In a salutary warning to companies not to share pricing or other competitively sensitive information with competitors, the Office of Trading (OFT) recently imposed a fine of over £28m for breaching competition law on a leading UK bank.
Under Chapter 1 of the Competition Act 1998 (the 1998 Act), it is a serious offence for competitors to exchange information about their prices, discounts, terms of trade, or the rate and dates of any changes to them. Companies guilty of such conduct can be subject to substantial fines and may be sued for damages by third parties that have suffered loss as a result of their unlawful practices.
Background
In this dispute, certain individuals in the bank’s professional practices coverage team disclosed future pricing information to their counterparts at another bank. This sensitive information related to the pricing of certain loan products for large professional services companies, such as solicitors, accountancy and real estate firms, for whom the banks involved were the main loan providers. The OFT found evidence that this sensitive information was taken into account by the recipient bank when determining its loan pricing.
The disclosure of information took place in the course of several discussions on the fringes of social, client or industry events, or through telephone calls. The matter was brought to the OFT’s attention by the recipient bank, which received immunity from penalties in exchange for the information it provided in co-operating under the OFT’s leniency programme.
Significance
The OFT’s decision is significant for the following reasons:
- It is a wake-up call for all companies to take fast and effective measures to reduce the chances of breach of competition law resulting from the activities of individual or rogue employees in their organisations. A cultural change led by senior management is needed to ensure a constant high level of awareness of competition law responsibilities, together with effective monitoring and compliance. This need is particularly acute in major corporations. It is not enough to only have a competition law compliance programme in place, as this alone will not absolve organisations from liability. Regulators will now look for evidence that companies live and breathe competition law compliance.
- It is irrelevant that the disclosure of information in this dispute occurred in the context of informal social or industry events, rather than in a more formal work environment. Key executives need to be on their guard at all times for breaches of competition law.
- This is the first time that the OFT has used its powers under the 1998 Act to investigate and fine a major financial services institution for a breach of UK competition law. The OFT has previously made extensive use of its market investigation powers under the Enterprise Act 2002 to ask the Competition Commission to conduct inquiries into certain financial services sectors, such as home credit (2004), personal banking in Northern Ireland (2005) and payment protection insurance (2007).
- The OFT’s decision signals its intention to treat the financial services sector as a key area for its future enforcement activities under the 1998 Act. Banking, financial services and insurance companies therefore need to be aware that their operations will increasingly be the subject of scrutiny by regulatory authorities.
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In light of this development, companies, particularly those in the banking, financial services and insurance sectors, should audit their policies and practices as a matter of urgency to ensure that they are compliant with competition law. Revisiting any internal competition law compliance policies and making sure that their key executives are fully conversant with their responsibilities should also be a priority.
