The FCA – Transformation to Assertive Supervision
As the Financial Conduct Authority’s newest board member, Christopher Woolard, Director of Strategy and Competition, announces forthcoming anti-trust action - We look at what this might mean for companies under the spotlight.
The FCA recently announced its priority in the coming months will be to use its new competition powers. It seems it is already making good on this promise, with recent media reports suggesting that a “significant number” of financial companies are facing antitrust investigations (www.ft.com).
In April this year the FCA acquired “concurrent” competition powers. It now has powers to tackle anti-competitive agreements and conduct in relation to the provision of financial services by enforcing breaches under the Competition Act 1998 (CA98) and EU Treaty, powers also exercised by The Competition and Markets Authority (CMA) - so the FCA is a ‘concurrent regulator’ with ‘concurrent powers’.
Following earlier consultations on the new rules, final guidance was issued in July with effect from 1 August 2015.
The new regime is designed to beef up anti-trust efforts and make markets work more effectively. It allows the FCA to change its focus from looking at conduct on a firm by firm basis, to looking at markets in a more general way. From now on the FCA can conduct market studies and make market references to the CMA under the Enterprise Act 2002. The FCA can do this where it has reasonable grounds to suspect that any feature or combination of features of a market is adversely affecting competition. These powers are additional to the FCA’s ability to use powers in pursuit of its competition objective under the Financial Services and Market Act 2000.
Concurrency – competition between regulators?
The “primacy” obligation means that before the FCA uses its regulatory powers it must consider whether it should use its competition powers instead. In the earlier debates, issues about consistency and conflict were raised by competition law practitioners. The FCA counters this in the new guidelines. It states that procedures are in place to ensure that only one (best-placed) authority exercises its powers in respect of particular case at any one time. The framework for their cooperation is set out in the Memorandum of Understanding between the CMA and FCA.
Whilst the FCA acknowledges the CMA’s extensive investigative powers and ability to impose a wide variety of remedies, it sees itself playing a critical role in identifying and tackling potential infringements, given its supervisory role, thematic market monitoring and reporting regime. It confirms that there may be instances in which their enforcement powers will be used in parallel with their powers under the CA98 to take enforcement action against authorised firms or individual approved persons.
Why should firms be worried?
The FCA expects to be alerted to possible competition infringements through complaints by the public or businesses and bodies such as Which?; whistle-blowers; referrals from other authorities, such as the CMA or from a National Competition Agency; leniency applicants; market studies and intelligence gathering and, most controversially, their own supervisory activities over regulated firms.
What should a firm do if it suspects that it has breached competition law?
Principle 11 of the FCA Handbook already required authorised firms to notify the FCA of anything ‘relating to the firm of which that regulator would reasonably expect notice’.
The FCA’s Supervision Manual (SUP) has now been amended at 15.3 to take account of the FCA’s new powers. The requirement for a firm to notify the FCA immediately if disciplinary measures or sanctions have been imposed on the firm by any statutory or regulatory authority has now been widened to include any ‘competition authority’ (15.3.15).
In addition, regulated firms are now obliged to notify the FCA ‘if it has or may have committed a significant infringement of any applicable competition law’ and this notification must be made ‘as soon as it becomes aware, or has information which reasonably suggests, that a significant infringement has, or may have, occurred.’ (15.3.32R-15.3.33R)
How will the self reporting requirement under Principle 11 interact with the ability for a firm to seek leniency?
Decisions for firms and their advisers in respect of leniency applications are already extremely difficult tactically and hugely time-sensitive. These changes have exacerbated this.
SUP makes clear that notification to the FCA is not sufficient to constitute an application for leniency or immunity from penalty in any subsequent investigation under the CA 1998 or the EU Treaty.
Many firms have concerns about the privilege against self-incrimination, which is recognised in competition law, being eroded. They point out that if they enter into an open dialogue with the FCA about potential competition infringements, the information can be used against them in a CA 98 case. The FCA shows little time for these concerns by responding that ‘we note that authorised firms and people choose to be active in financial services and so be regulated by us. The Principle 11 duty is one of the responsibilities, voluntarily assumed, that comes with the licence to operate in the supply of financial services in the UK.’
In terms of the impact on leniency applications, the FCA points out that the Principle 11 duty is an obligation, whereas applying for leniency is a voluntary route available to firms. However, it does recognise that unlike the CMA, the FCA is not able to grant immunity for the criminal cartel offence. It also does not have the level of experience of handling leniency applications that the CMA has. They do not, for example, have an established leniency inquiry line or the detailed guidance of the CMA, such as OFT423 and OFT1495.
The FCA has therefore accepted that most corporations will want to make leniency applications direct to the CMA, but they have not as a consequence relaxed their strict time limit for Principle 11 reports. They suggest instead that ‘firms who are concerned about the interaction of notifications under Principle 11 and the CMA’s leniency regime should contact us and the CMA and we will work together and discuss how to proceed based on the individual circumstances of the case.’ There is no doubt that the need to retain the value in information for any leniency application and these self-reporting obligations means that there will be a number of tricky judgment calls for firms and their advisers in the months ahead.
Use it or lose it
We can expect the FCA, which has healthy resources and political imperative behind it, to take robust action in this area. Not least because if concurrent regulators do not use their powers in this area they lose them. We can only hope that, in exercising them, the FCA will respect the principles of proportionality and take account of fines levied by authorities in connected cases, as they have pledged to.
See our related blog Annual Report for Financial Conduct Authority (FCA) - international cooperation, market abuse, convictions, senior managers regime, whistleblowing and a historic year for fines.
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