Antitrust risk in financial services: Lessons from recent regulatory developments in the EU, UK and beyond

Antitrust authorities in the EU, UK and elsewhere have recently overseen a flurry of activity in the financial services sector. This is no coincidence: bolstered by reforms implemented following the Global Financial Crisis of the late 2000s, and seemingly spurred on by the wider emergence of “hipster antitrust” concepts, the way regulators view antitrust risk in financial services has evolved. It is therefore more important than ever for financial institutions and other sector participants to understand – and mitigate – the antitrust risks they face. With this in mind, we examine the need for players in financial services to correctly identify higher risk situations and adhere to legitimate methods of collaborating with others; which, often more so than many other sectors, can be a hallmark of efficient financial services provision. We also provide an overview of some of the recent investigations in financial services by antitrust authorities and consider the lessons that can be drawn from these developments.

I. Introduction

1. Gone are the days when antitrust authorities were chiefly preoccupied by conspiracies and abuses in heavy industries such as construction and manufacturing. From the late 1970s to roughly the mid-2010s, under the influence of the Chicago School of Economics, regulators were willing to accept the risks from high levels of concentration in expanding industries such as finance “for the prospect of future efficiencies and innovation.” [1] Two key developments over the past decade, however, have upended this status quo and changed the way that regulators view antitrust risk in financial services.

2. The first development was the wave of regulatory reform and increased scrutiny that washed over the finance sector following the height of the Global Financial Crisis (“GFC”) from 2008. Enforcement action against financial institutions involved in LIBOR and EURIBOR manipulation, and most relevantly against those involved in cartel activity related to interest rate derivatives linked to those benchmark interest rates, was the first manifestation of increased regulatory intervention during this period, followed by FX and government bond investigations amongst others. [2]

3. More recently, the second key development is the fresh sense of vigour that appears to have taken hold amongst leading global enforcement agencies, which applies well beyond the realm of financial services. Describing the position in the US, Stucke and Ezrachi suggest we may be seeing a new cycle in antitrust policy, which they label “a progressive, anti-monopoly, New Brandeis School.” [3] Others have labelled this movement as “hipster antitrust,” [4] and in broad terms it challenges the primacy of the consumer welfare standard, which is a key tenet of the Chicago School doctrine. [5] Proponents of hipster antitrust, such as Lina Khan, have in particular argued that existing antitrust frameworks are not equipped to cope with concerns raised by large technology platforms such as Facebook and Amazon. [6] A similar sentiment has been expressed in the UK, where Lord Tyrie, chairman of the Competition and Markets Authority (“CMA”), has petitioned the Government to strengthen the nation’s legal framework for antitrust regulation, declaring that “the growth of new and rapidly-emerging forms of consumer detriment (…) requires more rapid intervention, and probably new types of intervention.” [7]

4. This backdrop of reconsideration of the ambit of antitrust law and policy will continue to influence enforcement decisions in years to come. There is, in a sense, a policy “synergy” at work. Large financial institutions have, since the financial crisis, been viewed by the general public as irresponsible actors that were not adequately sanctioned for their role in the GFC. The New Brandeis School, with its concerns regarding under-enforcement and focus on changing antitrust rules to effectively address a wider range of consumer harms, provides siren call for antitrust regulators to heed populist concerns and play a more interventionist role.

5. In the midst of this shifting academic and policy landscape, antitrust authorities in the EU, UK and elsewhere have overseen a wave of reviews of the financial services sector, which are the focus of this article. Contemporary antitrust authorities are typically highly sophisticated, well-resourced and have learnt a great deal about the intricacies of financial services in the decade since the GFC. It is therefore more important than ever for financial institutions and other sector participants to understand—and mitigate—the antitrust risks they face.

6. In the second part of this article, we examine the need for players in financial services to correctly identify higher risk situations (in an ever more fluid and changing regulatory environment) and adhere to legitimate methods of collaborating with others: which, often more so than many other sectors, can be a hallmark of efficient financial services provision. In the third part, we provide an overview of some of the recent investigations in financial services by antitrust authorities in the EU, UK and elsewhere, with a particular focus on syndicated lending (given the breadth and depth of recent enforcement activity in this area). [8] In the fourth part, we consider the lessons that can be drawn from these developments, before concluding with some final observations.

II. Knowing when to be wary and how to lawfully collaborate

7. The financial services sector, given the drivers of liquidity and (often off-exchange) price discovery, frequently requires close collaboration between participants who are competitors in other contexts or at different stages of a collaborative transaction. A topical example of this is syndicated lending. Loan syndicates allow the market to provide essential liquidity to borrowers beyond the level that any single institution could offer in isolation. Yet they also require institutions to both compete against and collaborate with each other at different stages.

8. During the origination stage, when a borrower issues Requests for Proposals (“RFPs”) to a range of potential lenders, those lenders are directly competing for the mandate. They may, however, also need to carry out “market soundings” with other potential lenders to assess interest in the debt (both in the primary and secondary markets). In this context, institutions are both competing with each other for the borrower’s mandate, but also communicating and collaborating with a pro-competitive objective of meeting the borrower’s financing requirements in an efficient way.

9. These types of situations, however, also give rise to opportunity for discussions which could have as their object or effect the prevention, restriction or distortion of competition. Taking the example of an origination process for a syndicated loan given above, if the potential lenders were to explicitly agree on the terms of their individual (and ostensibly independent) RFP responses during the course of market soundings, that would clearly amount to an unlawful anti-competitive agreement.

10. In the EU and the UK, “concerted practices” are also prohibited. This is a form of coordination that does not require the establishment of a binding or even written down agreement, and covers a wide range of conduct, where firms knowingly substitute “practical cooperation between them” for the risks of competition. [9] For instance, if during the course of market soundings several potential lenders disclosed sensitive pricing information to each other about a specific transaction, without borrower consent to do so, even without explicitly agreeing on a course of action regarding their respective RFP responses, this could amount to an unlawful anti-competitive concerted practice. [10] Unlike in the US, information exchange of itself can breach competition law without any agreement having been reached, provided the information exchanged is capable of reducing uncertainty as to the strategic conduct of the other operator.

11. It is therefore imperative that sector participants, at a minimum, are adept at regularly making two key kinds of judgements to mitigate antitrust risk. The first is recognising situations or contexts that are inherently more dangerous from an antitrust perspective. This is key given that, in a collective situation, a compliant bank can be condemned by the conduct of the lowest common denominator participant from a compliance perspective. The second is distinguishing between legitimate and illegitimate ways of working together in those higher risk situations.

12. In the next section, we will examine a number of recent regulatory developments in the EU, UK and beyond, and consider their implications for these key judgements required of sector participants. At a high level, these developments emphasise that the following contexts are ones in which antitrust risk must be carefully considered:

  • syndicated lending, particularly in relation to the use of market soundings and the potential for tacit reciprocity where bookrunners are dealing with the competing lender;
  • ancillary services provided in connection with syndicated lending, including the use of interest-rate derivatives as hedging to manage risk;
  • the bidding phase of an IPO or equity placement;
  • the period following an IPO or equity placement in circumstances where there is an under-subscription;
  • the trading of debt instruments on secondary markets, including supra-sovereign, sovereign and agency bonds; and
  • dealings with or between fintech companies, particularly in connection with access to customer account information or other issues related to transparency and open access.

13. This is by no means an exhaustive list of higher risk situations in the financial services sector from an antitrust perspective but illustrates scenarios which have recently been subject to close regulatory scrutiny and are therefore a confirmed source of potential concern.

III. Overview of recent regulatory developments (focusing on syndicated lending)

1. Syndicated lending

14. On 8 April 2019, the European Commission published a long-anticipated third party report on loan syndication and its impact on competition in credit markets. [11] The Commission commissioned the study in view of the perception that loan syndication exhibited “close cooperation between market participants in opaque or in-transparent settings (…) which are particularly vulnerable to anti-competitive conduct.” [12] This report identified a number of different features of the market (in project finance and leveraged buy outs) and stages of the syndication process (pre-syndicate formation; post syndicate formation; distressed situations) which may give rise to increased competition law risk. These include the use of market soundings by mandated lead arrangers, the tying of ancillary services to the syndicate, the potential for reciprocity where bookrunners are dealing with a competing lender, and curtailed borrower/sponsor bargaining power where the borrower is in financial difficulty and faces default. [13]

15. The report did not, however, cite evidence of specific competition law infringements, and did not identify the relevant market segments as being highly concentrated. [14] Consequently, the report does not herald a revolutionary new approach to analysing antitrust risks in loan syndication contexts. Instead, we expect the European Commission to carefully consider the findings set out in the report, and either undertake further work of its own (for example a market study) and/or pursue enforcement actions against individual firms where evidence of wrongdoing is discovered. The report therefore sounds a warning bell to banks to get their houses in order, including via new or updated guidance, internal training and functional separation between origination and syndication desks (and where relevant, special situations or refinancing operations in distressed situations). Helpfully, the report itself highlights what it describes as “critical safeguards,” which it suggests will ensure competitive outcomes in the loan syndication process. These include banks’ duty of care to clients, enforceable protocols to limit inappropriate information exchange, and limits on the cross-selling of ancillary services. [15]

16. The report commissioned by the European Commission was preceded (and perhaps, influenced) by a study on syndicated loans issued by the Netherlands Competition Authority (“NMA”) in 2010. The NMA concluded that there were several structural issues impairing competitiveness of the market for syndicated loans and club deals—namely, decreasing number of players, decreasing demand, banks being more prudent with writing substantial loans (all in the wake of the GFC), high entry barriers and superior bargaining power of banks with experience in the field. Despite this, the NMA did not find any indications of violations of the Dutch Competition Act, and observed that the Dutch market could see a boost to competition in the future if more foreign players became active again. [16]

17. There are also two recent enforcement decisions concerning aspects related to syndicated lending, by national competition authorities in Spain and Turkey, which emphasise the level of regulatory interest in this field.

18. In the Spanish case, the Comisión Nacional de los Mercados y la Competencia (“CNMC”) concluded that four banks had colluded to fix the price of interest-rate derivatives (“IRDs”) attached to syndicated loans above the market price, under conditions other than those agreed with customers. [17] The CNMC considered this to be a restriction of competition by object. IRDs ( including caps, floors, collars and swaps) are attached to syndicated loans to protect group lending facilities and loan recipients in case they are unable to meet repayments because of fluctuating interest rates. The CNMC found, relying on recordings from Treasury desks, that the banks had, without the borrower’s consent or knowledge, discussed the price on the offers they would make for hedging, i.e., the same floor for the collar or fixed rate swap, which meant that the hedging was not at a “market price.” The investigation focused on so-called “zero-cost” or “costless” collars, which are a type of IRD established by buying a put and selling a call in a way that the premium received from the call sale offsets the premium paid to purchase the put. Somewhat controversially, the CNMC did not find that collective agreement by the banks on a single price for IRD’s was a breach of competition law: instead appearing to take issue with the fact that prices were not set at market rates: “(…) it is not so much fixing a single set interest rate for the floor or a single set interest rate for the swap that is questionable, but whether the banks fixed said interest rate at market conditions.” The CNMC’s decision is subject to appeal by the banks who are arguing, amongst other things, that they are not actual or potential competitors in the context of hedging a syndicated loan in this situation as no individual bank is able to provide all of the hedging.

19. The case shows that authorities will not only consider whether there are competition concerns with syndicated lending in relation to the primary debt instrument, but also with any associated hedging and other ancillary products. The same lesson can be taken from the European Commission’s report on syndicated lending (discussed above) and the FCA’s prior findings in relation to tying of future services in its Investment and Corporate Banking Market Study. [18]

20. The Turkish Competition Authority (the “TCA”) investigated 13 banks in the syndicated loan market following a leniency application made by Bank of Tokyo-Mitsubishi UFJ Turkey A.Ş. (“BTMU”). [19] The investigation centred on banks exchanging information on loan conditions including interest rates and maturity, prospective bidding preferences, potential participation in certain bank guarantees, previous bid prices and future intended bids. The TCA found that BTMU, ING and RBS engaged in anti-competitive practices to share competitively sensitive information including pricing, value, maturity and participation. The TCA found that only the information exchanges between these three banks had the nature of anti-competitive conduct within the meaning of Article 4 of Law 4045 (the Turkish equivalent of TFEU Article 101). The TCA did not find that the conduct constituted a cartel and concluded that the conduct amounted to the lesser offence of “other violations” which has lower financial penalties. The TCA imposed fines on ING of TRY 21.1 million ( EUR 4.6 million) and on RBS of TRY 66.4 thousand ( EUR 14,300) while BTMU was exempted due to leniency. If BTMU had not been granted immunity, the TCA concluded that a fine of 1.5% of its 2016 turnover would have been imposed.

2. Developments in other areas

2.1 Equity issuances

21. In the UK, the Financial Conduct Authority (“FCA”) recently imposed its first-ever financial penalties for competition law breaches on asset management firms which it found had unlawfully shared strategic information during an initial public offering and placing, shortly before the share prices were set. The FCA found that, during the book-building process, Hargreave Hale Limited (“Hargreave”), Newton Investment Management Limited (“Newton”) and River and Mercantile Asset Management LLP (“RAMAM”) “disclosed and/or accepted otherwise confidential bidding intentions,” in the form of “the price they were willing to pay and, in some cases, the volume of shares they wished to acquire.” [20] This allowed one firm to know another’s plans during the IPO or placing process when they should have been competing for shares. The FCA concluded that this conduct has the potential to undermine the IPO process, as it can lead to asset managers placing lower bids than they might otherwise have done and so a lower initial share price for an issuer (increasing its cost of raising capital), or even a failed book-building process. Hargreave was fined GBP 306,300, RAMAM was fined GBP 108,600 while Newton was granted immunity. A fund manager at Newton was also fined GBP 32,200.

22. Recent controversial enforcement in Australia has involved criminal proceedings being brought against Australia and New Zealand Banking Group (“ANZ”) and two of its underwriters (Citigroup and Deutsche Bank), as well as current and former employees of those companies. [21] The proceedings relate to a placement of ANZ shares in 2015. There is little known about the underlying facts and evidence thus far, but based on press reports, it appears that following the placement, the underwriters were left with A$789 million in ANZ shares (the so-called “stick”). The press reports state that it is alleged the underwriters then agreed to restrict the volumes they sold down of the stick in order to maintain the price of ANZ shares and agreed to consult with each other before disclosing the arrangements to any other person. JPMorgan, who underwrote the capital raising along with Citigroup and Deutsche Bank, has not been charged. It has been reported that JPMorgan is an immunity applicant to the Australian authority, which means they will have handed over a significant volume of evidence, and will be under a continuing duty to cooperate. This will have made the evidence-gathering process easier. The proceedings are still at a very early stage, however, and it is likely we will learn more over the coming year. It is also true that many of the legal arguments may have limited application outside the Australian statutory context. Moreover, if the proceedings continue to the trial, this will take place before a jury and not a judge. There will consequently not be a reasoned judgment to support the verdict, unless and until the matter is appealed on a point of law, which may take many years. The case is, however, being watched with interest in many jurisdictions given that arrangements as to orderly sell downs (of both equity and debt) into secondary markets are seen as part and parcel of the underwriting of shares and bonds/loans.

2.2 Foreign exchange

23. In May this year, the European Commission concluded a five-year investigation into benchmark currency rate manipulation by fining five banks a total of €1.07 billion for cartel conduct. [22] The Commission identified two separate cartels, labelled the “Three Way Banana Split” (involving Barclays, The Royal Bank of Scotland (RBS), Citigroup and JPMorgan) and the “Essex Express” (with Barclays, RBS and MUFG Bank—formerly Bank of Tokyo-Mitsubishi), in which traders used online chatrooms to exchange sensitive information in order to manipulate the Spot Foreign Exchange market for 11 currencies. Commissioner Margrethe Vestager stated that “these cartel decisions send a clear message that the Commission will not tolerate collusive behaviour in any sector of the financial markets.” The decisions are also expected to pave the way for a swath of related civil claims.

2.3 Debt markets

24. In January the European Commission charged eight banks with operating a cartel in the market for European government bonds issued by the central governments of Eurozone Member States between 2007 and 2012. The Commission stated that “[t]raders employed by the banks exchanged commercially sensitive information and coordinated on trading strategies,” principally through online chatrooms. [23] The European Commission issued a Statement of Objections to the banks involved in January 2019 and there is limited publicly available information at this stage. This follows an earlier case where the European Commission issued a Statement of Objections to four banks in December 2018 alleging collusion in relation to the supra-sovereign, sovereign and agency bond market between 2009 and 2015. [24] The Commission also referenced the use of online chatrooms in this case.

2.4 Fintech

25. In 2017, the European Commission raided banking associations in Poland and the Netherlands, on suspicions that banks were “excluding non-bank owned providers of financial services by preventing them from gaining access to bank customers’ account data.” [25] This action was perceived to be part of the Commission’s drive to reinvigorate Europe’s retail banking sector by encouraging entry from innovative technology companies. Building on this, in its 2018 Management Plan, the Commission mentioned that it “will specifically monitor whether traditional payment operators (e.g. banks and card schemes) [may] violate the competition rules by trying to maintain their gate-keeping position.” [26]

IV. Key lessons for financial services firms

26. There are a number of implications of this recent enforcement activity that should be carefully considered by lawyers and compliance teams working in and with the financial services sector:

  • The breadth of this enforcement activity shows that whether you are in equity or debt, or primary or secondary markets, or ancillary products there is no stone, so to speak, that competition authorities will leave unturned.
  • Even widely accepted practices in financial services may, under certain circumstances, give rise to allegations of contraventions of competition law. The Australian proceedings against ANZ and two of its underwriters have, at the very least, muddied the waters in terms of what is and is not acceptable when it comes to coordination between underwriters in dealing with a “stick” following an issuance. Those advising issuers (of both equity and debt) and underwriters in any jurisdiction will therefore need to consider whether existing practices and compliance policies in this area should be reassessed and whether measures can be taken to bring arrangements within the scope of exemptions (for example in Australia the joint venture exception), or otherwise structured to make clear that arrangements are directly related and necessary to the underwriting arrangement.
  • Another lesson is that financial services players must be cognisant of the scope for UK and EU competition authorities to build a case around the exchange of commercially sensitive or strategic information. The FCA’s recent decision regarding anti-competitive conduct in the asset management sector helpfully summarises the essential elements for information sharing to constitute an unlawful concerted practice, indicating there must be:

(i) “discussions” (also known as “reciprocal contacts”) involving one-way or two-way disclosure of strategic information, which is information that eliminates or substantially reduces strategic uncertainty as to a competitor’s conduct on the market;

(ii) between two or more actual or potential competitors;

(iii) subsequent conduct on the market; and

(iv) a relationship of cause and effect between the discussions and that conduct. [27]

Competing financial institutions often have legitimate commercial reasons to collaborate and share information, but it is vital that they put in place adequate safeguards to ensure that these legitimate interactions do not segue into unlawful anti-competitive conduct.

  •  It is also evident that competition authorities, including but certainly not limited to the Australian authority, have the desire and ability to pursue criminal charges (where available) against institutions and individuals at the highest levels. This reinforces the gravity of antitrust risk in the current regulatory environment.
  • In the retail banking sector, dealings with fintech companies are likely to attract increasingly onerous levels of scrutiny, particularly in Europe. From a regulatory perspective, PSD2 and MiFID II have facilitated access to customer account information and increased transparency, which are designed to promote the development of fintech services and increase competition. Yet this opens up challenges from an antitrust compliance perspective, as: (i) the new technology often involves collaboration between competitors (which gives rise to coordination risks, information exchange, etc.); and (ii) traditional financial institutions may be tempted to engage in unlawful anti-competitive conduct (or “killer” acquisitions) to hinder or hijack the development of new technologies that threaten to disrupt their business models. As the New Brandeis School or “hipster antitrust” continues to gain traction, regulators may increasingly explore novel theories of harm.
  • All these learnings suggest that at a minimum, financial institutions must have antitrust compliance and training programmes that are comprehensive, regularly updated and rolled out at all levels of seniority. The FCA has emphasised that to comply with competition law and the relevant regulatory obligations, firms must “assure themselves that their relevant employees know about competition law and understand that disclosing information to and/or accepting it from competitors could be illegal. Firms should ensure that they have appropriate training and compliance procedures so that employees can identify strategic information and know how to handle it in line with competition and other legal requirements. [28]
  • Beyond this, however, the need to foster a “culture of compliance” is also increasingly important. This requires a concerted effort by leaders within organisations to clearly and consistently promote the value of a strong compliance ethos.

27. Looking ahead, whilst some may have thought the foreign exchange market manipulation proceedings that are currently wending their way through legal systems around the world would be the final major wave of bank prosecutions to emerge in the post-GFC era, [29] we are less optimistic. We predict that the current regulatory environment, influenced by the emerging school of thought labelled as “hipster antitrust,” will birth new investigations and enforcement actions in the financial services sector around the world for many years to come. 

— Read also the Synthesis and Transcript from the Annual Concurrences + Morgan Lewis conference, "Antitrust in the Financial Sector: Hot Issues & Global Perspectives", organized on 1st May 2019 in New York, with the support of The Brattle Group, Cornerstone Research, and Linklaters.

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Nicole Kar, Josh Buckland, Antitrust risk in financial services: Lessons from recent regulatory developments in the EU, UK and beyond, November 2019, Concurrences N° 4-2019, Art. N° 91844,

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