The UK's Financial Conduct Authority has issued a decision which finds that three asset management firms breached competition law. This is the FCA’s first formal decision under its competition enforcement powers.

The firms are: Hargreave Hale Ltd; Newton Investment Management Ltd; and River and Mercantile Asset Management LLP (RAMAM).

The FCA has fined Hargreave Hale £306,300 and RAMAM £108,600, but Newton received preferential treatment by reporting its problems to the regulator early. The FCA gave it immunity from fines under something it calls "the competition leniency programme." This may be connected to the European Union's cartel leniency policy, which states: "In essence, the leniency policy offers companies involved in a cartel - which self-report and hand over evidence - either total immunity from fines or a reduction of fines which the [European] Commission would have otherwise imposed on them. It also benefits the commission, allowing it not only to pierce the cloak of secrecy in which cartels operate but also to obtain insider evidence of the cartel infringement. The leniency policy also has a very deterrent effect on cartel formation and it destabilises the operation of existing cartels as it seeds distrust and suspicion among cartel members."

The infringements consisted of the sharing of strategic information, on a bilateral basis, 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. This can reduce pressure to make bids in line with the amount that 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. Firms rely on such capital as a way of financing investments, so unlawful information sharing could increase the cost of related investments or even make them unviable.

The FCA has also decided that there are no grounds for action in respect of conduct between Artemis Investment Management LLP and Newton that took place between April and May 2014 in relation to an IPO.

On 5 February 2019, the FCA announced that it had fined an individual for conduct related to some of the same facts investigated under the Competition Act. The man was Paul Stephany, a former fund manager at Newton Investment Management Limited, who had to pay £32,200.

On two separate occasions, Stephany submitted orders as part of a 'book build' for shares that were to be quoted on public exchanges. Before the order books for the new shares closed, he contacted other fund managers at competitor firms and attempted to influence them to cap their orders at the same price limit as his own orders. The FCA decided that he risked undermining the integrity of the market and the 'book build' by trying to use their collective power. As a consequence, it said, he failed to observe proper standards of market conduct. Contrary to Statement of Principle 2, it went on to claim, he demonstrated a lack of due skill, care and diligence by failing to give adequate consideration to the risks associated with engaging in communications with External Fund Managers at competitor firms in this way and for these purposes.

On 21 September 2015 (the FCA has taken most of the intervening time to investigate this), Stephany sent an email to himself, which he blind-copied to 14 external fund managers at 11 competitor firms, that said: “I wanted to urge those considering or in for the OTB IPO to think about moving to a 260m pre money valuation limit. I have done that first thing this morning with my 17m order.” In other words, he was approaching the external fund managers for their opinions about the stock price, which he thought was too high.

Anthony Hilton of the Evening Standard wrote of Stephany's action: "I thought this was what fund managers do. Brokers try to sell them shares at a high price and fund managers push back, hoping to get them lower. It does not always work but it is part and parcel of the ritual and it helps the fund if it works because the clients who are in the fund get the shares that much cheaper. The individual fund manager does not benefit, just his fund. That is certainly how the market used to work. Deciding on the merits of a share issue is not to my mind collusion, where there is a formal intent for several parties to set a price."

The FCA, however, wrote in its decision notice: "Mr Stephany gave some consideration to whether his email regarding the OTB IPO was appropriate, but he failed to search for, or identify, guidance from Newton which was relevant...He also did not consult Newton’s compliance department or his line manager, either in relation to the OTB IPO or the Market Tech placing, to  seek their views. Such communications with external fund managers were also contrary to Newton’s internal policies and procedures."