Since being granted concurrent competition powers on 1st April 2015 the Financial Conduct Authority (FCA), the UK financial sector watchdog, must be close to fielding one of the largest competition teams in the country. This is following a continued recruitment drive aimed at significantly increasing the number of competition specialists among its ranks.
The FCA had around 50 competition experts earlier this year and is understood to be aiming to double this by the end of 2015. It has recruited from private practice as well as other regulators (including the Competition and Markets Authority) and recently bolstered its decision-making committees with a number of big-name signings.
An expansion of this nature suggests that the FCA aims to take on a significant number of new cases and, in particular, exercise its newly-enhanced powers to enforce UK competition law. This includes cartel and abuse of dominance cases (under the Competition Act 98) as well as powers to carry out market studies under the Enterprise Act 2002 and make market investigation references to the CMA.
The FCA's track record to date is heavily weighted towards market studies. These broad inquiries allow the FCA to look at markets that may not be working well for consumers (for example, SME banking, cash savings, retirement income, insurance add-ons and credit cards, with mortgages and asset management seemingly next in line for scrutiny).
The most significant market study launched this year is probably investment and corporate banking services. This is the first wholesale financial market to attract FCA scrutiny following last year's "call for inputs", in which the FCA is considering three main topics: customer choice of banks and advisers; limited transparency in terms of information and process; and bundling and cross-subsidisation of services.
The FCA chose to launch this market study using its financial regulatory powers (i.e. under FSMA) rather than under its concurrent function and the provisions of EA02. This means the FCA is under no statutory time pressure (unlike market studies under EA02, where "provisional findings" must be issued after 6 months and there is a 12 month time limit to complete the study).
What has become clear following the FCA's issuance of a policy statement on its concurrency guidance is that the FCA does not consider itself prevented from using FSMA powers to carry out competition-based market studies; or from using FSMA powers to impose market-wide or firm-specific remedies at the end of an EA02 market study; or from making a market investigation reference at the end of a FSMA market study. In other words, it has total flexibility.
Even more contentious has been the discussion around "Principle 11", a reporting duty obliging regulated firms to self-report anything of which the FCA "would reasonably expect notice". The FCA proposed an amendment to its "Handbook" to make explicit that authorised firms are obliged to disclose suspected infringements of "any applicable competition law". A number of concerns were raised during the consultation regarding the scope of this proposal, in particular because it applied to possible infringements anywhere in the world and there was no materiality threshold.
The FCA has amended the scope to catch only "significant" infringements, which is clearly a positive development (although there's still no bright-line test for what is relevant). The FCA maintains that disclosure of non-UK/EU infringements are relevant to its remit and says it expects firms to "take a sensible approach" (again rather vague) to the question of whether their conduct "may have" infringed competition law.
Questions were also raised as to whether there was a conflict with the privilege against self-incrimination and how the rule will interact with the CMA's leniency regime. The FCA simply disagreed that there were any particular issues in this regard, which will have left companies and their legal advisers with unresolved concerns. Similarly, the FCA's insistence on retaining the option to require parties wishing to settle CA98 cases with the FCA to waive their rights of appeal puts it at odds with the CMA's position and has increased concerns that its combined suite of powers are overly broad.
Another interesting development has been the FCA's consultation on proposed new FSMA rules for FRAND access to regulated benchmarks. With forthcoming legislation such as MiFIR/MiFID II and a possible EU Benchmarks Regulation in the pipeline, is there a danger of over-regulation in this area? Arguably, the additional rules are unnecessary, given that the FCA now has concurrent powers to investigate and sanction excessive/discriminatory pricing by dominant firms active in financial services such as benchmark provision.
There are important checks and balances inherent in a CA98 procedure and a high evidential threshold that must be overcome before a competition law infringement can be established. In the absence of 'slam-dunk' evidence of a competition law infringement, this could explain why in practice the FCA appears to be favouring market studies and/or FSMA powers as a means to investigate and resolve perceived competition concerns, rather than its CA98 powers.
If true, this presumably gives rise to a certain amount of 'unmet demand' within the organisation, in the sense that the FCA's new competition recruits will no doubt want to be pursuing CA98 cases as well as market studies. The more obvious candidate for a CA98 test case would seem to be an abuse of dominance case rather than a cartel (which, in the financial sector, would be more likely to come before the European Commission – see e.g. LIBOR). There will come a point at which the FCA will need to be seen to be making active use of its CA98 powers to avoid questions being asked about whether it was in fact necessary for it to have been made a concurrent regulator. For now, it seems the FCA is still in the process of identifying some suitably low hanging fruit which it can convert into a reasonably easy victory.
Originally published by IBC Legal's competition law blog.
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