UK: Creating the Competition and Markets Authority - consultation on secondary legislation

Part three of the Enterprise and Regulatory Reform Act 2013 contains the framework for the creation of a new Competition and Markets Authority to replace the Office of Fair Trading and Competition Commission. This framework will be supported by secondary legislation, the second tranche of which was published today for consultation: see here (pdf).

UK: The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No.2) Order 2013

The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No.2) Order 2013 was made on 25 July. Some of its provisions are already in force (about which see article 1 of the Order). An explanatory memorandum is available here (pdf). The Order makes various changes to existing legislation as part of the move of consumer credit regulation from the Office of Fair Trading to the Financial Conduct Authority.

UK: The Financial Services Act 2012 (Consumer Credit) Order 2013

The Financial Services Act 2012 (Consumer Credit) Order 2013 was made yesterday and comes into force today. A copy of the Order is available here or here (pdf). An explanatory memorandum is available here. The Order begins the transition of consumer credit regulation from the Office of Fair Trading to the Financial Conduct Authority.

UK: the new financial regulatory framework - FCA and OFT memorandum of understanding

The Financial Conduct Authority, which formally came into existence this week, has published a memorandum of understanding setting out the way in which it will cooperate and work with the Office of Fair Trading: see here (pdf).

UK: Government proposals for consumer credit regulation

The Government yesterday published its proposals for the transfer of responsibility for the regulation of consumer credit from the Office of Fair Trading to the new Financial Conduct Authority in April 2014: see here (pdf). A consultation paper was also published by the Financial Services Authority, on behalf of the FCA which will come into existence on 1 April 2013, with respect to the manner in which the FCA will carry out its new functions and powers: see here (pdf).

Yesterday also saw the publication by the Government of its response to research concerning the impact on business and consumers of a cap on the total cost of credit and a payday lending compliance review undertaken by the OFT: see here (pdf). The Government has decided that a cap on the total cost of credit would not, at the moment, be the best solution to the problems that have been identified. Alternative approaches are instead outlined including advertising restrictions and OFT enforcement action where lenders fail to respond to the issues that have been identified.

UK: reform of the competition regime and the creation of the Competition and Markets Authority

The Government has confirmed its plans for the reform of the competition regime, including the creation of the Competition and Markets Authority: see here (pdf).

UK: BIS Committee publishes debt management report

The House of Commons Business, Innovation and Skills Committee today published its debt management report: see here or here (pdf). The report calls for improvements in the regulation of the debt and credit industry. It also expresses concern with the Government's failure to reach a decision on whether consumer credit regulation should be transferred from the Office of Fair Trading to the new Financial Conduct Authority. The Financial Services Bill, introduced in Parliament earlier this year, contains provisions enabling the transfer of regulation to the FCA but the Government stated, in the White Paper accompanying the Bill (here, pdf), that the transfer would take place "if and when it [the Government] has identified a model of FCA regulation that is proportionate for the different segments of the consumer credit market" (para. 4.22).

UK: competition in the audit market - OFT reference to the Competition Commission

Earlier this year the Office of Fair Trading provisionally decided to refer the market for statutory audit services to large companies in the UK to the Competition Commission for investigation. The OFT today announced that its final decision was that a reference should be made: see here. For further background information see here.

UK: competition in the audit market - OFT decision due on Friday

Earlier this year the Office of Fair Trading provisionally decided to refer the market for statutory audit services to large companies in the UK to the Competition Commission for a market investigation. The OFT's final decision is expected on Friday this week. For background information see here.

UK: OFT provisionally decides to refer audit market to Competition Commission

Earlier this year the Office of Fair Trading provisionally decided - see here - that there were competition problems in the audit market (e.g., features of the market that restrict, distort or prevent competition) which met the statutory test for a referral to the Competition Commission under Section 131 of the Enterprise Act (2002). At the time the OFT stated that it had not made a final decision whether to make such a referral because it needed to decide whether there was a reasonable chance that there would be appropriate remedies available to the Commission. The OFT has today stated that its provisional decision is that a referral to the Commission should be made - see here - and has published a consultation paper seeking views: see here (pdf). Further background information is available here.

UK: competition in the audit market - OFT update

Earlier this year the Office of Fair Trading provisionally decided - see here - that there were competition problems in the audit market (e.g., features of the market that restrict, distort or prevent competition) which met the statutory test for a referral to the Competition Commission under Section 131 of the Enterprise Act (2002). At this time the OFT stated that it had not made a final decision whether to make such a referral because it needed to decide whether there was a reasonable chance that there would be appropriate remedies available to the Commission. The OFT has since stated - see here - that its provisional decision regarding a referral, together with a consultation paper, will be published later this month or next month.

UK: OFT provisionally decides that there are competition problems in the audit market

In a statement published earlier today - see here - the Office of Fair Trading announced that it had provisionally decided that there are competition problems in the audit market (e.g., features of the market that restrict, distort or prevent competition) which pass the statutory test for a referral to be made to the Competition Commission under Section 131 of the Enterprise Act (2002). However, the OFT has not decided whether it should exercise its discretion to make such a referral because it needs to consider further whether there is a reasonable chance that there will be appropriate remedies available to the Commission.

The Financial Reporting Council has welcomed the OFT's announcement, noting in a statement issued today - see here - that "it has become clear to us that the competition authorities are better placed than audit regulators to tackle competition concerns".

UK: report published - auditors: market concentration and their role

The House of Lords Economics Affairs Committee has today published its report Auditors: Market Concentration and their Role: see here. The report makes three principal recommendations:

• There should be a detailed investigation of the large-firm audit market by the Office of Fair Trading, with a view to an inquiry by the Competition Commission so that all the interrelated issues surrounding concentration, competition and choice can be examined in detail. 
• Prudence should be reasserted as the guiding principle of the audit.
• The new framework of banking supervision should provide for the bank audit to contribute more to the transparency and stability of the financial system, in particular through two-way dialogue between auditors and supervisors about the financial health of banks.

Other recommendations include requiring FTSE 350 companies to carry out a mandatory tender of their audit contract every 5 years, with the audit committee including detailed reasons for their choice of auditors in their report to shareholders; and the development of separate risk committees in banks and major financial institutions. Greater reliance on shareholder engagement is rejected by the report, it being noted (at para. 50) that:

...most shareholders appear to care little about a company's choice of auditor. It seems improbable that this apathy will soon be remedied. So measures which rely on shareholder engagement to help lessen audit market concentration are unlikely to be effective".

UK: the Plan for Growth and corporate governance

HM Treasury and the Department for Business, Innovation and Skills published A Plan for Growth yesterday, described in its introduction as "an urgent call for action": see here (pdf). The document contains a section on corporate governance, defined as "the framework established through legislation, regulation and practice by which companies are directed or controlled" (para. 2.133). In this section proposals are outlined which, in the Government's view, will improve corporate governance, including:

• Reducing the number of companies required to be audited and pressing the European Commission to remove the audit requirement for most medium sized companies as part of a revised audit directive (expected, the Government states, in November 2011).
• Changing the law in 2012 to exempt many subsidiaries from producing audited accounts and encouraging the European Commission to exempt the smallest companies from reporting requirements.
• Requesting the Office of Fair Trading to investigate whether clauses in lending agreements made by banks are unfairly restricting competition in the audit market [in this context, the report refers to work by the OECD, available here (pdf)].
• Simplifying the narrative reporting requirements for quoted companies (views will be sought from business by the end of July 2011).
• Modernising the legislative framework governing mutuals. 

The Government also explains, at para. 2.139, that it will publish in the summer this year "the next steps" of its review of corporate governance and economic short-termism.

UK: equity underwriting and associated services - OFT study published

The Office for Fair Trading has published its equity underwriting and associated services study: see here (pdf). The OFT states that it does not have significant concerns regarding the number of available providers of equity underwriting services but notes that there has been a significant increase in fees since the onset of the financial crisis but that fees and discounts have been slow to fall in line with subsequent reductions in risk. The report notes that there is little competitive tension between investment banks during the equity raising process and that companies raising equity capital are not focused principally on reducing underwriting fees. In this regard, the OFT provides several options that companies and institutional shareholders could consider for applying greater pressure on underwriting fees and discounts.

UK: OFT confirms scope of equity underwriting study

The Office of Fair Trading has published a statement in which it provides further information about its study into equity underwriting: see here (pdf).

The OFT will be examining the way that the underwriting market works and will assess whether there is potential for improving the way it functions. This will involve considering how underwriting services are purchased and provided and the affects of regulation in this regard.

The study will focus specifically on equity underwriting services for the different types of share issue used by listed companies to raise capital in the UK, including rights issues, placings and other types of follow-on offer. The study will be limited to equity issues carried out by FTSE 350 listed firms and will not examine Initial Public Offerings.

Further information is available here.

UK: director disqualification orders in competition law cases

The Office of Fair Trading has published revised guidance on director disqualification orders in competition law cases: see here (pdf). The guidance sets out how, and when, the OFT will take action to disqualify directors where there is evidence that the director was responsible for, or ought to have known of, competition law breaches.

UK: OFT market study on equity underwriting

The Office of Fair Trading is seeking views on the scope of a forthcoming market study into equity underwriting and associated services. In a press release published yesterday - see here - the OFT stated:

In 2009, companies raised an estimated £70 billion of equity capital in the UK, paying an estimated £2 billion in fees for equity underwriting and associated services. Initial discussions have confirmed that there is some dissatisfaction with these services among corporate users of the market.

The OFT proposes that the market study, which will commence this summer, should take a focused look at rights issues and other types of equity-raising by the 350 largest UK public companies, to consider whether users' concerns are justified. It intends to assess:

• How underwriting and related services are provided, including the level of competition for the work and how these different services such as advice, arranging the issue and the actual underwriting are sold.
• How underwriting services are purchased, including the information available to buyers and the incentives on them.
• How the regulatory environment affects the provision of these services.

Further information is available here.