FCA publishes draft guidance regarding how it will exercise its new competition powers
On 1 April 2015, the Financial Conduct Authority (FCA) will gain new concurrent competition powers under the Competition Act 1998 (CA98), the Enterprise Act 2002 (EA02) and the Treaty on the Functioning of the European Union that relate to the provision of financial services. This will augment the FCA’s existing competition objective by allowing the FCA to investigate infringements of UK and EU competition law and to also carry out broader market studies.
On 15 January, the FCA published a consultation paper that sets out how it intends to implement and exercise these new powers in practice. The draft guidance set out in the consultation paper largely follows existing Competition and Markets Authority (CMA) procedure, which raises a number of interesting points as to how the FCA’s competition powers will interact with the FCA’s current powers to investigate and take enforcement action under the Financial Services and Markets Act 2000 (FSMA).
We set out below some of our initial impressions in relation to the FCA’s consultation paper.
Leniency is an option
The FCA is proposing to adopt the CMA’s leniency programme with regard to infringements of the CA98. However, the FCA anticipates that firms will make leniency applications to the CMA in the first instance given that the FCA does not have the legal capacity to prosecute or offer immunity from prosecution in relation to the criminal cartel offence under the EA02.
Nonetheless, the FCA has said that it will consider applications for leniency for other competition law infringements and may be prepared to offer immunity from, or reductions of, any potential financial penalties that would otherwise have been imposed on a firm.
Settlement is an option
The FCA is proposing to cap settlement discounts for competition law infringements at 20% pre-Statement of Objections and 10% post-Statement of Objections.
FCA disclosure obligation explicitly requires disclosure of competition law infringementsThe FCA has confirmed that Principle 11 of the FCA’s Principles for Businesses (which requires firms to disclose to the FCA or the PRA anything which the regulator would reasonably expect notice of) requires firms to notify the FCA of competition law infringements. According to the FCA, this has always been the case.
The FCA is proposing to amend its Supervision section of the FCA Handbook (SUP) so that it provides further guidance in terms of what firms will need to tell the FCA under Principle 11 in the event that it is aware of an infringement or a suspected infringement of competition law.
Notably, the FCA expects firms to notify it of infringements or suspected infringements of competition law in writing, unless the firm has or is intending to make an application for leniency or immunity covering the same subject matter. This contrasts with the way in which Principle 11 notifications are often made by firms to the FCA in relation to suspected breaches of regulatory requirements, as such notifications generally tend to be made verbally (at least initially).
FSMA, CA98 and EA02 regimes are not strictly mutually exclusive
The FCA has made it clear that it may investigate and prosecute the same behaviour under both its FSMA and CA98 powers, in parallel or sequentially.
The FCA may use its FSMA or EA02 powers to discover information that it will later use to investigate a competition law infringement. However, once a CA98 investigation is formally underway, the FCA has stated its intention to only use its CA98 powers from that point onwards.
Market studies – two potential forms
The FCA may now carry out market studies under either its FSMA powers or the provisions of the EA02, with the procedural stages and remedies being broadly similar but engaging different formal information gathering powers. For example, the FCA’s new EA02 powers will allow it to gather information from firms that it does not regulate.
From 1 April 2015, the FCA will also have the power to refer a market to the CMA for detailed investigation. Such a reference may be more likely to be made if remedies are envisaged which affect firms that the FCA does not regulate.
The FCA’s consultation paper provides a helpful insight as to how the FCA intends to employ its new powers, which largely follows CMA practice. However, the consultation paper also indicates the additional issues and challenges that financial institutions may face when dealing with regulatory investigations, as they may now face concurrent FCA regulatory and competition investigations, which are likely to operate according to different procedural rules and timetables.