FCA has competition concerns in asset management

The FCA has published its interim report in its asset management market study.

The FCA says that the study raises a number of concerns about whether the asset management sector is driving value for investors as there is limited price competition for actively managed funds. 

The FCA has proposed a package of remedies that would increase transparency and help investors identify the best funds and prices. Most of the remedies relate to governance and price transparency and if implemented would entail changes in the way that asset management firms market and sell their products.

The FCA has also proposed making what would be its first ever market investigation reference to the Competition and Markets Authority over what it views as competition concerns in a relatively concentrated investment consultancy market. 

The FCA is consulting on both its proposed remedies and its provisional decision to refer investment consultancy services to the CMA.

The FCA asks for comments to be sent to assetmanagementmarketstudy@fca.org.uk by 20 February 2017. It intends to publish a final report and remedies in 2017.

Source:  https://www.fca.org.uk/publications/market-studies/asset-management-market-study

Court of Appeal dismisses competition defence in Premier League case

The Court of Appeal has dismissed an appeal against a judgment in favour of the Football Association Premier League (FAPL) relating to the commercial use of foreign bought domestic decoder cards.

The defendant in this case was a pub landlord who used a decoder card which he had bought from a Danish reseller which was a licensed FAPL broadcaster for domestic purposes.  As a result, the reseller’s customers were not authorised to use the cards for commercial purposes such as a broadcast from a public house in the case of the defendant.

The Court of Appeal held that the restriction on the use of the cards for domestic or commercial purposes did not amount to an infringement of competition law.  The Court of Appeal also rejected the claim that the restriction on the use of the cards for domestic purposes was caused by territorial restrictions on the use of the cards.

The defendant relied on EU case law that had held that national legislation which prohibited the importation of foreign decoding devices was a restriction on the freedom to provide services under Article 56 of the TFEU (joined cases C-403/08 and C-429/08 Football Association Premier League Ltd and others v QC Leisure and others; Murphy v Media Protection Services Ltd).  However, the Court of Appeal held that the right on which FAPL relied in this case – the delimitation on the use of the cards for domestic purposes – was not of itself a restriction on competition between Member States.

The Court of Appeal also dismissed the argument that the defendant should be ordered to pay the difference between the commercial and domestic licensing rates as this would amount to a retrospective licence of the copyright works.

The Football Association Premier League Ltd v Luxton [2016] EWCA Civ 1097 (09 November 2016)

Ofgem accepts commitments from SSE

Ofgem has accepted binding commitments from energy supplier SSE to address concerns that it may have abused its dominant position in the electricity connections market. 

The commitments conclude a two year investigation where Ofgem provisionally noted that SSE was likely to hold a dominant position in the markets for non-contestable connection services for connections to its own networks.  Ofgem had concerns that by providing connections to independent network operators or independent connections providers on terms that were different to those that it offered to its own subsidiaries it would place those rivals at a competitive disadvantage.

SSE has committed to an overhaul of its pricing policies and internal restructuring to reduce the risks of anti-competitive conduct in the future. It will also conduct regular compliance reviews which will be externally audited.

As a result of accepting these commitments Ofgem will not reach a formal view on whether or not SSE has committed an infringement of competition law.  SSE must implement the remedies by 3 May 2017, being six months from Ofgem’s acceptance of the commitments.

According to SSE, the commitments will require it to make substantial changes within its operations although they probably fall short of what competitors were hoping for. 

The commitments echo similar themes to those raised in competition investigations in the energy sector by the European Commission, where the vast majority of cases have been resolved using commitments under Article 9 of Regulation 1/2003.

CMA gives green light to railway merger with behavioural commitments

The Competition and Markets Authority has cleared the completed acquisition by Arriva of the Northern Rail franchise after a Phase 2 inquiry and conditional on the parties’ commitments to fare caps on four routes.

The CMA concluded that the acquisition gave rise to a substantial lessening of competition (SLC) on three rail flows (Leeds to Sheffield, Wakefield to Sheffield and Chester to Manchester).

The CMA had provisionally identified a further problematic overlap (Chester to Stockport) but finally ruled out competition concerns after a further investigation. This shows the scope to move the CMA away from its provisional assessment following the submission of further evidence in the course of a Phase 2 investigation.

The CMA concluded that the merger situation arising from the award of the rail franchise did not give rise to an SLC in relation to the award of rail franchises and any overlapping public transport networks and bus/ rail flows. It did not consider that the parties had sufficient incentives to raise bus fares on these flows as a result of the merger.

To address the SLC on overlapping rail flows, the CMA has decided to impose fare caps on the unregulated fares on the overlapping rail routes of Northern Franchise and Arriva rail.  Generally, commitments on conduct are more prevalent in merger cases involving transport networks than structural remedies as it can be easier to monitor such remedies in a regulated environment.

The methodology that the CMA has adopted in this case may be of interest to future bidders for rail franchises as they seek to navigate the possible competition issues.

CMA Final Report, 2 November 2016

Advocate General says no ‘super category’ of rebates in Intel chips case

Advocate General says no ‘super category’ of rebates in Intel chips case

Advocate General Wahl has handed down a masterful opinion in an appeal against the ruling of the General Court dismissing the European Commission’s fining decision of 2009 against Intel for abuse of dominance.  The Advocate General recommends that the Court of Justice should set aside the EUR1.06 billion record fine and refer the case back to the General Court.

The General Court had upheld the Commission’s decision ruling that exclusively rebates granted by a dominant company are, by their very nature, capable of restricting competition and foreclosing competitors from the market.

The Advocate General considers that the General Court erred in law by finding that exclusivity rebates constitute a unique category of rebates that do not require a consideration of all the circumstances of the case in order to establish an infringement of Article 102 TFEU.  He also considered that the General Court was wrong to find that the payments offered by Intel to Dell, HP, NEC and Lenovo in all likelihood had an anti-competitive effect. He considers that the General Court wrongly asked whether the conduct was ‘capable’ of restricting competition, when the correct test is whether there was a ‘likelihood’ of a foreclosing effect.

The Advocate General is also critical of the General Court’s application of the concept of a ‘single and continuous infringement’ in abuse cases.  The Advocate General concludes that the General Court erred in considering that because the Commission found an infringement for the period 2002-2007 it could base a finding of infringement for the period 2006-2007 on there being sufficient market coverage across the entire 2002-2007 period.

The opinion is a categorical rejection of the General Court’s analysis, although the Advocate General did recommend that the Court should reject Intel’s claim that the fine was disproportionate.  The Advocate General instead said that the General Court should assess what fine, if any, may be proportionate.

In my view, the Advocate General’s opinion is one of the most significant and well-reasoned opinion’s in EU competition law in recent years.  It is a refreshing approach to the difficult question of the compatibility of rebates with Article 102, while being firmly anchored in the case law.  Rather than giving lip service to an economic approach, he addresses relevant precedents in a sophisticated way that should not be easily dismissed.

Although Advocate General’s opinions are not binding on the Court they tend to be followed in over 90 per cent of cases.  Given the rigour of this opinion, which reviews the case law since Hoffmann-La Roche, it will be difficult for the Court to reject it in its entirety.  For now at least, it may be expected to prompt some rationalisation in the Commission’s pursuit of rebate and pricing cases.

Source: Opinion of Advocate General Wahl, 20 October 2016

Financial Conduct Authority seeks remedies in investment and corporate and banking market

Financial Conduct Authority seeks remedies in investment and corporate and banking market

The Financial Conduct Authority (FCA) has published a set of remedies following its investment and corporate banking market study.  The final report confirms the FCA’s findings that banks reduced their engagement with smaller and riskier clients, while the needs of larger customers were well served.

The final report reviewed a variety of evidence including restrictive contractual clauses, league tables, IPO allocations and fee structures and found concerns in relation to restrictive contractual provisions and league tables.

The FCA is now consulting on its proposed prohibition of future restrictive provisions which involve tying banks for the purchase of future services, as well as guidelines for the operation of league tables.

The FCA’s approach and findings echo those of the CMA in its recent investigation of the retail banking market, although the FCA has opted for less interventionist remedies motivated at trying to make it simpler and easier for customers to engage with financial services. 

The market study was launched in May 2015 shortly after the FCA obtained its new concurrent competition law powers which allow it to investigate possible breaches of competition law and refer markets to the CMA for a full market investigation.  When the FCA started this investigation it unleashed a huge data gathering exercise and this has not revealed major competition problems or deficiencies in the way that the wholesale markets are operating.

The deadline for comment on the consultation on restrictive clauses is 16 December 2016. It is expected that the FCA will announce rules for new contracts in early 2017.

ICE/ Trayport forced to divest

The Competition and Markets Authority (CMA) has concluded that the only effective remedy following its Phase 2 review of the completed acquisition by Intercontinental Exchange, Inc. (ICE) of Trayport, Inc. (Trayport) would be entire divestment of Trayport.  This is the first time that the CMA has ordered a divestiture in a vertical merger case.

ICE is the largest operator of exchanges and clearinghouses for the trading of European utilities derivatives.  Trayport develops software for trading energy commodity and utility derivatives.

The CMA’s final report confirms its provisional findings and concludes that the merger would lead to higher fees or less advantageous terms for traders and more limited trading opportunities than would have existed without the merger.

The CMA’s decision follows on 10 months after ICE’s purchase of Trayport for £500 million. 

UK merger control allows the CMA to retrospectively investigate a merger under the voluntary notification regime.  Where a merger is completed without the CMA’s approval the CMA can initiate an investigation into the merger for up to four months from completion or material facts of the merger coming to the attention of the CMA.  For this reason it is not uncommon for parties to a proposed merger to seek upfront clearance from the CMA.

In addition, the CMA has enhanced powers over those of its predecessor to prevent the parties from engaging in activity that would prejudice its ability to restore effective competitive in the event that it concludes that the merger may be expected to give rise to a substantial lessening of competition (SLC).  It may:

• ·         prevent the parties from taking actions which the CMA considers might pre-empt the CMA’s final decision (such as integrating the target business);
• ·         order the reversal of pre-emptive action that has already taken place (i.e. order that businesses which have already been merged be kept separate);
• ·         order the disposal of a business or part of a business if it decides that the merger would give rise to an SLC.

On 12 January 2016, the CMA announced that it had made an initial enforcement order preventing any further completion of the transaction pending its investigation.  This will remain in place until divestment to a purchaser approved by the CMA is completed.

The CMA rejected certain structural and access remedies proposed by the parties, including commitments to provide Trayport products to customers on fair, reasonable and non-discriminatory terms and to ensure operational separation between the two businesses.  The decision is of note because divestments in purely vertical concentrations are more unusual than in mergers between competitors.  It appears that the importance of Trayport’s software to exchange, broker and clearinghouse activities was a key consideration in the CMA’s analysis.