On 27 June 2017, the FCA published a policy statement (PS17/13) outlining new rules to be added to the FCA Handbook to prohibit contractual clauses that restrict competition without providing clear benefits to clients in the context of the provision of primary market services (debt capital markets, equity capital markets and merger and acquisition services).

The policy statement is the result of the FCA's market study into the UK investment and corporate banking market, published in October 2016, which had concluded that certain practices of providers of primary market services could restrict competition and that such clauses appeared in contracts used by between half and three-quarters of the service providers surveyed, depending on the service in question.

The FCA's new rules apply only to written agreements which contain restrictions with regards to unspecified and uncertain categories of future services (for example, giving the provider of a service the right to provide unspecified future services to the client). The FCA has stressed that these rules will not apply to specified pieces of future work, so as not to prohibit a service provider agreeing upfront the terms of a specific piece of future business. In particular, the rules do not apply to future services with respect to bridging loans.

The FCA notes that the most restrictive types of clauses are:

  • "right to act" clauses—giving a service provider the right to provide future services to the client; and
  • "right of first refusal" clauses—giving a service provider the right to provide future services to the client before the client is able to accept any third party offer.

The FCA also notes that "right to match" clauses are acceptable in this context, provided that the client retains a genuine choice over which service provider to contract with for the future services.

These new rules will apply along the same geographical scope as the Conduct of Business sourcebook rule 1.1. That is, the prohibition:

  • applies where the designated investment activities or activities connected with them are undertaken from a firm's UK establishment—this includes agreements entered into by the firm's UK establishment or its overseas branches; however, it does not capture agreements entered into by the firm's subsidiaries or affiliates; and
  • applies irrespective of the geographical location of the client. The rules will come into effect on 3 January 2018.

The full text of the new rules is published as an appendix to the policy statement, which is available here:

https://www.fca.org.uk/publication/policy/ps17-13.pdf

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.