SUMMARY AND KEY HIGHLIGHTS
On 20 May 2021, the European Commission (“EC”) announced that it has decided that Bank of America, Natixis, Nomura, RBS (now NatWest), UBS, UniCredit and WestLB (now Portigon) (the “Investment Banks“) have all breached EU antitrust rules of the Treaty on the Functioning of the European Union (“TFEU”) [1]. According to the the EC, the Investment Banks were part of a group of traders in a cartel in the primary and secondary market for European Government Bonds (“EGB”) between 2007 and 2011.
The EC imposed fines totalling EUR371 million on the Investment Banks. UBS was fined €172 million, Nomura was fined €129 million and UniCredit was fined €69 million. NatWest received full immunity for revealing the cartel to the EC, thus avoiding an aggregate fine of circa €260 million. Bank of America and Natixis were not fined either as their infringement was outside the limitation period for imposing fines. Portigon, did not receive a fine as it did not generate any net turnover in the last business year, which served as a cap to the fine.
[1] Article 101 of the TFEU prohibits agreements between companies which prevent, restrict or distort competition in the EU and which may affect trade between Member States (anti-competitive agreements). These include, for example, price-fixing or market-sharing cartels.
BACKGROUND
The ruling by the EC describes how the Investment Banks operated a “closed circle of trust” between 2007 and 2011, using Bloomberg terminals to exchange commercially sensitive information, including on pricing, volume and bidding strategies in the run up to auctions. The Investment Banks were in regular contact and provided updates on their bidding strategy in the run up to auctions of the Eurozone Member States when issuing Euro denominated bonds on the primary market, and on trading parameters on the secondary market. This conduct affected the entire European Economic Area (“EEA”)
The behaviour of the Investment Banks was found to have violated European Union (“EU”) rules that prohibit anticompetitive business practices such as collusion of prices.
In setting the level of fines, the EC stated it considered the sales value achieved in the EEA by the cartel participants for the products in question, the serious nature of the infringement, including that the cartel related to a Euro-based financial product on the primary and secondary markets, its geographic scope and the respective duration of participation.
REGULATORY OVERSIGHT
In announcing this decision, the Executive vice-president of the EC, Margrethe Vestager, in charge of competition policy commented:
“A well-functioning European Government Bonds market is paramount both for the Eurozone Member States issuing these bonds to generate liquidity and the investors
buying and trading them. Our decision against Bank of America, Natixis, Nomura, RBS, UBS, UniCredit and WestLB sends a clear message that the Commission will not tolerate any kind of collusive behaviour. It is unacceptable, that in the middle of the financial crisis, when many financial institutions had to be rescued by public funding these investment banks colluded in this market at the expense of EU Member States.”
Looking back on previous enforcement action undertaken by the EC, in May 2019 the Commission fined Barclays, RBS, Citigroup, JPMorgan and MUFG a total of €1.07 billion for taking part in two cartels in the Spot Foreign Exchange (“Forex”) market for eleven currencies.
The EC intervened again in April 2021 when it fined Bank of America Merrill Lynch, Credit Agricole and Credit Suisse a total of €28.5 million for breaching EU antitrust rules by participating in a four-bank cartel in the secondary trading market within the EEA of Supra-sovereign, Sovereign and Agency (“SSA”) bonds denominated in US Dollars. Deutsche Bank also participated in the cartel but received full immunity from fines under the 2006 Leniency Notice.
The Investment Banks have commented that they intend to challenge the EC decision and appeal to the EU courts, as its likely the fines could impact second-quarter results especially for UBS who was hit the hardest with a fine of €172 million. These decisions made by the EU alongside the most recent one involving the Investment Banks, demonstrates that the Commission remains determined to deal with anticompetitive practices in all markets, including the financial sector.
The EU also noted that in accordance with the EU-UK Withdrawal Agreement, the EU continued to be competent for this case which was initiated before the end of the transition period. The EU has agreed to reimburse the UK for its share of the amount of the fine once the fine has become definitive. The collection of the fine, the calculation of the UK’s share and the reimbursement will be carried out by the EU.
WHISTLEBLOWER APPROACH
The EU is sending out a strong message that it will not tolerate anti-competitive behaviour especially within the big players in financial services. The Commission has taken further steps to set up a whistle blower tool to make it easier for individuals to send alerts about anti-competitive behaviour while maintaining their anonymity. The tool protects whistle-blowers anonymity through a specifically-designed encrypted messaging system that allows two way communications.
KEY TAKEAWAY
Together with previous cases involving cartels affecting the trading of financial instruments, the decision made by the EU demonstrates that they remain determined to deal with anticompetitive practices in all markets, especially the financial services sector where the largest investment houses are effectively on watch.
[1] Article 101 of the TFEU prohibits agreements between companies which prevent, restrict or distort competition in the EU and which may affect trade between Member States (anti-competitive agreements). These include, for example, price-fixing or market-sharing cartels.For more information, and any guidance or advice on anticompetitive practices across all markets, Cleveland & Co External in-house counsel™, your specialist outsourced legal team, are here to help.
