THIS TIME IT’S PERSONAL
The CMA ramps up director disqualifications for competition law breaches
Financial services executives should be alert to the increasing risk of disqualification for directors of UK companies which have breached competition law. Even where the individuals themselves were not personally involved in the infringement.
The context – what’s changed?
Financial services executives will be well-versed in the possible consequences of breaching the personal regulatory conduct rules. As was made clear in the FCA’s asset managers investigation in 2019 (see here), conduct that breaches competition law can also amount to a breach of the conduct rules.
A perhaps less familiar but increasing risk stems from the power of the CMA and FCA to apply for directors of UK companies which have breached competition law to be disqualified for up to 15 years. Until early 2019, the CMA had only used this power to secure the disqualification of three directors in two cases. Since then the CMA has, in its own words, been “ramping up” its use of this power and has made clear that it now assesses whether to seek disqualifications of company directors in all cases where competition law is broken.
The regulator has secured 25 disqualifications in industries ranging from estate agency to pharmaceuticals.
When could I be disqualified and what are the consequences?
When deciding whether to make a so-called competition disqualification order (“CDO”) in respect of a director of a UK company which has breached competition law, a court must assess whether:
- The director's conduct contributed to the breach;
- The director's conduct did not contribute to the breach but they had reasonable grounds to suspect that the company’s conduct constituted a breach of competition law and took no steps to prevent it; or
- The director did not know, but ought to have known, that the company’s conduct constituted a breach of competition law.
Ignorance is not bliss. If a company breaches competition law, its directors may be disqualified even if they did not recognise there was a breach. A number of directors have already been disqualified even though their conduct did not contribute to the breach.
In July 2020, following the first contested application for a competition disqualification order to come to trial, the CMA secured the disqualification of a director whose Somerset estate agency breached competition law (see more here). The former director didn’t attend any meetings where price-fixing took place, but he was still aware of the conduct and took no steps to remedy it, leading to his disqualification.
Ignorance is not bliss – if a company breaches competition law its directors may be disqualified even if they did not recognise there was a breach.
An individual subject to a CDO is prohibited from acting as a director or, in any way, being concerned or taking part in the promotion, formation or management of a company based in England, Scotland or Wales during the disqualification period, which can be up to 15 years.
Are there other personal liability risks under competition law?
For more serious cartel behaviour, the CMA can also consider a criminal prosecution of both directors and other employees involved in the infringement, which can result in an unlimited fine or imprisonment for up to five years.
How do I minimise the risk?
The regulators have made it clear that competition law compliance must come from the top down. Directors should be aware that it is their responsibility to ensure the necessary processes and frameworks are implemented to identify, manage and monitor competition risks on an ongoing basis. Where higher-risk activities are identified, for example those that involve engagement with competitors, tailored training should be provided to those likely to be involved. Training can be complemented with practical changes to company policy to mitigate the relevant risks. Directors may also want to check that there is an effective and well-publicised means for staff to raise compliance concerns internally and that anti-competitive behaviour is a disciplinary matter in their firm’s employment contracts.
In this acute period of remote working, make sure to create a “culture of compliance” through regular communication of the importance of “doing the right thing”, in ways which will resonate throughout the organisation.
Business leaders have an individual responsibility to be well informed about what is happening within the companies they manage. They also set the tone. The risk of getting caught breaking competition law is increasing.
Andrea Coscelli, CEO of the CMA.
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This document provides a general summary and is for information/educational purposes only. It is not intended to be comprehensive, nor does it constitute legal advice. Specific legal advice should always be sought before taking or refraining from taking any action.