantive guide to how it will apply competition law. §2.2 of the Policy Statement suggests that this may come later, but says the present Guidance is a concise statement as to how it will exercise its concurrent powers; and that, where CMA guidance is more detailed, the FCA will consider it in deciding how to proceed.