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Investment and M&A trends in FinTech
2023 was a challenging year for global FinTech M&A and investment. Intense macroeconomic and geopolitical headwinds led to investor caution.
Global | Publication | October 2015
On 1 October 2015 the competition law reforms contained in the Consumer Rights Act 2015 entered into force.1 These include measures which will make it easier for victims of anti-competitive conduct to obtain compensation for their loss including: (i) new powers for the Competition Appeal Tribunal (CAT) to hear stand-alone claims2 and to grant injunctive relief; and (ii) a new mechanism for opt-out collective claims to be brought for the first time in the UK.3
Although the Consumer Rights Act is likely to encourage claims, it also includes a mechanism by which companies under investigation for anti-competitive conduct can agree a settlement scheme with the Competition and Markets Authority (CMA)4 upon being found to have infringed competition law. In principle at least, this should be a valuable tool for infringing companies looking to avoid lengthy and costly follow-on damages proceedings and to achieve finality. It may also bring reputational benefits – offering compensation to victims at the same time as the infringement decision is published may help dilute the negative PR impact of the infringement.
Voluntary redress schemes also bring advantages to victims of anti-competitive conduct in allowing them access to compensation quickly without the need to resort to lengthy and expensive litigation.5 These schemes are likely to play an integral part in the new class action regime in the UK, with potential defendants at least exploring whether it might be preferable to seek to pre-empt costly class actions with CMA approved settlement offers.
The Consumer Rights Act introduces a new section 49C of the Competition Act 1998 which allows a person to apply to the CMA for approval of a redress scheme. An application can be made before the infringement decision but can only be approved and made public at the same time as (or after) the decision.
The Competition Act 1998 (Redress Scheme) Regulations 20156 have since been approved which describe how the CMA will consider applications for approval of redress schemes.7 This was followed by guidance published by the CMA on the operation of voluntary redress schemes. The CMA has also published a standard application form to be filled out by companies requesting approval of a scheme.8
An application for a voluntary redress scheme can be made by a single entity or on a group basis (by multiple parties implicated in an infringement). In practice, it will be challenging to agree a settlement scheme which does not involve all (or at least the majority) of participants in the infringement in any cartel investigation under Article 101 TFEU given that the cartelists are jointly and severally liable for the entire loss caused by that infringement. This means that, even if a company agrees a scheme to compensate its customers, it will potentially be liable to be joined to proceedings either: (i) as a primary defendant to a claim by a purchaser of the affected product even if that purchaser did not have any relationship with that company; or (ii) as a defendant to contribution proceedings, whereby the primary defendants look to recover a portion of the damages claimed or awarded against them.
The scheme can relate to an infringement found by: (i) the CMA (in respect of which it is possible to make an application prior to the decision being reached); or (ii) by the European Commission (in respect of which applications can only be brought post-decision).
In the case of a CMA investigation it is possible to submit an outline scheme to the CMA at any time during the investigation although in practice it would be challenging to do so prior to the CMA issuing its statement of objections (setting out its case against the parties under investigation). The CMA guidance makes it clear that it would not view an application for a compensation scheme as being an admission of liability or in any way inconsistent with the applicant continuing to exercise its rights of defence – although of course the reality is that it would be challenging for a party under investigation to simultaneously credibly defend its conduct while also entertaining a settlement scheme.
The first stage for a potential applicant is to present an outline scheme to the CMA. The CMA will then consider the outline scheme and makes it clear whether it intends to prioritise assessment of an application.
If the scheme is to be prioritised, the next stage is to submit a formal application using the standard form. The application form requires the applicant to set out:
An applicant will be required to appoint a chairperson who will be responsible for assisting in devising the terms of the scheme and deciding whether to recommend the scheme to the CMA. There are strict requirements as to who can act as a chairperson – only senior lawyers and judges (ideally with experience and knowledge of competition law) will qualify for this role.
The chairperson is then responsible for appointing board members which must include: (i) an economist; (ii) an industry expert; and (iii) a person to represent the interests of the victims of the infringement who will be entitled to claim compensation under the scheme.
The chairperson and the board will have the task of determining the methodology for assessing the level of compensation payable to each applicant. In addition to the compensation payable under the scheme, the parties seeking to set up the scheme will also be required to pay the fees of the chairperson and the board members and the CMA’s costs in relation to the scheme.
Once the scheme is formally approved by the CMA, the infringing party has a statutory duty to comply with it. Failure to do so could result in private legal proceedings or enforcement action by the CMA.
There are potential advantages to agreeing to a voluntary arrangement at an early stage, prior to claims being issued:
However, there are also some negative considerations that companies will need to consider:
Against the backdrop of the new collective actions regime introduced by the Consumer Rights Act and the associated expected growth in competition litigation, the new redress scheme will warrant careful consideration by companies implicated in anti-competitive conduct – particularly in those situations where there is a real commercial imperative for a company to put that conduct behind it.
Experience in other industries suggests that compensation schemes are not always successful and - given the opt-in nature of compensation schemes – it is possible that consumer take up will not be as high as anticipated. However, the existence of a compensation scheme which has been approved by the CMA as reasonable is likely to significantly deter potential claimants to pursue the litigation route and on this basis brings key tactical benefits to potential defendants in bringing finality and discouraging claims before they are issued.
These are proceedings where the claimants must prove a competition law infringement – previously the CAT only had jurisdiction to hear claims based on pre-existing infringement decisions by authorities
Together with the sectoral regulators with concurrent competition powers
Compensation schemes have been deployed with varying degrees of success in other areas including phone hacking, blacklisting and financial services
Purchases from a seller that was not implicated in the infringement, where the price was inflated as a result of the cartel
The CMA guidance does not rule out that it might consider applications for redress schemes when the liability finding has been appealed but in practice it is unlikely to consider applications in these circumstances (unless the appeal focuses solely on the level of the fine).
Publication
2023 was a challenging year for global FinTech M&A and investment. Intense macroeconomic and geopolitical headwinds led to investor caution.
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