United States: Commission Launches Sector Inquiries into Banking/Insurance and Energy Services

The European Commission recently launched two "sector inquiries" in order to improve its knowledge of the markets in question and gather facts that may form the basis of later investigations against specific parties. The first sector inquiry will focus on banking and insurance services; the other will focus on gas and electricity provision.¹ This client alert sets out the legal mechanism that the Commission has set in motion and what can be expected from these sector inquiries.

On June 13, 2005 the Commission issued decisions (as well as several "communications" and press releases) to the effect that it is launching "sector inquiries" into financial services and energy services. These decisions are based on Article 17 of Regulation 1/2003, which is the new procedural regulation in the area of antitrust.²

Although the Commission has had the power to monitor markets by means of "inquiries into sectors of the economy" since the first procedural regulation was enacted in 1962, it has only done so quite rarely.. Recent examples are:

In July 1999, the Commission opened inquiries into the telecom sector relating to leased lines, the local loop, DSL lines and mobile roaming services. This inquiry resulted in antitrust cases being brought against Deutsche Telekom (€12m fine)³ and France Télécom (€10m fine).⁴ Cases are still pending against TeliaSonera,⁵ T-Mobile,⁶ Vodafone⁷ and O2.⁸

In January 2004, the Commission opened a sector inquiry into the sale of transmission rights for sporting events to 3G "content providers" and mobile operators. This inquiry resulted in a public hearing in May 2005 where industry participants and other stakeholders had the opportunity to express their views. So far this has not led the Commission to target any individual company.

The Commission is specifically concerned with the retail banking sector (especially payment card services) and the business insurance sector. The sector inquiry in this sector is meant to complement the Commission’s efforts to integrate national banking markets through the 1999 Financial Services Action Plan, which aims at promoting cross-border services and mergers and enhancing EU-wide convergence in regulatory requirements.

In relation to retail banking, the Commission notes that the lack of price competition may be due to the fact that national markets are not yet integrated within a single common market. This may be due to the regulatory framework and to the fact that there have been very few cross-border mergers in the banking sector (possibly due to protectionist intervention by national banking regulators). Concentration levels in national banking markets have steadily increased in the past few years due to domestic consolidation, however. The Commission further notes that price competition is impeded by switching costs, product bundling, the lack of price transparency for consumers and the lack of countervailing buying power.

With regard to the business insurance sector, the Commission is concerned about possible anti-competitive effects of certain industry practices. The Commission notes that there is "close cooperation, both vertical and horizontal, between major economic actors" in this sector, and that "insurers’ associations and committees tend to jointly set standard policy conditions, possibly offering only limited scope for the demand side to negotiate (different) terms of coverage, even for large customers."

The Commission’s recent settlement with London-based aviation insurance associations may provide a blueprint of what the Commission considers as acceptable behaviour in the industry.⁹ Until the settlement, standard wording for aviation insurance policies and clauses were drawn up solely by committees of insurers. In the future, customers will also have a say in the development of published standard clauses. The settlement also changes the rules governing insurers’ associations.

As in the financial services sector, there are concerns that the regulatory framework has not been completely effective in integrating national gas and electricity networks.¹⁰ However, this sector inquiry focuses not on the functioning of the regulatory framework but on identifying barriers to competition and assessing the possibility of applying competition law in addition to regulation.

In the electricity sector, customers have complained to the Commission about difficulties in securing competitive offers from different suppliers. They claim that price offers are very similar and that there are difficulties in negotiating non-price contractual terms. Moreover, the Commission notes that there is limited access to interconnection capacity. In relation to gas, customer switching rates are low and new entrants have complained about difficulties in securing access to gas supplies and to networks. In both sectors, new entry is limited and there are high levels of market concentration.

Opening a sector investigation gives the Commission the complete range of investigative powers under Regulation 1/2003, including the power to request information (Article 18), to take (voluntary) oral statements (Article 19), to conduct "dawn raids" (Article 20 and 22) and to impose sanctions for non-compliance (Articles 23 and 24). Industry players and national governments can therefore expect requests for information from the Commission. The Commission has indicated that it is planning to issue reports in 2006 on the results of the sector inquiries. The Commission’s past policy also suggests that it may organize public hearings in order to consider the views of the various interested parties.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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