COMPETITIVE EDGE FINANCIAL SERVICES November 2015 2 RECENT COMPETITION LAW TRENDS ► The Competition and Markets Authority (CMA) released the Provisional Findings and Possible Remedies Notice in its retail banking investigation, only to come under heavy fire from the Treasury Select Committee ( TSC). The TSC's chairman, Andrew Tyrie MP, accused the CMA of having "downplayed" the problems created by free-if-in-credit (FIIC) banking. The CMA will hold response hearings during November and December 2015 and is due to publish its final report it April 2016. ► Several of the CMA's proposed remedies reflect undertakings offered by Barclays, HSBC, Lloyds and RBS in 2014, in an effort to avoid a market investigation reference. The CMA rejected these at the time. ► Price comparison websites (PCWs) and the Midata initiative are now key to CMA and Financial Conduct Authority ( FCA) proposals for retail banking, payday lending and credit cards. On the latter, for example, the FCA suggests enabling consumers to consent to third parties (such as PCWs) accessing their transaction history data, to allow for bespoke quotations linked to their pattern of usage. It also plans to incorporate findings from its payday lending market study, on additional standards for PCWs. ► The day after the TSC hearing, Mr Tyrie asked the CMA to review the proposed bank tax, after several challenger banks voiced concerns to the Chancellor that it would hinder their ability to compete with larger banks and affect lending levels. ► In the world of payments, a regulation has been laid before Parliament (coming into force on 9 December) which, amongst other things, designates the Payment Systems Regulator (PSR) as the primary competent authority for the Interchange Fee Regulation (IFR). As well as giving the PSR the powers necessary to enforce the IFR, it allows it to provide redress or compensation to a person who has suffered a loss as a result of a failure to comply. ► The FCA has published the terms of reference for its asset management market study. It will assess how asset managers compete to deliver value; whether they are motivated and able to control costs along the value chain; and what effect investment consultants have on competition for institutional asset management. The FCA will also consider whether there are any barriers to innovation and/or technological advances in asset management. The FCA aims to publish interim findings in summer 2016 and a final report by early 2017. CMA RETAIL BANKING INVESTIGATION ► On 22 October 2015, the CMA published its Notice of provisional findings and Notice of possible remedies. As well as making some positive findings regarding the number of new entrants and ongoing product development, the CMA found adverse effects on competition due to a lack of customer engagement and subsequent low levels of switching. ► The CMA has provisionally found this lack of engagement is due to the difficulties both Personal Current Account ( PCA) and SME customers experience in accessing and comparing information on different providers' products. Although it declined to recommend structural remedies, the CMA proposed a range of behavioural measures which aim to increase transparency of information and customer switching, summarised below. A final decision is not expected until April 2016. Increase customer awareness of switching ► Banks to provide comparative information to customers at "trigger points" (e.g. new charges or a change in customer circumstances), to prompt them to review their provider. ► Requirement to advertise the Current Account Switch Service (CASS) to increase awareness of the potential savings inherent in switching. Also recommends changes to CASS governance. ► Changes to BACS, such as extending the post-switching redirection period for payments and requiring BACS to transfer continuous payment authorities on debit cards. ► Banks to retain ex-customers' transaction history for five years pre-closure. 3 Price comparison and data collection ► Improve the existing "Midata" initiative in order to make customer usage data more easily accessible for price comparison of products. ► Create a PCW for SMEs, incorporating information on BCAs such as overdrafts, charges and loans, as well as (eventually) SME customer usage data in Midata format. ► Collect data on customer service experience so that customers are also able to compare providers on the basis of service quality, via a PCW. Increase transparency in SME lending ► Improve the Open Data initiative, in order to address low customer engagement, facilitate loan application processes and improve the accuracy of SME credit ratings. ► Banks to offer an online tool for SME loans, with an eligibility indicator indicating whether, and on what terms, the provider would be willing to lend to a customer. Streamline BCA opening process ► Standardise Customer Due Diligence and Know Your Client requirements, through a common downloadable form, for example. ► Create an online tool on providers' websites that allows customers to ascertain whether a particular overdraft is likely to be granted. MATTER UPDATE CMA review of the 2008 Competition Commission Order on Northern Irish PCAs The CMA has announced plans to review an order issued by the Competition Commission, following its 2008 report on PCAs in Northern Ireland. It considers a review is justified by the implementation of CASS and the switching guarantee. To read the full outcome click here FCA launches its market study into asset management The FCA has launched its market study into the asset management sector, in order to ascertain whether competition is working for the benefit of both retail and institutional investors. The FCA is to focus on three areas of investigation, namely asset managers, distributors and ancillary/third party service providers. It invites comments by 18 December 2015. For more information, click here FCA calls for views on competition in the mortgage sector The FCA has issued a "Call for Inputs" on aspects of the mortgage sector where competition could be improved, seeking views from all participants in the mortgage lending market. Responses are invited by 18 December 2015. For more information, click here FCA consults on proposals in response to CMA recommendations on high-cost short-term credit The FCA published its response to the CMA's recommendations on high-cost shortterm credit (HCSTC), proposing new standards to improve PCWs that compare HCSTC. It also addresses the use of real time data-sharing to enable informed credit assessments and measures to improve shopping around, without affecting customers' credit ratings. To access the consultation paper, click here ROUND UP OF OTHER DEVELOPMENTS 4 MATTER UPDATE FCA publishes interim report on credit card market The FCA published its interim report into the credit card market, finding that whilst competition is mainly working well, the minority of customers in persistent levels of debt are experiencing adverse effects on competition. Proposed measures are primarily conduct-based. They include measures to give customers more control over credit limits. To download the report, click here FCA publishes policy statement on insurance add-ons The FCA has outlined new rules banning opt-out selling across financial services and promoting informed decision-making by customers of insurance add-ons. These rules will come into force on 1 April 2016. To access the FCA statement, click here PSR requests information relating to the IFR The PSR has requested information from a number of payment scheme operators in order to help it understand whether any of the schemes qualify for a temporary exemption from part of the new IFR. For more information, click here PSR confirms members for the Payments Strategy Forum The PSR confirmed the line-up for the Payments Strategy Forum which aims to set a strategy for innovation in payment systems. Ruth Evans was appointed chair in July and 21 further individuals (from retailers, corporations and government) have now been appointed for an initial two-year term. A full list of the members can be found here HMT response to its consultation on the IFR implementation HM Treasury issued a response to its consultation on the IFR. In it, it outlines its decision not to implement lower fee caps for domestic credit and debit transactions, as well as to permit the use of a weighted average approach to calculating domestic debit card interchange (until 2020). It also chose to exempt three party card schemes for three years, as long as their market share is below 3%. For HMT's response to the consultation, click here Survey of indirect PSPs launched by PSR The PSR ran a survey of payment service providers (PSPs) with a view to shaping its market reviews on indirect access to payment systems and infrastructure. To access the survey, click here The Department for Business, Innovation and Skills (BIS) calls for evidence on "switching principles" BIS issued a call for evidence on new "switching principles" outlining what consumers should expect from service providers when they switch. BIS is seeking consumer experiences of switching in certain sectors including banking, and invites responses by 4 December 2015. For the BIS press release, click here UK retailers refrain from taking Visa fight to Supreme Court British retailers have decided not to appeal a Court of Appeal judgment in favour of Visa. Retailers including Argos and Debenhams have dropped their claim for damages for the overpayment of interchange fees dating back to 1977, accepting the judgment that only claims dated within the last 7 years can be taken forward. 5 MATTER UPDATE High Court Judge rules MasterCard should provide Sainsbury's with card fee data The High Court has ruled that MasterCard should provide Sainsbury's with survey data comparing the costs of making a purchase using either cash or card. The supermarket is gathering information for a multimillion-pound damages claim resulting from the European Commission (EC) ruling that MasterCard's multilateral interchange fees breached TFEU. EC approves two insurance sector acquisitions The EC approved the acquisition of US company HCC Insurance Holdings by Tokio Marine Holdings of Japan, and that of part of Genworth Financial by AXA SA of France. The parties overlap in the non-life insurance and reinsurance service sectors, but their moderate combined market shares in Europe meant no competition concerns were raised by either deal. To access the EC press releases click here and here Seven banks targeted by Swiss regulator in metals-trading probe Swiss competition officials opened an investigation into whether seven banks have concluded "unlawful agreements" on bid-ask spreads in the precious-metals market. Barclays, Deutsche Bank, HSBC, Julius Baer Group, Mitsui, Morgan Stanley and UBS are all being investigated. Defendant banks to pay collective $1.86 billion to settle New York antitrust class action case Twelve of the largest global banks, as well as ISDA and Markit (a data collection service) have settled allegations that they colluded to prevent credit default swaps from being traded on open exchanges. The suit was brought by a class of claimants including investment firms and insurance companies. The settling defendants did not admit fault under the terms of the settlement. Dutch Courts rule in favour of joint venture in cash processing and transport A Rotterdam court dismissed allegations brought by Brinks (a cash handling company) that Geldservice Nederland abused its position in the cash transport market. It ruled that ABN Amro, INC Groep and Rabobank can cooperate in transporting banknotes via their Geldservice Nederland joint venture as the banks do not collectively have dominance in the market. Dutch authority finds lack of competition in SME loan market The Dutch antitrust watchdog has concluded that there is insufficient competition in the SME loan market. Possible explanations include barriers to entry being high in the Netherlands, SMEs' limited levels of switching and the limited competitive pressures from alternative forms of financing. To read the full investigation click here EC approves a number of financial sector mergers The EC has approved mergers of the following companies, finding that they did not raise competition issues due to the parties' low combined market shares: Istituto Centrale delle Banche Popolari Italiane S.p.A. by Advent International Corporation and Bain Capital Investors LCC; BHF Kleinwort Benson Group by Fosun International Limited; Valida by Raiffeisen Zentralbank Osterriech in Austria; and Banco BPI S.A by CaixaBank S.A of Catalonia. EC approves two joint ventures between Evo Payments and Raiffeisen The EC approved two joint ventures by EVO Payments International with the Polish and Czech subsidiaries of Raiffeisen Bank International AG, which will provide card payment processing services in Poland and the Czech Republic. No competition concerns were raised because of the small amount of cross-over in the relevant markets. To access the EC press release, click here 6 MATTER UPDATE State Aid: EC clears extension of Danish & Polish bank support programs The EC has prolonged several stabilising measures for Danish and Polish Banks. It observed that all measures are compatible with EU rules on state aid during the financial crisis as they are targeted, proportionate and limited in time and scope. For the EC press releases, click here and here Vestager in negotiations over Italian ‘bad bank’ plan The Italian government has been reportedly engaged in intense negotiations with Margrethe Vestager, the EU antitrust chief, over the State aid implications of plans to set up a government-backed 'bad bank' to buy and hold risky loans, in order to remove problematic loans from other Italian banks' balance sheets. Vestager is reportedly "confident a solution can be found". For more information, click here EU regulator closes state aid probe as banks' tax benefits are changed in Spain A state aid investigation into tax benefit for Spanish banks was closed by the EU's antitrust regulator following the Spanish government agreeing to amend its legislation. Similar probes are still continuing in Italy, Greece and Portugal. For more information, click here CONTACT THE ADDLESHAW GODDARD COMPETITION TEAM Phil McDonnell +44 (0)161 934 6700 firstname.lastname@example.org Bruce Kilpatrick +44 (0)207 544 5214 email@example.com Rona Bar-Isaac +44 (0)207 160 3357 firstname.lastname@example.org Al Mangan +44 (0)207 544 5352 email@example.com To unsubscribe from this update please click here © 2015 Addleshaw Goddard LLP. All rights reserved. Extracts may be copied with prior permission and provided their source is acknowledged. This document is for general information only. 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