United States: European Union: Financial Services

Last Updated: September 18 2017
Article by Vincent Brophy and Tom Bainbridge

Most Read Contributor in United States, August 2018

In recent years, the financial services sector has been subject to increased antitrust scrutiny in the EU. Perhaps surprisingly, this is very new.

Indeed, EU competition enforcement in the financial services sector had previously focused mainly on the areas of state aid and merger control – and not much else.

In state aid, the European Commission (the Commission) has long used its powers in the financial services sector just like in any other. There was, naturally, a surge in cases between 2007 and 2015 generated by the financial crisis.1 The restructuring or liquidation of around 117 European banks during this period required policing and procedural innovation by the Commission,2 but the substance was not new.

Similarly, the Commission has long exercised its merger control powers in the financial services sector. Some mergers between financial institutions arose out of the financial crisis and some raised novel issues, based not on a fear of excessive market power but on the failing and flailing firm theories as well as whether banks were too important to fail.

Conversely, until 10 years ago, there would not have been much to report on an EU antitrust enforcement front. The Commission had barely lifted the lid on antitrust infringements in financial services: the scrutiny of rogue traders and poorly managed institutions was essentially left to national financial regulators and newspapers. Indeed, until the early 1980s, some in the industry still held onto the hope that competition laws did not apply to banks. While the Commission always rejected that view,3 as a matter of fact, prior to the financial crisis, there were few cartel investigations of note in the financial services sector.

This has changed – radically. Since 2011, the Commission has publicised the existence of eight antitrust investigations into the conduct of banks. There are certainly more still under the radar. Furthermore, the Commission has already imposed fines totalling €1.6 billion; and with at least four publicised investigations still ongoing, more fines are expected.

There are also signs that private actions for damages in the EU are starting to flow. For example, in October 2015, claimant firm, Quinn Emmanuel, announced its intention to bring private actions against a number of banks in the English High Court 'in anticipation of an infringement decision from the European Commission' in the CDS Information Market investigation. That investigation was subsequently closed due to a lack of evidence. However, there are signs and every expectation that should the Commission issue infringement decisions in some of its cases, other claims will follow.

One can debate at length the precise causes of this surge in antitrust enforcement activity, and why it did not occur sooner. However, aside from its coincidence with the financial crisis, one cannot ignore its interplay with active enforcement by national financial regulators. Indeed, in this sector, conduct that infringes article 101 TFEU (article 101) will typically also infringe financial regulatory rules. As financial regulators started to probe concerted manipulation of the LIBOR fixing, it quickly became apparent that antitrust regulators would also need to act. Since then there has been a flurry of allegations and investigations by both financial and antitrust regulators across asset classes, including credit default swaps, interest rate derivatives, foreign exchange, precious metals and bonds. In the current post-crisis scenario, banks, having paid out vast sums in fines, are starting to demonstrate a heightened awareness of the importance of antitrust law compliance. Evidence of this can be seen in: more internal investigations with an antitrust angle; an increase in immunity applications and self-reporting to regulators; and a renewed interest in in-house training. Those are positive developments, which should help to improve the future conduct of employees.

However, the full extent of antitrust enforcement by the Commission in this sector likely remains to be seen. Therefore, and since private litigation has yet to start in earnest, the scrutiny of banks' past transgressions still has some way to run.

The remainder of this article provides an overview of the most important EU antitrust cases over time, describes the recent enforcement developments and trends, and outlines certain practical aspects that should be considered when dealing with antitrust cases in the financial services sector.

From the early 1980s to the early 2000s: the beginning of an era

In 1981, with its Züchner judgment, the Court of Justice had the opportunity to confirm, to the extent it was ever in doubt, that EU rules are fully applicable to the banking sector.4 However, from the early 1980s to the early 2000s, the Commission's antitrust enforcement in the financial services sector remained fairly limited.

The Commission adopted its first prohibition decision in financial services – in relation to the insurance sector – in 1984.5

That was followed, in 1992, by a cartel decision concerning an agreement on commissions payable under the Eurocheque system.6 The Commission's next cartel decisions in the sector were not for another nine years: the first, in 2001, concerned agreements to fix commissions for the exchange of eurozone currencies;7 and the second, in 2002, concerned price-fixing agreements between a cartel of Austrian banks.8

The 2000s: focus on payment systems

From the late 1990s and for much of the 2000s, the Commission's antitrust enforcement activities focused on payment services providers, including Visa, MasterCard and Groupement des Cartes Bancaires. This culminated in a series of Commission decisions, some of which were appealed with varying degrees of success.

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1 See Laitenberger, From bail out to bail-in: laying foundations for a restructured banking sector in Europe, 25 January 2016, available at: http://ec.europa.eu/competition/speeches/index_theme_23.html.

2 State aid rules were updated through six 'Crisis Communications' and with the advent of the Banking Union supplemented by the Bank Recovery and Resolution Directive (BRRD).

3 This was made clear in the Commission's Second Report on Competition Policy, where it is stated that 'the Commission's basic principle is that the Treaty's rules of competition and the implementing regulations are of general application'. The Report is available at: http://ec.europa.eu/competition/publications/annual_report/ar_1972_en.pdf.

4 Judgment of the Court of 14 July 1981, Gerhard Züchner v Bayerische Vereinsbank AG, Case 172/80. The judgment, a preliminary ruling on a reference from a German court, concerned a concerted practice between German banks on certain fees charged to customers.

5 Commission Decision of 5 December 1984 in Case IV/30.307, Fire insurance.

6 Commission Decision of 25 March 1992 in Case IV/30.717-A, Eurocheque: Helsinki Agreement.

7 Commission Decision of 11 December 2001 in Case COMP/37.919, German banks.

8 Commission Decision of 11 June 2002 in Case COMP/36.571, Austrian banks.

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.

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