The FCA’s wide-ranging powers extend yet further from 1 April, when the FCA gains“concurrent” powers to enforce competition law across the financial services industry. These new powers will bring the FCA into line with other sector regulators, such as Ofcom and Ofgem. In addition to its existing competition objective (to promote effective competition in the interests of consumers – including business customers), the FCA will be empowered to investigate and punish anticompetitive agreements (such as price-fixing cartels) and the abuse of a dominant position (exclusionary or exploitative conduct, such as discriminatory prices, or unjustified refusals to supply). The FCA will also be able to refer markets to the UK’s main competition authority, the Competition and Markets Authority (CMA) for detailed investigation.
The FCA will therefore have one of the largest “tool kits” available to any regulatory authority. It already has extensive competition related powers under FSMA, including powers to conduct market studies and implement significant interventionist remedies (including introducing new rules and imposing new directions on relevant regulated firms) as a result of a market study. A recent example is its work in relation to guaranteed asset protection (GAP) insurance. The FCA proposes to prevent firms from concluding sales contracts for GAP insurance in vehicle showrooms and to require information to be provided to consumers to encourage them to shop around for GAP insurance.
In my view, the potential impact of market studies should not be underestimated. They allow the FCA to consider the whole of a There is no need for the FCA to prove unlawful collusion, abuse of dominance or any other infringement: simply that a particular market is not functioning as well as it could or should be. There are many financial markets, including the general insurance market, where long-established practices may not stand up well to detailed scrutiny by a determined and well-resourced regulatory authority. It will not be a good defence to say “business has always been done this way”. The insurance industry should expect the FCA to conduct more market studies in relation to wholesale as well as retail insurance markets. These studies will involve market participants being obliged to provide vast amounts of detailed data, information and documentation, including strategy documents and presentations, as well as needing to explain or justify particular practices or conduct.
In readiness for its new concurrent powers, the FCA has published draft guidance on competition concurrency, under which it proposes to introduce a new rule requiring immediate written disclosure of actual or suspected competition infringements discovered by a firm. This goes further than the existing Principle 11 and SUP15, because the new rule will require written disclosure, unless the relevant firm has made or intends to make an oral application to the CMA for immunity or leniency. Disclosure must be made “immediately”. There appears to be no threshold for the seriousness or significance of the relevant infringement: all infringements of competition law must be disclosed. Nor does this apply only to infringements beginning or continuing after 1 April 2015; a firm must make the notification as soon as it becomes aware, or has information which reasonably suggests, that an infringement has or may have occurred. The notification is required to include information about any relevant circumstances and information about any steps which the firm or other person has taken or intends to take to rectify or remedy the infringement or prevent any future potential occurrence.
These are onerous requirements. Businesses which are not regulated by the FCA do not have to confess their infringements of competition law to the competition authorities: they can choose whether or not to do so. For some types of infringement, such as unlawful cartels, the first to confess can obtain complete immunity from fines (and criminal prosecution); others who provide additional information may receive more lenient penalties.
The interaction between the CMA’s immunity and leniency processes and the FCA’s disclosure requirements is complicated and raises important practical issues, particularly in relation to co-operation between the CMA andthe FCA. As the FCA is not a designated prosecutor of the criminal cartel offence, it cannot give immunity from it, so firms uncovering potentially criminal cartels, involving price-fixing, market sharing and/or bid-rigging, will need to apply to the CMA (rather than the FCA) for immunity or leniency if they wish to avoid criminal prosecution of their staff. Firms in that situation would therefore need to co-ordinate carefully and urgently any approach to the CMA with the discharge of their disclosure obligations to the FCA.
I believe that the FCA’s proposed approach may have the unintended consequence of leading regulated firms to make precautionary notifications to the FCA in relation to their agreements and conduct, rather than risk punishment for failure to notify infringements. Besides imposing a significant administrative burden on the FCA, this would go against the current practice in competition law of requiring firms to “self-assess” the legality of their arrangements, rather than notifying them to competition authorities for assessment.
Past and present customers may well seek disclosure of firms’ confessions of competition infringements to the FCA, in order to support claims for damages against those firms, particularly once the Consumer Rights Bill becomes law. It remains to be seen whether the FCA will succeed in keeping those confessions confidential. What is clear however, is that the FCA’s new powers will result in insurers finding competition law issues pushing their way up the boardroom agenda.