On 15 July 2015, the Financial Conduct Authority (“FCA”) published its finalised guidance on its concurrent competition powers (“Guidance”) along with a Policy Statement which provides feedback on its Consultation Paper and the final rules which will be introduced as amendments to the Supervision Manual (“SUP”) of the FCA Handbook. The amendments to Part 15 of the SUP took effect from 1 August 2015.
The FCA obtained concurrent competition powers in relation to the provision of financial services on 1 April 2015 and the Guidance sets out how the FCA will exercise these new powers under the Competition Act 1998 (“CA98”).
Whilst the Guidance and the Policy Statement deal with a number of issues, this client alert focuses on the following key takeaway points:
- self-reporting obligation;
- right to appeal in settlement cases;
- restriction on the use of information;
- interplay with FSMA; and
- other relevant procedural points.
The most important amendment to the FCA Handbook is a new, specific competition law reporting obligation. The FCA currently requires regulated firms to disclose to it “anything relating to the firm of which the [FCA] would reasonably expect notice”. This self-reporting obligation under FCA’s regulatory Principle 11 is being extended to apply to competition law infringements.
Regulated firms must now notify the FCA if it has or may have committed a significant infringement of any applicable competition law as soon as it becomes aware, or has information which reasonably suggests, that a significant infringement has, or may have, occurred (Annex 1 (SUP 15.3.32)).
(a) Scope of the obligation
The scope of the self-reporting obligation is limited to ‘significant’ infringements only. This materiality test makes the scope of the obligation less extensive than the original proposal, which covered all types of infringement irrespective of seriousness. However, the FCA only provides little guidance on when a matter should be regarded as significant, namely: “[i]n 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 control.” A significant degree of uncertainty, therefore, remains as to when the obligation arises.
It is noteworthy that the new self-reporting obligation is not limited to infringements with a UK or EU nexus but to “any applicable competition law”. However, this obligation is limited in at least two ways:
- the FCA notes that any breach by the firm outside of the UK and/or of non-UK or EU competition laws could still be relevant to the FCA as it may reflect issues with, for example, the firm’s systems and controls, and/or fitness and propriety of the firm or individuals. It is therefore only in such circumstances that a foreign breach would fall within the scope of the Principle 11 disclosure obligation; and
- the new self-reporting obligation under SUP 15 only applies to infringements in which the FCA-regulated entity (presumably including any of its subsidiaries) is involved.
(b) Content and form of the notification
The amended SUP handbook states that a notification of a (possible) competition law infringement should include the following:
- information about any circumstances relevant to the (possible) infringement;
- identification of the relevant law; 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.
The above has the status of Guidance rather than being a Rule.
Notification must be submitted in writing unless the firm has or will make a leniency application in relation to the same subject matter, in which case it can be made orally.
(c) Interaction with leniency applications
Concerns were raised during the consultation phase that the self-reporting obligation could conflict with the voluntary nature of leniency applications to a Competition Authority. Given that a firm has to notify the FCA “as soon as” it has information about a possible infringement, the obligation may in practice force firms to make a leniency application at an earlier stage of an internal investigation than they otherwise would.
The FCA explicitly states that the self-reporting obligation must be independent of the voluntary activity of applying for leniency and emphasises that firms can meet the requirement of both the Principle 11 regime and the CMA leniency regime if they act promptly. The FCA also emphasises that the former does not require an admission of guilt.
In the light of the above, regulated firms will have to amend their competition compliance programmes to take account of the self-reporting obligation.
Right to appeal in settlement cases
One area where the FCA’s approach to enforcement deviates from the CMA is the operation of settlements. In the interests of efficient and effective enforcement, the FCA can require parties wishing to settle CA98 cases with the FCA to waive their right of appeal to the CAT. The settling party may no longer have the opportunity to challenge any ultimate infringement decision even if it is reached on a different basis from the settlement agreement. In contrast, the CMA settlement procedure does not require settling parties to waive their rights of appeal.
Restriction on use of information
The FCA has the ability to accept leniency applications (applying the CMA’s Guidance) but firms are expected to make leniency applications to the CMA because the FCA does not have concurrent powers in relation to the cartel offence and cannot grant immunity from prosecution in relation to this offence.
The FCA and CMA have agreed that leniency information which the CMA passes to the FCA may only be used by the FCA for the application and enforcement of the competition law prohibitions, unless the leniency applicant agrees otherwise.
This restriction on use also applies to any information obtained through an FCA CA98 investigation. Leniency information for these purposes is any information which came into the possession of any of the CMA, its predecessor bodies, or any other public authority as a direct or indirect result of having been provided in the context of an application for leniency under the Chapter 1 prohibition or Article 101 TFEU. It includes any information obtained through an investigation resulting from the leniency application.
However, leniency information can also be used to remind a regulated firm of its self-reporting obligation under Principle 11 or, with regard to approved persons, Principle 4 of the FCA’s Statements of Principle for Approved Persons, which requires an approved person to deal with the FCA, the PRA and other regulators in an open and cooperative way and to disclose appropriately any information of which the FCA or the PRA would reasonably expect notice. This restriction does not affect the FCA’s use of information obtained from other sources such as through Principle 11 disclosures.
Interplay with FSMA
The FCA has a broad range of legal tools to address competition concerns which include market studies under FSMA and EA02 or enforcement action under CA98 or FSMA. The FCA’s guiding principle will be to choose the tool that will allow it most efficiently and effectively to investigate and if necessary remedy the possible harm that it has identified. Some cases (e.g. collusion amongst rivals to fix prices or allocate customers or unilateral strategic conduct by a firm to exclude rivals) are more likely to fall for investigation under the CA98.
The FCA can take enforcement action under its CA98 powers, and use its other powers in parallel or sequentially. For instance, anti-competitive agreements or abusive conduct by authorised firms may breach obligations under both FSMA and competition law. In exercising its powers the FCA has to respect the principle of proportionality, and take account of fines imposed by authorities in connected cases.
For more information on how the FCA chooses between the FSMA and EA02 market study regimes, please refer to the Market Study Guidance.
Other relevant procedural points
Legal counsel should also be aware of the following procedural points which have been clarified by the Guidance:
- Case allocation: The Competition Act 1998 (Concurrency) Regulations 2014 sets out how cases will be allocated between the CMA and FCA. While the FCA will aim to agree on case allocation with the CMA, in the absence of agreement, the CMA has the final decision.
- Division between investigation and supervision: The FCA clarifies that its supervisory function under FSMA will continue as normal throughout any CA98 investigation. As a practical matter, investigation and supervision will be run by separate teams although with appropriate knowledge sharing to ensure efficiency. Regulated firms should therefore ensure consistency when they provide information to the FCA irrespective of the information gathering powers it is using.
- Interim measures: The FCA can impose interim measures and will follow the criteria used by the CMA in deciding whether interim measures are justified.
- Commitments: The FCA can accept commitments and will follow the CMA's approach of holding a meeting with the party offering commitments to set out the nature of consultations responses and to discuss amendments required to offered commitments.