Coping with Competition: FCA Uses its Competition Enforcement Powers

What’s going on here?

For the first time ever the Financial Conduct Authority (FCA) has decided to use its competition enforcement powers.

What does this mean?

Competition law in the UK is governed by a statute called the Competition Act 1998. In 2015 the FCA (the body in charge of financial regulation) was given new powers to enforce the act against financial companies. This gives it the ability to fine companies that break competition law, with a penalty that can reach up to 10% of its global turnover!

The FCA decided to enforce these powers against two asset management firms, Hargreave Hale and River and Mercantile Asset Management. These firms were found to have been sharing information prior to an initial public offering (IPO) about how much they were willing to pay. An IPO is where a company first sells shares to the public and gets listed on a stock exchange. This meant that the firms were able to collude, agreeing their prices around each other, rather than competing with each other to purchase the shares. The fines levied were £306,000 against Hargreave Hale and £108,000 against River and Mercantile.

Why should law firms care?

The decision by the FCA to enforce these rules marks a significantly tougher approach towards protecting competition. It shows that the FCA is more willing to intervene and take action against companies engaging in anti-competitive actions.

Jacqui Hughes, head of asset management regulation at KPMG, commented that “competition is certainly a word that is appearing more and more in FCA documents and discussions. The FCA has been emphasising its desire to see evidence of competition, especially around promoting good customer outcomes and reducing costs for consumers”. It is clear that this is expected to be the start of greater FCA involvement. Companies should be ensuring that they are fully compliant with competition laws.

This is important to law firms as the penalties that the FCA can issue are no small matter. The fines can be up to 10% of global turnover, which is a stiff penalty and can make non-compliance extremely costly. The change in direction from the FCA comes at an important time for the body, as the UK’s departure from the EU is imminent. This is because much of competition law enforcement falls under the powers of the European Commission. After Brexit, these enforcement responsibilities will be transferred to the Competition and Markets Authority and the FCA.

Competition laws are important as they underpin the fundamental principle of fairness within business. A primary aim is to prevent cartels, which is where a group of companies come together and agree not to compete. An example of this includes companies agreeing to charge the same high price for a good or service, forcing consumers to pay more. A lack of competition harms the functioning of markets and puts the costs on consumers, businesses and governments.

Report written by Harry B.

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