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FCA imposes fines in first competition enforcement case

  • United Kingdom
  • Competition, EU and Trade
  • Financial services and markets regulation
  • Financial services


Competition partner Julia Woodward-Carlton, who acted for one of the main parties on this case, considers the decision and potential implications of the case in this article.

The Financial Conduct Authority (‘FCA’) has today issued its first decision under its competition enforcement powers in which it finds that three asset management firms, Newton Investment Management Limited (“Newton”), Hargreave Hale Ltd and River and Mercantile Asset Management LLP (RAMAM) breached competition law. The FCA granted immunity under the competition leniency programme to Newton and imposed fines on Hargreave Hale of £306,300 and on RAMAM of £108,600.

The case concerns information exchange between fund managers in respect of one initial public offering (“IPO”) and one placing in 2015. The FCA found that each of these exchanges amounted to an infringement consisting of the sharing of strategic information, on a bilateral basis, between competing asset management firms shortly before the share prices were set. According to the FCA, 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. The FCA concluded that this allowed one firm to know another's plans during the IPO or placing process when they should have been competing for shares.

In an unconventional view of the relevant market, the FCA determined that asset managers compete when bidding against each other as purchasers of shares they want in IPOs and placings. On that basis, the FCA came to the view that by sharing detailed and otherwise confidential information about their bids asset managers undermined the process by which prices are set and that this could reduce pressure to make bids that reflect what they really think the company is worth. Whilst drawing no conclusions, the FCA provides that this could reduce the share price achieved by the IPO or placing and so raise the cost of equity capital for the issuing company. Firms rely on such capital as a way of financing investments, and as such the FCA concluded the unlawful information sharing could increase the cost of related investments or even make them unviable.

The FCA’s competition enforcement case ran in parallel with separate proceedings brought by the FCA against the fund manager at Newton, Mr Paul Stephany, under the Financial Services and Markets Act 2000 (FSMA) for conduct related predominantly to the same facts investigated under the Competition Act. The Final Notice in these proceedings, announced on 5 February 2019, determined that on two separate occasions during the book building process, that prior to the order books for the new shares closing, Mr. Stephany contacted other fund managers at competitor firms and attempted to influence them to cap their orders at the same price limit as his own orders. The FCA found that Mr. Stephany risked undermining the integrity of the market and the book build by trying to use their collective power. As a consequence, Mr. Stephany was found to have failed to observe proper standards of market conduct in breach of Statement of Principle 3. He was also found to have acted without due skill, care and diligence by failing to give proper consideration to the risks of engaging in these communications in breach of Statement of Principle 2. Mr. Stephany was fined £32,000.

Potential implications of the case?

The final decision of the case has not yet been published, however, there are a number of potential implications that can be drawn from this announcement:

  • a finding of an infringement based on a pure information exchange on two isolated incidents in which limited information was shared on a bilateral basis between competing fund managers, absent any alleged wider agreement or pattern of behaviour, extends the potential circumstances in which the sharing of information could be found to raise serious issues of anti-competitive conduct;
  • from a compliance perspective this raises the need for vigilance and compliance efforts in relation to ad hoc exchanges of information with competitors and potentially further complicates the question of self-reporting under Principle 11 where firms consider they may have infringed competition law;
  • individuals involved in this type of conduct are exposed to prosecution for regulatory breaches, where their conduct could be taken as an attempt to influence the competitive behaviour of competitors, even where their attempts fail – individuals need to understand the standards of market conduct expected and to recognise these risks and behave accordingly;
  • having in place appropriate policies and procedures alone is not enough – Newton had the right measures in place but Mr. Stephany nonetheless failed to consult his line manager or his compliance department at the relevant time – firms not only need to ensure they have in place the right policies and procedures but that steps are taken to ensure employees truly understand how those apply to their day to day activities and know where the line needs to be drawn e.g. between the sharing of opinion and “market colour” and what might constitute strategically useful information - little guidance in this respect is likely to come from this decision;
  • the FCA imposed relatively low fines, recognising in particular that Mr. Stephany’s conduct merited a fine at the lowest possible level. This approach could reflect, for example, the FCA’s findings of a general lack of awareness of competition law in the sector at that time and/or the limited nature and/or impact of the conduct.

Overall, it is perhaps surprising that the FCA chose to divert significant resources to a case concerning very limited conduct which arguably could have been addressed solely through its FSMA powers. There remains a question of whether the FCA will adopt this same low bar to enforcement going forward. If it were to do this, this would indicate that the FCA are adopting a hardline and interventionist approach to information exchange. Recent comments by the FCA’s competition team do highlight that its objective is to utilise its competition enforcement powers. However, in a post-Brexit environment where the FCA will have responsibility for cross-border financial services competition enforcement cases currently reviewed by the European Commission, it remains to be seen whether this would be practical. In spite of the low level of fines, firms should nonetheless take heed and step up their compliance efforts.