The conclusion of a three-year investigation into price collusion in an initial public offering (‘IPO’) saw the FCA issue a decision, on 21 February 2019, which finds three investment firms (the ‘Firms’) to have breached competition law with fines of £414,900 have been imposed as a result. This is the FCA’s first formal decision under its competition enforcement powers.

According to the FCA, the Firms infringed competition law by: (i) sharing strategic information during one initial public offering and one placing, shortly before the share prices were set; and (ii) disclosing and/or accepting otherwise confidential bidding intentions, in the form of the price each was willing to pay and the volume each wished to acquire.

The Competition Act 1998 prohibits agreements, practices and conduct that may damage competition in the UK. The Chapter I prohibition covers anti-competitive agreements and concerted practices between businesses which have as their object or effect the prevention, restriction or distortion of competition within the UK. Article 101 of the Treaty on the Functioning of the European Union (TFEU) covers equivalent agreements or practices which may affect trade between EU member states.

The FCA contends that the process by which prices are set was undermined and that where the need for bids to be made that reflects a firm’s true valuation of a company is removed there could be a reduction in the share price achieved by an IPO or placing, which may result in increasing the cost of equity capital for the issuing company, potentially making the raising of capital in this way an unviable option for the company. However, on the facts shared in the FCA’s press release, it is far from apparent that the actions of the Firms could have had any impact on competition in relation to the IPO.

If found to have infringed the Chapter I prohibition and/or Article 101 TFEU, a business can be fined up to 10% of its annual worldwide group turnover. In calculating the level of fines, the FCA takes into account a number of factors including turnover in the relevant market, the seriousness of the infringement(s), the duration of the infringement(s), and any mitigating and/or aggravating factors. In this case, Hargrave Hale was fined £306,300 and RAMAM was fined £108,600. The FCA used the same criteria for calculating the fine for each party and the difference in fines is a reflection of each party’s respective turnover in the relevant market.

Whilst it is not evident from the information presented in the FCA press release that the Firms were involved in a cartel, the press release states that Newton was given immunity under the competition leniency programme and therefore no fine was imposed on Newton. Amongst other courses of action, regulatory bodies with the power to apply and enforce competition laws can offer leniency to businesses that are willing to confess their involvement in a cartel by granting immunity from fines, applying a reduction to the level of fine imposed, and issuing a written notice which prevents an individual from being prosecuted in England and Wales.

Since 1 April 2015, the FCA has concurrent powers to apply competition law under the Competition Act 1998 and the Enterprise Act 2002, which supports the FCAs statutory objective of promoting effective competition in the interests of consumers in the financial services sector. With over £31 billion raised on the London Stock Exchange markets in new investment between 2015 and 2018, it is paramount that competition is protected in this area. Whilst this is the first time the FCA has used its competition law powers to issue a decision, could this signal a new wave of enforcement action?

Bethany Bradley contributed to this piece.