On 21 February 2019, the Financial Conduct Authority (FCA) issued a decision finding that three asset management firms breached competition law in the context of an initial public offering (IPO). This marks the FCA’s first formal decision under its competition law enforcement powers, which it received in 2015. The decision also manifests a trend in the financial market whereby enforcement powers under regulatory conduct rules (regulatory business obligations, rules on the treatment of customers and market abuse regimes) are increasingly going hand in hand with competition powers. While this is not a new trend – investigations around alleged manipulations of benchmarks and in the foreign exchange market were both spearheaded jointly by financial and competition regulators – the interaction of these enforcement powers is certainly becoming more prevalent and exposes the financial sector to higher enforcement risks than other industry sectors.
The FCA decision, yet to be published, found that three competing firms – Hargreave Hale Ltd (Hargreave), River and Mercantile Asset Management LLP (RAMAM) and Newton Investment Management Limited (Newton) – breached competition law in 2015 through bilateral exchanges of confidential, strategic information regarding their bidding intentions during one IPO and one placing, shortly before the share prices were set. The alleged information exchanged included the price they were willing to pay and sometimes the volume they wished to acquire. The FCA’s press release leaves open whether the exchange of price ranges as opposed to actual price points would have been considered legal in the context of an IPO.
As a result of its finding, the FCA has fined Hargreave and RAMAM £306,300 and £108,600, respectively. Newton was not fined as it received immunity under the competition leniency programme. The FCA has also decided that there are no grounds for action in respect of the conduct between Artemis and Newton.
Interestingly, the FCA also announced a conduct proceeding earlier this month according to which it had fined a former fund manager at Newton, £32,200 under the Financial Services and Markets Act 2000 (FSMA) for conduct related to some of the same facts as set out above. The FCA found that the individual had acted without due skill, care and diligence by failing to give proper consideration to the risks of engaging in these communications.
This dual enforcement approach by the FCA – competition proceeding against corporates and conduct proceedings against an individual for the same behaviour – is noteworthy. The reason for the choice of enforcement tools appears clear: a prosecution of an individual under competition rules would have only been possible under the criminal cartel offence regime, which due to its strict requirements has rarely been used successfully.
Competition law concurrency
It has been more than three years since the FCA gained concurrent competition powers under the Enterprise Act, and six years since it gained competition market study powers under FSMA. Since then the FCA has built a considerable competition team and focused the use of its competition competencies primarily on market studies and thematic reviews.
The increasing use of the FCA competition powers begs the question: who is the prime regulator for financial competition law infringements in the UK? The answer is there are several. It came as a surprise to many in the market that the more generalist Competition and Markets Authority (CMA) is far from letting the FCA take the reins when it announced a new investigation into suspected competition law infringements in the financial services sector in November 2018. This investigation is not only interesting because the CMA (and not the FCA) is taking charge but also because it is the CMA’s first major financial investigation in this sector (larger financial competition investigations have traditionally been undertaken by the EU Commission due to the cross-border nature of the industry).
More enforcement ahead?
Last week’s decision sends a clear message that the FCA is willing to make full use of its competition law enforcement powers alongside the CMA. The recent appointment of Sheldon Mills, a senior official from the CMA, as the FCA’s new director of competition further indicates that the FCA is looking to bolster its competition law enforcement practice. Following Britain’s exit from the European Union, firms can expect to see the FCA taking a more prominent role in competition law enforcement. The broad enforcement tools that the FCA has and choices between conduct and competition procedures clearly raises liability and enforcement risks and sets the financial industry apart from other sectors.