FCA Principle 11 – a controversial approach to competition law breaches?
22 July 2015
One of the most controversial aspects of the FCA’s new competition concurrency powers so far as investigations are concerned is the approach to Principle 11 of the FCA’s Principles for Businesses (which requires firms to 'deal with its regulators in an open and co-operative way, and... disclose to the appropriately regulator appropriately anything relating to the firm of which that regulator would reasonably expect notice'). The FCA recently finalised its position regarding Principle 11 and competition law breaches.
Firms are – and have always been – required to notify breaches of competition law to the FCA under Principle 11
There was some surprise when the FCA stated in a speech delivered earlier this year that firms have always been required to notify breaches of competition law to the FCA under Principle 11. In particular, this position has caused concerns about the potential conflict between the requirement that competition breaches are disclosed to the FCA under Principle 11 and competition leniency regimes (which encourage participants that have engaged in anti-competitive conduct to confess and co-operate in return for discounts or immunity from fines) as well as the privilege against self-incrimination.
Unlike ‘traditional’ disclosures of regulatory issues under Principle 11, the FCA requires firms to notify it of breaches of competition law in writing.
But only ‘significant’ infringements of competition law need to be notified
In response to concerns raised by firms and practitioners, the FCA has introduced a materiality threshold in relation to what infringements of competition law need to be notified to it under Principle 11 – the FCA has confirmed that only ‘significant’ infringements of competition law will need to be notified to it. Amendments to the FCA Handbook clarify that, when 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 controls’. The question of whether an infringement is ‘significant’ will clearly require careful analysis.
Although the FCA has maintained its position that a firm inform the FCA under Principle 11 if it ‘may’ have committed a significant infringement of competition law, the FCA has made it clear that it expects firms ‘to take a sensible approach’ in this regard.
Interestingly, the FCA has also explicitly stated that Principle 11 does not only require firms to notify the FCA of breaches of UK and EU competition law. Rather, the FCA has decided to also require firms to notify it of breaches of competition laws of other jurisdictions. That said, Principle 11 only applies to entities authorised by the FCA and not to other members of their corporate group (unless breaches by other members of the corporate group directly or indirectly affect the authorised entity).
But what about the privilege against self-incrimination?
The FCA has tried to reassure those with concerns that its approach to notifying competition law infringements under Principle 11 may jeopardise the privilege against self-incrimination. The FCA has said that it is seeking ‘neither admission nor confessions as part of a disclosure under Principle 11’ and expects to be provided only with the facts and circumstances of a particular case. Firms will need to take care when drafting written notifications of competition law infringements for submission to the FCA under Principle 11.
Watch this space
In the context of regulatory investigations, the FCA is taking an increasingly aggressive approach to sanctioning firms that fail to fulfil their obligations under Principle 11. As a result, firms should expect the FCA to enforce its expectations of firms in relation to notifications of competition law infringements under Principle 11.
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