According to the UK Financial Conduct Authority (FCA) the infringements consisted of the sharing of strategic information between competing asset management firms during one initial public offering and one placing, shortly before the share prices were set. The firms disclosed and/or accepted otherwise confidential bidding intentions, in the form of the price they were willing to pay and sometimes the volume they wished to acquire. This allowed one firm to know another’s plans during the IPO or placing process when they should have been competing for shares.
Asset managers bid for the shares they want in IPOs and placings against competing asset managers in prevailing market practice. If asset managers share detailed and otherwise confidential information about their bids with each other, they undermine the process by which prices are set, said the FCA. This can reduce pressure to make bids that reflect what they really think the company is worth. This could reduce the share price achieved by the IPO or placing and so raise the cost of equity capital for the issuing company. In summary, for the first decision ever using its competition enforcement powers, the FCA decided to target a bid-rigging case. Not very surprising for an industry used to deal with Libor, Euribor, FX and bond rigging scandals in the last years.
This decision is the latest step by UK regulators to clampdown on asset management firms. These fines come two weeks after the FCA published a study on the asset management market where the regulator imposed further remedies to firms (the first set of remedies were imposed on April 2018, CP18/9). The new remedies seek to stimulate industry competition and improve investor protection by adopting new rules on performance, objective and benchmark-reporting. The new rules will come into force on May and August.
The CMA also played an active role in clamping down asset management firms. In 2017, after a referral from the FCA, the CMA began a market investigation on the supply and acquisition of investment consultancy (IC) services and fiduciary management (FM) services. On December 2018, the CMA published a report where it found that some features of the IC and FM markets could restrict competition. In the same report, the CMA imposed a package of remedies to mitigate these adverse effects, including: i) an obligation for pension scheme trustees to conduct a competitive tender to select fiduciary management services, ii) an obligation for fiduciary management providers to disaggregate its fees to clients, iii) a mandate for the use of a standardised methodology and template for reporting past performance.
After a few years building a competition team, the FCA seems ready to complement the CMA’s enforcement actions in the financial services. After Brexit and considering the limited (yet expanded) resources of the CMA, the FCA’s role to look after consumers and protect competition in financial markets will become more relevant. It might be a good idea to look at the next market studies to be conducted by the FCA as enforcement actions may follow.
