Following receipt of its concurrent competition law powers in 2015, on 21 February 2019, the FCA issued its first ever competition law enforcement decision (see FCA press release here). This follows a three-year investigation by the FCA into conduct by asset managers in relation to UK primary market events.
The FCA fined Hargreave Hale Ltd (“Hargreave”) £306,300 and River & Mercantile Asset Management LLP (“RAMAM”) £108,600. According to the FCA, the firms breached the competition rules by sharing strategic information about price and volume during one initial public offering (IPO) and one placing shortly before the share prices were set. A third firm – Newton Investment Management Limited (“Newton”) a Bank of New York Mellon subsidiary – was given immunity under the competition leniency programme and therefore was not fined. However, the FCA recently fined former Newton fund manager Paul Stephany £32,000 for FSMA breaches in relation to some of the same facts. The FCA stated that it had investigated, but found there were no grounds for action in respect of, conduct between Artemis Investment Management (“Artemis”) and Newton that took place between April and May 2014 relating to an IPO.
The FCA will publish a non-confidential version of its decision in due course. According to press reports, Canaccord Genuity (Hargreave's parent company) intends to challenge the FCA's decision.
Nature of the infringements
Run by the FCA as a single investigation, the conduct in question related to three separate events: two IPOs and one placing. The FCA’s statement of objections, issued in November 2017, set out two main allegations against four separate asset management firms as follows:
- in 2015, Newton, Hargreave and RAMAM disclosed and/or accepted information about the price they intended to pay for shares in relation to one IPO and one placing; and
- in 2014 Artemis and Newton shared information about the price they intended or were willing to pay for shares in relation to another IPO.
The FCA ultimately found that Newton, Hargreave and RAMAM shared strategic information shortly before the share prices were set. The firms disclosed and/or accepted otherwise confidential bidding intentions, in the form of the price they were willing to pay and sometimes the volume they wished to acquire. This allowed one firm to know another's plans during the IPO or placing process when they should have been competing for shares. The FCA asserted that this conduct could undermine the price-setting process by reducing pressure to make bids that reflect asset managers' valuations, reducing the share price and raising the cost of equity capital for the issuing company, or even making the equity raisings unviable. The FCA concluded that the conduct involving Newton and Artemis in relation to the 2014 IPO did not breach competition law and Artemis was not party to any infringement.
In the context of the FSMA case against Mr Stephany, the FCA recognised that this case raised questions about the distinction between (i) acceptable information-sharing during a bookbuild on the one hand, and (ii) market misconduct attempting to coordinate on the other, with the FCA concluding that Mr Stephany's conduct fell clearly into the latter category. Publication of the full decision should hopefully provide clearer guidance about where the FCA proposes to draw the line between acceptable and unacceptable behaviour in this context.
This decision represents the conclusion (subject to appeal) of the FCA’s first enforcement action using its concurrent competition law powers since it received them in 2015.
One interesting feature is the FCA’s ability, in a financial services context, to combine action against firms for alleged breaches of competition law with concurrent actions against individual members of staff. Although Newton secured immunity under a leniency programme in this case, this did not extend to its fund manager Mr Stephany. The FCA found that his attempts to influence external fund managers breached his obligations under APER (the regime for individuals which governed his conduct at the time) to demonstrate due skill, care and diligence and observe proper standards of market conduct. The extension of the SMCR, which will apply to all financial services firms from the end of this year, makes actions against individuals at all levels of an organisation in this context a real possibility and will be an additional factor to consider when applying for immunity.
It is also indicative of a global trend of enforcement action against information sharing in financial services markets and clearly demonstrates the FCA is not afraid to use its competition powers as part of its arsenal, not least given this is an unusual case of a buy side infringement and one involving information exchange rather than a wider conspiracy. It is therefore as important as ever for market participants to refrain from sharing strategic information with competitors, particularly about price and volume.