UK regulator fines asset management firms for collusion over IPO pricing
News    ·   11-03-2019

AUTHOR: Ron Galea Cavallazzi; Lisa Abela; Katya Gatt

This year the UK Financial Conduct Authority (FCA) issued its first formal decision against three asset management firms for breaching competition law. This is the FCA’s first formal decision under its competition enforcement powers after having become concurrent competition regulator in the United Kingdom (UK) in 2015. Newton Investment Management (Newton), Hargreave Hale (HH) and River & Mercantile Asset Management (R&M) were found guilty of having shared strategic information before the listing of ‘On The Beach Group’ and the placing of ‘Market Tech’ in 2015.

According to the FCA, the asset management firms shared strategic information, on a bilateral basis, 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. The UK Competition Act 1998 prohibits agreements, practices and conduct that may damage competition in 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’s executive director of strategy and competition commented that asset management firms are to avoid “undermining how prices are set for shares in both IPOs and placings”. The exchange of information in this case allowed the firms to be privy to the others’ plans when they should have been competing for shares, reducing pressure to make bids reflecting what they really thought the companies were worth, the FCA concluded.

The decision closely followed another fining a former Newton manager for having provided 14 rival portfolio managers with information on the bid he had put forward and volume purchased, as well as an invitation to follow suit and cap orders at the same price limit.

While HH and R&M are to pay penalties of £306,300 and £108,600 respectively, Newton escaped a fine for having assisted FCA in its investigation. Although only limited details have been issued to the public on the investigation and facts surrounding the decision, HH issued a statement that it was only “a recipient of information provided on an unsolicited basis by another fund manager and did not alter its own bidding behaviour as a result”, holding that it was thus exploring its legal options.

With the FCA being a powerful regulator with extensive enforcement powers, firms in the UK should exercise special care to prevent the sharing of strategic information with other investors which might participate in the same competitive process.

FCA press release at <>

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