Antitrust regulators are increasingly focusing on the financial services sector. Infringements that, in the past, might have been left to more specialist financial services regulation (and regulators) have increasingly become subject to investigation under competition law. Antitrust authorities are now more interested in – and are becoming more familiar with – the mechanics of the financial markets and the practices of those who work in them.

Until the global financial crisis, there was very little antitrust enforcement in the financial services sector. That changed dramatically with the coordinated investigation of a range of anticompetitive activities that had previously gone undisturbed, perhaps the most notable being the LIBOR scandal and the manipulation of other benchmarks. That, in turn, spawned investigations into other asset classes, products and sectors, such as interest rate derivatives, credit default swaps, and the foreign exchange markets.

However, more recent antitrust investigations show a greater maturity. The authorities are focused less on explicit anticompetitive behaviour and more on entrenched business practices. At the same time, policy-makers in the UK, the EU and elsewhere have become concerned about what they see as historic under-enforcement, and see a need to intervene more directly in markets to address the potential for consumer harm. Authorities have also become better-resourced, with deeper sector-specific expertise, which has enabled them to examine the highly technical, and somewhat opaque, world of equity fundraisings and loan syndications.

In the UK, this focus on more strenuous and sophisticated enforcement explains why the Financial Conduct Authority (FCA) has been given the power to exercise competition law powers over financial services businesses, concurrently with the Competition and Markets Authority (CMA). That power extends to any financial services business, and not only those that the FCA regulates. Although the FCA has cooperated with the CMA over investigations in the past, notably over LIBOR and bond trading, this independent power will inevitably lead to an increase in enforcement activity – especially in cases where the FCA is already investigating a firm or an individual for more general regulatory breaches.

The FCA’s commitment to a zero-tolerance approach in this area was signalled by its first use of its new independent power last year. Its first decision notice concerned the (apparently isolated) disclosure of “strategic” anticompetitive information by a fund manager at Newton during an IPO and equity placing, before the share price had been set. The FCA considered this information to be “strategic” because it reduced uncertainty in the market by allowing Newton’s competitors to know how the firm might behave. Although Newton was granted immunity for its co-operation, the recipients of the information were fined for failing to actively distance themselves from the disclosure, even though the information did not alter their final bid.

The legal principles underpinning this decision are not controversial, but the FCA’s decision emphasises that even passive recipients of anticompetitive information (which can often be exchanged in social settings) have to act decisively and swiftly to avoid punishment. The fact that these disclosures were, apparently, not part of any wider pattern of behaviour, and that there was no adverse impact on the IPO and placing, suggests that the FCA wants to redress any past tendency to under-enforce and to remind firms of their obligations under competition law.

It is also notable that the (former) Newton manager was himself fined £32,200 for breaches of financial services law, demonstrating that the FCA’s antitrust enforcement power will be used in parallel with its more general powers where information emerges during the course of an investigation. Regulated firms will also note that they have an ongoing general notification obligation under the FCA Handbook, obliging them to self-report to the FCA if they have “or may have committed a significant infringement of any applicable competition law”. This obligation makes financial services a special case: in other industries firms are generally free to adopt a tailored strategy to address potential antitrust violations.

Competition law rules in Europe are complex, far-reaching and sometimes counter-intuitive. They extend to many aspects of a private fund manager’s business, including fundraising and deal doing, as well as IPOs and take privates. The UK’s new focus on enforcement, reflected in many other jurisdictions, means that now is a good time to review policies and refresh training for all relevant staff.

This week’s European Funds Comment is an edited version of a blogpost written by Debevoise & Plimpton partner Timothy McIver for our European Private Equity Blog.