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Asset managers decision shows FCA is keen to wield competition powers
22 February 2019 00:00
UK asset managers got their first taste of competition-law enforcement under the Financial Conduct Authority yesterday.
The FCA said that Hargreave Hale, River and Mercantile Asset Management and Newton Investment Management breached competition law by sharing information about the price they intended to pay for shares of an initial public offering.
Hargreave Hale and River and Mercantile were fined 306,300 pounds ($400,000) and 108,600 pounds respectively for their involvement in the scheme, while Newton was granted immunity for flagging the case to the regulator.
The decision is the first time the FCA has used its competition-enforcement powers since gaining them in 2015, and suggests it will no longer shy away from using all the tools in its regulatory arsenal. It also shows the FCA taking an increasingly tough stance on information sharing.
As the asset managers decide whether to lick their wounds or mount a challenge, there are a few points to be taken from the FCA’s decision.
The FCA’s debut competition-law case is unusual for two reasons.
Firstly, it concerns a buy-side cartel, and such cases are rarely pursued by competition authorities — not least during a particular regulator’s first competition case.
Buyer cartels typically occur when a group of competitors, focused on the input side of the market, attempt to eliminate competition by manipulating the purchase price. They present a tricky case for competition authorities because it can be difficult to assess the harm as a result of the infringement.
Secondly, the case concerns a “pure” information exchange and there isn’t at present any suggestion that the asset managers agreed they would not bid into the IPO below a certain price, or at a fixed price. Instead, they “disclosed and accepted bidding intentions in the form of the price they were willing to pay and sometimes the volume they wished to acquire,” the FCA said in a statement yesterday.
One lawyer told MLex it would be “unusual” for a few asset managers to be capable of distorting competition for the placement of shares, even if they did exchange information, given IPOs typically involve high-volume trading.
The FCA has yet to publish its full-text decision, which will outline its reasoning in more detail and potentially answer lingering questions about the impact of the information sharing.
Infringement vs non-infringement
Another question that awaits this full text is how the regulator distinguished between infringing and non-infringing conduct.
When the FCA first launched its competition probe in 2017, it issued statements of objections to four asset-management firms: Hargreave Hale, River and Mercantile, Newton, and Artemis Investment Management.
Yesterday it cleared Artemis of any involvement, saying there were “no grounds for action in respect of conduct between Artemis Investment Management and Newton.”
MLex understands that Artemis escaped a penalty because the information it shared was not of “strategic” value and was shared weeks before the IPO in question took place.
The FCA’s decision will clarify the role played by timing, the context and the strategic value of the information shared, in determining whether there was a competition-law infringement, according to an individual who has seen the decision.
Despite the lingering questions, it is clear that the FCA’s decision marks the beginning of a new chapter in its enforcement of competition law.
The decision, while focused on three asset management companies, will have far-reaching implications for the industry and should deter asset managers from sharing information with competitors.
The FCA is also braced to step up its competition activities after Brexit, as cases that were previously the responsibility of the European Commission come under a domestic purview — principally of the Competition and Markets Authority but also the FCA and other sector regulators.
The financial regulator has indicated that it is keen to tackle competition cases that have previously been handled in Brussels, and MLex understands that in some cases this will involve revisiting cases previously handled by the commission that it feels warrant a closer look.
It is clear that the FCA is ready and willing to crack down on competition infringements in the financial services sector, and it seems to be just getting started.
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