Anti-trust

FCA issues its first decision under competition law

FCA Press Release

“The [UK’s] Financial Conduct Authority (FCA) has issued a decision which finds that 3 asset management firms breached competition law. This is the FCA’s first formal decision under its competition enforcement powers.

The firms are:

  • Hargreave Hale Ltd

  • Newton Investment Management Limited

  • River and Mercantile Asset Management LLP (RAMAM)

The FCA has fined Hargreave Hale £306,300 and RAMAM £108,600. The FCA has not imposed a fine on Newton because it was given immunity under the competition leniency programme.

The infringements consisted of the sharing of strategic information, on a bilateral basis, between competing asset management firms during one initial public offering and one placing, shortly before the share prices were set. 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. This allowed one firm to know another's plans during the IPO or placing process when they should have been competing for shares.

Asset managers bid for the shares they want in IPOs and placings against competing asset managers in prevailing market practice. If asset managers share detailed and otherwise confidential information about their bids with each other, they undermine the process by which prices are set. This can reduce pressure to make bids that reflect what they really think the company is worth. 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, so unlawful information sharing could increase the cost of related investments or even make them unviable.

Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said:

'This is our first case using our competition law powers and demonstrates our commitment to taking enforcement action to protect competition. Asset management firms must take care to avoid undermining how prices are properly set for shares in both IPOs and placings. Failure to do so risks them acting illegally. The FCA will act when markets that play a vital role in helping companies raise capital in the UK’s financial markets are put at risk. We can also take regulatory action against an individual and did so here with respect to some of the same facts.'

Over £31 billion was raised on just the London Stock Exchange (LSE) markets in new investment between 2015 and 2018. This shows how important it is to protect competition in the primary capital markets during a book-building process.

The FCA has also decided that there are no grounds for action in respect of conduct between Artemis Investment Management LLP and Newton that took place between April and May 2014 in relation to an IPO.

Separately, on 5 February 2019, the FCA announced that it had fined an individual under the Financial Services and Markets Act 2000 (FSMA) for conduct related to some of the same facts investigated under the Competition Act”.

Credit: FCA Press Release

Comment

The FCA has had competition law enforcement powers since 2015, but has only just used these powers in the above case, which is all about anti-competitive exchange of strategic information between asset management firms. The issue here was the sharing of confidential bidding intentions.

This sharing of information effectively undermines price setting processes, which could have an impact on the cost of related investments.

Traditionally, the Competition and Markets Authority (CMA) have led the way in investigating suspected competition law infringements. But the recent appointment of Sheldon Mills, a former Senior Director at the CMA, as the FCA’s new Director of Competition demonstrates the FCA’s commitment to competition law enforcement.

Ultimately, the message is: the FCA are upping their enforcement game - they are a regulator with teeth, and financial institutions need to continually review compliance policies and risks, including with regard to the sharing of information. If in doubt, seek legal advice!