It is widely known in the industry that the FCA has been granted powers to apply competition law in the ‘financial sector’. What is perhaps less widely known is that the FCA is obliged to first consider whether applying competition law would be more appropriate than its wider regulatory powers.
All FCA regulated persons urgently need to ‘embed’ competition law throughout their activities, for a number of reasons:
- FCA Handbook SUP 15 contains an obligation to self-report possible infringements of competition law,
- The FCA is actively urging regulated persons to ‘embed’ competition law throughout their activities,
- The FCA is prioritising competition enforcement,
- The UK government has simplified the criminal offence with the intention of bringing “as many new criminal cartel investigations as possible,” and
- Recent developments mean that liability for competition infringements is widening.
The Obligation in FCA Handbook SUP 15
FCA Handbook SUP 15 requires regulated firms and individuals to notify the FCA if it,
“has or may have committed a significant infringement of any applicable competition law”
Two issues immediately arise:
- With the criminal penalties associated with breaches of competition law there is an issue of self-incrimination, and
- Materiality: what is “a significant infringement” (is it a monetary value or the seriousness of the infringement, which may have insignificant monetary impact?).
The subject of this update is an often-overlooked third matter, which is:
- The need for internal procedures to be compliant with the new rules – the embedding process.
Quick Response Procedures are Essential
The timing of the notifications to the FCA is crucial – the obligation to inform the FCA arises once information ‘reasonably suggests’ that there has been a breach. Under leniency mechanisms, however, an application can only be made where there is a concrete suspicion of cartel activity.
As leniency applications favour the first to notify, an FCA-authorised person must assume that other cartel members are racing to be the first to notify. Deciding on a leniency application is a time-consuming and complicated process, so time is of the essence.
One other twist is that ‘significant breach’ under SUP 15 is wider than just cartel behaviour, which is the only behaviour that leniency mechanisms apply to.
Training, Competition Compliance and Monitoring Mechanisms
This may sound obvious, but are crucial. Adequate procedures can avoid abuses altogether; they can serve as a defence, should the employer be implicated in a cartel; they can serve as mitigating factors for the employer if a defence does not work; they can also serve as mitigating factors for directors, should disqualification proceedings be commenced.
Contacts with the FCA & Private Enforcement
It is normal to have day-to-day contact with the FCA but care must be taken not to inadvertently disclose before any leniency application. Also, in any future private enforcement action it may be that statements to the regulator are subject to disclosure, which could help claimants.
Individual and Corporate Criminal Sanctions
The obligation to report to the FCA applies to ‘any applicable competition laws’ that affect the FCA-authorised person, not just EU/UK competition laws – a reasonable suspicion that Australian competition law, for example, has been breached requires notification to the FCA.
As some jurisdictions have individual criminal liability the need for independent legal advice, and very carefully drafted FCA notifications, is essential. Also, internal discussions between employer and employees are likely to require lawyers to be present – management and HR systems will need to be updated.
Another point, which has not received much attention, is that in some jurisdictions corporate entities can be criminally liable for breaching competition law. Sanctions include fines and also probation with conditions attached – this can make corporate life very complicated if judicial permission is required for an M&A for example.
What You Need To Do
In the FCA’s own words, competition awareness should be embedded in all key departments, including HR, management and those with trading responsibilities. Compliance and legal departments need to take great care in contacts with the FCA.
In embedding competition compliance competition compliance policies and training should be put in place. This would be a useful first step in making all employees, and the board, aware of competition law.
Further, in limiting exposure a risk assessment is useful to provide an idea of areas to particularly focus on – contacts with competitors on a professional or social basis is usually a good place to start.
 Readers of a certain age will remember the Guinness-Saunders affair in the early 90s.
 See for example, https://www.justice.gov/opa/pr/five-major-banks-agree-parent-level-guilty-pleas