The European, Middle Eastern And African Antitrust Review 2019

European Union: Financial Services

Over the past decade, the financial services sector has been subject to an unprecedented level of antitrust scrutiny in the EU.

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

In state aid, the European Commission (Commission) has long used its powers in the financial services sector just like in any other. There was, naturally, a surge in cases generated by the financial crisis.1 The restructuring or liquidation of around 117 European banks between 2007 and 2015 required policing and procedural innovation by the Commission,2 but the substance was not new. The high level of scrutiny has continued, with the Commission having reviewed 55 member state aid measures in support of financial institutions in the period since 2015.3

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. Such financial difficulties have persisted for some financial institutions, and merger control procedure has continued to adapt accordingly. For example, in June 2017, the European Central Bank judged Spanish bank, Banco Popular, to be 'failing or likely to fail' and, as a result, the Commission allowed Banco Santander to complete its acquisition of Banco Popular prior to obtaining formal merger clearance.4

Conversely, until after the financial crisis, there was not 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,5 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 at least nine antitrust investigations into the conduct of banks. There are certainly more still under the radar. Furthermore, the Commission has already imposed fines totalling more than €2 billion; and with up to four of those investigations still ongoing, more fines are expected.

There are also signs that private actions for damages in the EU are starting to flow. In October 2015, claimant firm Quinn Emanuel 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. In January 2018, the United States Federal Deposit Insurance Corporation (FDIC) brought the first LIBOR related antitrust claim in the English High Court.6 In addition, it is reported that claimant firms are gearing up to issue FX-related private damages actions, although those might be complicated or delayed by Credit Suisse's recent statement that it intends to contest the Commission's case rather than settle.

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 the influence of 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 have 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, bonds and, most recently, in the financial technology (FinTech) arena.

In the current post-crisis scenario, banks, having paid out vast sums in fines, now have a heightened awareness of the importance of antitrust law compliance. Evidence of this can be seen in the more internal investigations being conducted 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 that should help 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 as private litigation starts in earnest, the scrutiny of banks' past transgressions may still have 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.7 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 1984.8 That was followed, in 1992, by a cartel decision concerning an agreement on commissions payable under the Eurocheque system.9 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;10 and the second, in 2002, concerned price-fixing agreements between a cartel of Austrian banks.11

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 investigations and decisions, some of which were appealed with varying degrees of success.

Visa

In 2001, the Commission issued a negative clearance decision to Visa in respect of certain provisions of Visa's international payment card system, including a 'no-discrimination rule' that prohibited merchants from favouring cash payments. Subsequently, in 2002, Visa's multilateral interchange fee (MIF) arrangements on cross-border payments were exempted from prohibition under article 101(3) until 2007, after Visa agreed to reduce the fee levels.12 The exemption expired on 31 December 2007, after which the Commission was free to re-examine Visa's system of MIFs.13 In 2008, following expiry of the exemption, the Commission initiated formal proceedings against Visa, and it issued two statements of objections, the first in 2009 and the second in 2012, regarding various aspects of Visa's system of MIFs.14 However, Visa managed to avoid the adoption of infringement decisions by offering commitments, in 2010 and 2014, to reduce further its MIFs on intra-EEA cross-border and national card payments. The Commission is seeking to close out this area of antitrust enforcement with an ongoing investigation of fees on card payments between non-EEA cardholders and EEA-based merchants, so-called 'inter-regional MIFs'. The Commission sent a statement of objections to Visa in August 2017,15 and conducted an oral hearing in February 2018.16 An infringement decision is the likely next step.

MasterCard

MasterCard faced similar Commission scrutiny of MIFs on crossborder MasterCard card payments in the 2000s. That scrutiny was somewhat delayed since MasterCard originally notified its arrangements to the Commission between 1992 and 1997 (under the old notification regime) and therefore benefited from an exemption.17 It wasn't until MasterCard informed the Commission, on 25 July 2003, of its intention to bring an 'action for failure to act',18 that the Commission proceeded to issue, in relation to the MIFs, a first statement of objections in September 2003, a supplementary one in June 2006 and an infringement decision in 2007. That infringement decision was hotly contested until the Court of Justice issued its definitive view in 2014 that MasterCard's MIFs infringed article 101(1). As with Visa, the Commission is seeking to close out this area of antitrust enforcement with an ongoing investigation of...