On 1 April 2015, the Financial Conduct Authority will be granted full concurrent competition powers under the Competition Act 1998 and the Enterprise Act 2002. These new powers are designed to help the FCA fulfil its existing competition objective and duty under the Financial Services and Markets Act 2000 and will allow it to enforce competition law alongside the Competition and Markets Authority
The Financial Conduct Authority's new competition powers
The Financial Conduct Authority's ("FCA") concurrent competition functions, which relate only to financial services, will mean it has additional tools at its disposal with which to further its competition objective. In particular, it will have powers to:
- conduct market studies and make market investigation references to the Competition and Markets Authority ("CMA") under Part 4 of the Enterprise Act 2002 ("EA2002"); and
- investigate alleged breaches of the prohibitions on anti-competitive behaviour set out in Part 1 of the Competition Act 1998 ("CA1998") and Articles 101 and 102 of the Treaty on the Functioning of the European Union, and where appropriate take enforcement action.
The FCA has consulted on its Competition Concurrency Guidance and proposed competition-related amendments to its Handbook. At the time of writing, the outcome of that consultation has not been announced, but is expected soon after 1 April 2015.
Antitrust/Competition investigation under the CA1998
From 1 April 2015, the FCA will also be able to exercise enforcement powers under the CA1998 in relation to suspected anticompetitive agreements and abuses of dominant positions. These will include the powers to:
- conduct "dawn raids" at business premises and (in certain circumstances) domestic premises;
- compel any person to provide documents and information;
- require any person to attend an interview to give evidence;
- accept "commitments" from any person to address the FCA's competition concerns;
- adopt infringement decisions or enter into settlements; and
- impose fines of up to 10% of group turnover.
The FCA will also have the power to apply to the court to make a disqualification order against a person who is a director of a company which has committed a breach of competition law. It will not, however, be able to bring prosecutions under the criminal "cartel offence" in section 188 EA2002; this will remain the preserve of the CMA and Serious Fraud Office.
Market studies under the EA2002
The FCA has already carried out a number of what it terms "market studies" under its FSMA powers, looking at competition in various markets, including general insurance add-ons, retirement income, cash savings, credit cards and, as currently anticipated, investment and corporate banking. However, these market studies should not be confused with formal market studies conducted under Part 4 of the EA2002 (an "EA2002 Market Study"), as currently undertaken by the CMA.
From 1 April 2015, the FCA will be able to carry out an EA2002 Market Study by issuing a formal "Market Study Notice". Doing so would enhance the information gathering powers already available to the FCA under the Financial Services and Markets Act 2000 ("FSMA"), in particular by giving it the power to require any person (i.e., not only authorised persons):
- to attend an interview to give evidence;
- to produce documents; and
- if they carry on a business, to supply specified forecasts, estimates, returns or other information in a specified form and manner.
These wide-ranging powers under EA2002 are backed-up by significant financial sanctions. For example, failure to attend an interview or to provide requested documents could result in a fixed penalty of up to £30,000 and/or a daily penalty of £15,000. Moreover, it would be a criminal offence to intentionally alter, suppress or destroy any requested document, punishable by imprisonment for a term not exceeding two years, or a fine, or both.
In practice, the FCA's use of these formal powers is likely to be relatively rare as the FCA is expected to request information on a voluntary basis, similar to the approach adopted by the CMA. However, it cannot be ruled out that the FCA will use these powers when information is not forthcoming, or where – for data protection, banking confidentiality or other reasons – a firm requests the FCA to use its formal powers to compel the provision of information (as is common practice with respect to requests under the FCA's FSMA powers).
The upshot is that, from 1 April, if the FCA identifies features of a market that it reasonably suspects prevent, restrict or distort competition, it will be able to refer that market (or part of it) to the CMA for a full market investigation, even if it has not issued a formal Market Study Notice and carried out an EA2002 Market Study.
Such market investigations are significant; they last 18 months or more, and the CMA has a wide range of remedial powers at its disposal to address competition problems, including the ability to force structural changes on market participants as well as new conduct requirements. As an alternative, the FCA may accept "undertakings in lieu" of a reference to the CMA. However, its draft guidance indicates that the acceptance of such undertakings is likely to be uncommon, given the practical difficulties of negotiating with several interested parties.
Competition related amendments to the FCA Handbook
The FCA proposes to introduce a new Rule into the Supervision Manual, which would require an authorised firm to notify the FCA "if it has or may have infringed any applicable competition law". A firm would be required to do this in writing immediately after it becomes aware, or has information which reasonably suggests, that an infringement has occurred or may have occurred. It will be possible to make such a notification orally where a firm has made, or will make, an oral application for leniency or immunity covering the same subject matter to any competition authority.
The FCA says that the proposed new Rule reflects existing disclosure obligations on authorised firms and that the amendment simply makes the reporting requirement for competition infringements explicit. However, in practice the change seems likely to impose an onerous burden on firms' compliance functions and, worryingly, undermines the concepts of self-assessment under competition law and the protection from self-incrimination. Indeed, for authorised firms this, in effect, mandatory notification regime is also likely to impact on the voluntary competition leniency regime as authorised firms are left with no choice but to alert the FCA and possibly other competition authorities to any potential breaches of competition law to which the leniency regime applies.
Changes for enforcement in the financial services sector
The FCA will undoubtedly be keen to take early high profile interventions to demonstrate that the additions to its regulatory toolbox add real value to competition enforcement in the financial services sector. In that context, it seems inevitable that, at least in the short to medium term, there will be an increase in the FCA's competition related enforcement activity, although firms should not expect an immediate flurry of dawn raids in early April.
The impact is likely to be most marked in relation to new CA1998 cases in the financial services sector. Not only will the amendments to the Handbook potentially provide the FCA with a fertile source of intelligence on possible antitrust infringements, but the legislative framework itself is designed to promote the use of the CA1998 powers by the FCA. As a concurrent regulator, the FCA is under a "primacy" obligation that requires it to consider whether it would be more appropriate to take action under its new CA1998 powers before exercising certain of its regulatory powers under FSMA. Moreover, the Secretary of State may remove the FCA's concurrent powers if it fails to take any enforcement action, the so-called "use or lose it" provision.
By contrast, the FCA is already very active in pursuing its competition objective under its FSMA powers through the use of market studies. Accordingly, the FCA's new EA2002 powers in relation to markets may not make a significant difference in practical terms, given the extensive information gathering powers and remedies already available to the FCA in respect of authorised persons. While the ability to make a market investigation reference to the CMA is a notable addition to the FCA's armoury, it is not altogether clear whether, having conducted its own initial review, the FCA would then want to cede the ability to resolve any issues to another body. In light of these factors, and the fact that EA2002 Market Studies are subject to statutory time limits, an EA2002 Market Study conducted by the FCA may prove to be a rare beast.