REG - Competition and Mkts - CMA CA98 Update - Financial Services Investigation

Royal Bank of CanadaAnnouncement

24/05/2023 08:15

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RNS Number : 4863A  Competition and Markets Authority  24 May 2023

FOR IMMEDIATE RELEASE - 07h00 WEDNESDAY 24 MAY

CMA provisionally finds 5 banks broke competition law on UK bonds

The CMA has provisionally found these banks unlawfully exchanged sensitive
information regarding UK government bonds in one-to-one online chats.

The Competition and Markets Authority (CMA) has provisionally found that 5
major banks - Citi, Deutsche Bank, HSBC, Morgan Stanley and Royal Bank of
Canada - each unlawfully shared competitively sensitive information by
participating in one or more series of one-to-one conversations in chatrooms.
The alleged behaviour took place at varying times between 2009 and 2013 (see
Table 1 below).

The information exchanges took place in one-to-one Bloomberg chatrooms between
a small number of traders who worked at the banks and related to the buying
and selling of UK government bonds - specifically, gilts and gilt asset swaps.
This included details on pricing and other aspects of their trading
strategies.

The exchanges of information occurred in the context of, some or all of:

·    the sale of gilts by the UK Debt Management Office via auctions on
behalf of HM Treasury;

·    the subsequent buying and selling of gilts and gilt asset swaps;

·    buy-back auctions of gilts by the Bank of England (for example, for
quantitative easing). The contacts between Deutsche Bank and HSBC did not
involve any conduct in relation to buy-back auctions.

By unlawfully exchanging competitively sensitive information rather than fully
competing, the banks involved in these arrangements could have denied the full
benefits of competition to those they traded with - including, among others,
pension funds, the UK Debt Management Office (which sells gilts by auction),
and ultimately HM Treasury and UK taxpayers.

Deutsche Bank alerted the CMA to its participation in the alleged unlawful
behaviour under the CMA's leniency policy, and Citi applied for leniency
during the CMA's investigation. Both banks have admitted their involvement in
anti-competitive activity and, providing they continue to cooperate and comply
with the conditions of leniency, Deutsche Bank will not be fined and any fine
that Citi receives will be discounted.

Citi has also entered into a settlement agreement with the CMA and, providing
it complies with the terms of settlement, will receive a further discount to
any fine imposed.

The CMA's probe is ongoing and if the CMA reaches a final conclusion that any
2 or more of the banks engaged in anti-competitive activity, the CMA will
publish an infringement decision and may issue fines.

Michael Grenfell, Executive Director of Enforcement at the CMA, said:

"Our provisional decision has found that, in the aftermath of the global
financial crisis, 5 global banks broke competition law by taking part in a
series of one-to-one online exchanges of competitively sensitive information
on pricing and other aspects of their trading strategies on UK bonds. This
could have denied taxpayers, pension savers and financial institutions the
benefits of full competition for these products, including the minimisation of
borrowing costs."

"A properly functioning, competitive bond market benefits tens of millions of
taxpayers and pension savers as well as being at the heart of the UK's
reputation as a global financial hub. These alleged activities are therefore
very serious and warrant the detailed investigation we have undertaken. While
both Deutsche Bank and Citi have admitted their involvement in
anti-competitive conduct, we will now consider further representations from
the parties before reaching a final decision."

The CMA's findings are provisional. Deutsche Bank and Citi have admitted to
participating in the alleged one-to-one conversations that apply to them.
HSBC, Morgan Stanley and Royal Bank of Canada have not admitted any
wrongdoing. At this stage, no assumption should be made that any of the banks
have broken the law.

More information on this investigation is available on the CMA case page
(https://www.gov.uk/cma-cases/financial-services-sector-suspected-anti-competitive-practices)
.

-ENDS-

NOTES TO EDITORS:

1.   The CMA is investigating suspected anti-competitive arrangements
prohibited by the Chapter I prohibition of the Competition Act 1998.

2.   The statement of objections in this case has been addressed to the
following entities: Citigroup Global Markets Limited and its ultimate parent
company Citigroup Inc. (together 'Citi'), Deutsche Bank Aktiengesellschaft,
HSBC Bank Plc and its ultimate parent company HSBC Holdings Plc (together
'HSBC'), Morgan Stanley & Co. International Plc and its ultimate parent
company Morgan Stanley (together 'Morgan Stanley'), and RBC Europe Limited and
its ultimate parent company Royal Bank of Canada (together 'Royal Bank of
Canada').

3.   The UK Debt Management Office, the Bank of England and HM Treasury are
not under investigation. The UK Debt Management Office, on behalf of HM
Treasury, and the Bank of England have assisted the CMA with the investigation
by responding to information requests.

4.   Bloomberg chatrooms are a means of electronic communication through
which participants can exchange messages. Although the information exchanged
through certain Bloomberg chatrooms forms part of the CMA's investigation,
Bloomberg is not under investigation.

5.   A statement of objections gives parties notice of a proposed
infringement decision under the competition law prohibitions in the
Competition Act 1998. Parties have the opportunity to make representations on
the matters set out in the statement of objections. Any such representations
will be considered by the CMA before any final decision is made. The final
decision is taken by a 3-member case decision group, which is separate from
the case investigation team and was not involved in the decision to issue the
statement of objections.

6.   Under the CMA's leniency policy, a business that has been involved in
cartel activity may be granted immunity from penalties or a reduction in
penalty in return for reporting the cartel activity and assisting the CMA with
its investigation. In this case, Deutsche Bank first, and subsequently Citi,
reported their involvement in the alleged conduct under the CMA's leniency
policy. Provided they continue to co-operate and comply with the other
conditions of the CMA's leniency policy, Deutsche Bank will benefit from
immunity from fines and Citi will benefit from a discount on any fine.

7.   A party under investigation by the CMA may enter into a settlement
agreement if it is prepared to admit that it has breached competition law and
is willing to pay a fine and agree to a streamlined administrative procedure
for the remainder of the investigation. Citi has entered into a settlement
agreement with the CMA, as well as applying for leniency. Providing it
complies with the terms of settlement, Citi will receive a further discount to
any fine imposed.

8.   A gilt is a UK government bond issued by HM Treasury through the UK
Debt Management Office ('DMO'). Gilts are issued to finance the UK
government's cash requirements. That means that individuals and businesses who
invest in gilts lend money to the government. In return, the government
promises to pay the investors a cash interest payment (the 'coupon') up until
the gilt's redemption date ('maturity') when the nominal amount invested is
paid back to the investor. This case concerns conventional gilts only i.e.
gilts with a fixed-rate of interest. Gilts are commonly issued through auction
by the DMO to gilt-edged market makers ('GEMMs'). All 5 banks under
investigation by the CMA are GEMMs. Once issued, gilts can be traded up to
their redemption date and GEMMs must be ready to buy and sell gilts.

9.   In 2009, in response to the financial crisis, the Bank of England
adopted a quantitative easing policy to stimulate the UK economy, part of
which involved the Bank of England buying assets, the majority of which were
gilts. The Bank of England conducted regular so-called buy-back auctions at
certain points during the relevant period to purchase gilts through an asset
purchase facility set up as a subsidiary of the Bank of England. It was in the
context of some of these buy-back auctions that some of the exchanges of
information in question occurred. The alleged one-to-one conversations between
Deutsche Bank and HSBC did not involve any conduct in the context of buy-back
auctions.

10. The CMA and the Financial Conduct Authority have concurrent functions to
enforce competition law in the financial services sector. It has been agreed
(pursuant to regulation 4 of the Competition Act 1998 (Concurrency)
Regulations 2014) that the CMA will exercise those functions in relation to
this investigation.

11. For media enquiries contact the CMA press office on 0203 738 6460 or
press@cma.gov.uk (mailto:press@cma.gov.uk)

12. Anyone who has information about a cartel is encouraged to call the CMA
cartels hotline on 0203 738 6888 or email cartelshotline@cma.gov.uk
(mailto:cartelshotline@cma.gov.uk) .

 

 

 

Figure 1 - Relevant Parties to each of the five alleged series of one-to-one
conversations

 

Table 1 - Duration of each of the alleged series of one-to-one conversations

 Alleged one-to-one conversations      Duration
 Citi - Deutsche Bank                  Less than 1 year
 Citi - Morgan Stanley                 Less than 1 year
 Deutsche Bank - HSBC                  Less than 1 year
 Deutsche Bank - Morgan Stanley        More than 1 year
 Deutsche Bank - Royal Bank of Canada  More than 3 years

 

 

 

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