CMA Updates its Penalties Guidance for UK and EU Competition Law Infringements

Posted in EU and Competition

By Jonathan Parker and Calum Warren

On 2 August 2017, the UK Competition and Markets Authority (CMA) launched a consultation on proposals to amend the Office of Fair Trading’s 2012 guidance as to the appropriate amount of a penalty for infringements of the prohibitions against anti-competitive agreements and an abuse of a dominant position contained in the Competition Act 1998 (the Current Penalties Guidance). The consultation proposes the following four main changes to the Current Penalties Guidance, most of which are clarifications to the CMA’s current policy based on its existing decisional practice. The CMA has not proposed any amendments in relation to the adjustment for duration (step 2) or the adjustment to prevent the maximum penalty being exceeded and to avoid double jeopardy (step 5).

1. The starting point for calculating fines (step 1). The Current Penalties Guidance provides that the starting point for a fine may be up to 30% of an undertaking’s turnover in the relevant product and geographic market in the last business year. Whilst the CMA does not consider detailing a starting point for every type of infringement appropriate, and confirms that there is no pre-set “tariff” for different infringements, the CMA proposes to amend the Current Penalties Guidance to state that it will generally use a starting point of:

(i) Between 21-30% for the most serious types of infringement (i.e., those which the CMA considers to be so-called “object” infringements, such as cartel offences, as well as excessive and predatory pricing)

(ii) Between 10-20% for certain less serious object infringements and for infringements by “effect” (i.e., those for which the CMA must carry out an assessment to establish that the behaviour in question has had an anti-competitive effect on the market)

(iii) Less than 10% may be applied if the assessment of the specific circumstances of the case leads to a downwards adjustment. If more than one undertaking has taken part in an infringement, the CMA proposes clarifying that it will expect to apply the same starting point for each undertaking. Continue Reading

China’s Pilot Programmes Welcome Announced Launch of Emissions Trading System

Posted in Environment

By Paul Davies and Andrew Westgate

Chinese policymakers have indicated that the country’s Emissions Trading System (ETS) — which will be the largest system of its kind globally and the centerpiece of Chinese climate change policy — is likely to launch in November 2017 “at the very earliest”. The delay will enable China to announce the launch at the next UN Climate Change Conference in Bonn, Germany. However, Chinese officials have privately indicated that this likely will be a “formal” launch only, with allocation of emissions allowances and compliance obligations coming into effect during 2018. As a result, several of the existing ETS pilot programmes in Chinese provinces and major cities have begun to announce new allowance allocations for 2017, including for sectors covered by the national ETS.

The delay reflects a number of policy challenges that regulators at the National Development and Reform Commission (NDRC), China’s primary economic policy-making body, have struggled with in designing the ETS. For example, difficulties in obtaining accurate emissions data for each industrial sector covered by the system, determining benchmarks for the allocation of free allowances to industry, and whether pilot programmes may use offset credits (Chinese Certified Emissions Reductions) to satisfy compliance obligations during the initial compliance period. Verifying emissions data has been an issue for regulators managing China’s eight pilot programmes, with the Hubei Province recently delaying its compliance deadline due to problems verifying total emissions for 2016. The carbon market remains concerned about a potential oversupply of offset credits and reports that policymakers will exclude offset credits from the initial compliance phase of the new National ETS. Continue Reading

High Court Willing to Set Aside Arbitral Awards on Public Policy Grounds

Posted in Dispute Resolution

By Oliver Browne and Robert Price

On 6 June 2017, the High Court held that there was sufficient evidence that an award of over US$500 million in damages against the Republic of Kazakhstan may be tainted by fraud and that this should be examined at trial (Stati v Kazakhstan [2017] EWHC 1348 (Comm)).

This bold, first instance decision indicates that, despite a reluctance to prevent the enforcement of awards under the New York Convention, the English courts are willing thoroughly to investigate claims under section 103 of the Arbitration Act 1996 and not enforce awards deemed contrary to public policy.


Anatolie Stati, Gabriel Stati, the Ascom Group S.A., and Terra Raf Trans Traiding Ltd (the Claimants) commenced the initial arbitration, instituted pursuant to the Energy Charter Treaty, against Kazakhstan (the State) in Sweden. In December 2013, the arbitral tribunal found in favour of the Claimants, and in February 2014, the tribunal granted initial permission for the Claimants to enforce their award in England. Parallel enforcement proceedings were also commenced by the Claimants in the US courts. Continue Reading

Proposed FCA Rules Extend Warmer Welcome to Sovereign-Controlled Companies

Posted in Finance and Capital Markets

By James Inness and Sean Meehan

On 13 July 2017, the Financial Conduct Authority (FCA) proposed a relaxation of certain aspects of the premium listing segment for sovereign-controlled companies.

The proposed new rules will create a new premium listing category pursuant to which:

  • Related party rules will be modified so that the sovereign controlling shareholder will not be considered a related party. Transactions between the sovereign controlling shareholder and the issuer will not require shareholder consent.
  • Controlling shareholder rules will not apply to issuers in respect of the sovereign controlling shareholder. Such shareholders will not be required to enter into a relationship agreement.

The related party rules and controlling shareholder rules for all shareholders other than the sovereign controlling shareholder will continue to apply. The FCA will also retain its power to refuse an application for listing if the FCA considers that granting the application would be detrimental to the interests of investors. Continue Reading

PRI’s Private Equity Terms Guidance Focuses on Environmental, Social, and Governance (ESG) Factors

Posted in Environment, M&A and Private Equity

By Paul Davies and Michael Green

On 13 July 2017, Principles for Responsible Investment (PRI) launched guidance on incorporating environmental, social, and governance (ESG) provisions in private equity fund terms. The publication, Incorporating Responsible Investment Requirements into Private Equity Fund Terms (the Guidance), followed a year-long consultation period with PRI signatories, expert counsel, and industry associations. The Guidance aims to demystify the concept of ESG provisions, outline the terms of these provisions and work towards a consistent industry approach on this aspect of responsible investment.

The Guidance identifies current and emerging best practices, as well as possible limitations. In particular, the Guidance offers practical solutions to limited partners (LPs) and general partners (GPs) that are considering how they may integrate responsible investment into fund terms. The Guidance includes: Continue Reading

Bank of England Opens Up Access to Payment Schemes for FinTech Firms

Posted in Commercial, Emerging Companies and Technology, Finance and Capital Markets

By Andrew Moyle, Stuart Davis, Fiona Maclean, Christian McDermott and Charlotte Collins

The Bank of England (BoE) announced on 19 July 2017 that it is extending direct access to its real-time gross settlement (RTGS) service to non-bank payment service providers (i.e., e-money institutions and payment service providers that do not have regulatory permissions to carry out the “core” banking activity of taking deposits), subject to appropriate safeguards.

For the first time, non-banks will be able to apply for a settlement account with the BoE, providing direct access to the UK’s sterling payment systems that settle in sterling central bank money, including Faster Payments, Bacs, CHAPS, LINK, Visa, and, once live, the new digital cheque imaging system.

This change to the BoE’s settlement account policy is part of a broader strategy to widen access to the UK’s payment systems, to help smooth the path for new entrants such as FinTech payment firms to compete on a more level playing field with incumbent banks. This is an important development for non-banks as, at present, non-bank payment service providers can only “plug in” to these essential BoE payment systems indirectly via settlement agent banks, limiting access and therefore the ability of non-banks to compete with their bank counterparts. Continue Reading

Proposed Draft Legislation Clamps Down on Soil Pollution in China

Posted in Environment

By Paul Davies and Andrew Westgate

On 22 June 2017, Chinese legislators released draft proposals to combat soil pollution in China at a bimonthly session of the Standing Committee of the National People’s Congress. The legislation complements the State Council’s ambitious plan to address soil pollution – an area not specifically covered by Chinese environmental law at present. Both  the Council’s plan and the corresponding draft legislation are a response to a series of highly publicised incidents, including one in Jiangsu Province where nearly 500 school students fell ill after exposure to contaminated soil. These incidents have focused public attention on the issue of soil contamination, which had previously received little attention due to the more obvious air pollution issues in Chinese cities.

The proposed law is similar to the United States Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund), in that the law requires landowners to investigate soil contamination where it is identified and imposes liability for soil contamination cleanup on the parties responsible for the pollution — or, if the responsible party cannot be found, on the landowner. The proposed law also establishes a pollution cleanup fund for situations in which the responsible party or landowner either cannot be located or lacks the funds to pay. In cases where the contamination occurred prior to the passage of the new law, a landowner held responsible may also apply to the cleanup fund for reimbursement of the remediation costs. In addition, the proposed law calls for regulators to establish tax benefits for soil remediation, standards for soil monitoring, reporting of contamination data, limits on the release of hazardous substances on farmland, and for more stringent environmental impact evaluations of construction projects (including the prohibition of construction on polluted land until the land has been remediated to the applicable standard). Continue Reading

Private Equity and Privilege: Why Recent Legal Developments Matter to Buyout Firms

Posted in M&A and Private Equity

By Stuart Alford QC, Daniel Smith and Kem Ihenacho

Legal professional privilege allows clients to share information with lawyers, knowing it need not be revealed in court. Privilege extends to legal advice generally, and to documents prepared in contemplation of litigation. Privilege has important implications for private equity beyond litigation, and can affect how firms and portfolio companies conduct internal investigations worldwide, and how information is shared during and after deals. However, challenges to privilege are increasing; from civil litigants, regulators and prosecutors.

Findings of Internal Investigations May Not Be Protected

Data released by the Financial Conduct Authority (FCA) points to a significant increase in investigations of regulated firms. This comes as the FCA broadens the UK’s Senior Managers and Certification Regime to financial sponsors, as part of a programme to assign responsibility and accountability to senior executives. External investigations typically trigger an internal investigation, as firms want to understand and respond to potential wrongdoing or failings. However, buyout firms should note that two recent cases make clear that investigation materials, in particular interview notes and transcripts, might not be privileged and could be disclosable in civil, regulatory and criminal proceedings. Continue Reading

Three Fund Issues That Can Unexpectedly Impact Portfolio Company Investments

Posted in M&A and Private Equity

By Tom Alabaster and Nick Benson

Increasingly complex fund structures and documentation mean that analysing how potential portfolio acquisitions interact with the fund at the top of any deal structure is more important now than ever.

Investor Excuse Rights for Environmental, Social, and Corporate Governance (ESG) Compliance

As investors focus on ESG compliance, requirements for “excuse rights” for non-compliant investments are expanding. Firms usually avoid the most obvious red flags with ease but in our view, restrictions on investing in businesses breaching environmental or anti-corruption standards are more problematic, as even blue-chip multinationals are not immune from these issues. Where an investor is excused, the GP must source cash elsewhere — ideally from remaining investors, who can often be required to increase participation to fill the gap. With many funds accepting commitments representing significant proportions of the total fund size from a small number of large LPs, sophisticated investors are increasingly concerned about the consequences of large LPs being excused from investments and have sought to mitigate such risks through negotiating restrictions on “topping-up” participation. Deal teams must engage in careful diligence early in the deal process and be cognizant of the impact of LP opt-out rights on a fund’s capacity to participate in a deal. Continue Reading

A New European Standard for “Green Finance”

Posted in Environment, Finance and Capital Markets

By Paul Davies and Michael Green

The High Level Expert Group on sustainable finance  (the Group), which the European Commission (the EC) established, published its interim report on 13 July 2017. The report sets out the key steps required to create a financial system that supports sustainable investment, as well as identifying areas for financial policy reform. The EC vice presidents welcomed these initial recommendations. In addition, the EC praised the recommendations’ “great potential” to enable the bloc to lead on green finance.

The Group acknowledged that the recommended investment requirements (including the €177 billion required annually to meet the 2030 climate and energy targets) might appear “overwhelming”. However, the Group emphasised that private capital is currently “available and willing” to back such recommendations.

The Group’s recommendations include: Continue Reading