COMPETITIVE EDGE FINANCIAL SERVICES August 2015 RECENT COMPETITION LAW TRENDS ► The Competition and Markets Authority (CMA) has published a series of working papers as part of its retail banking market investigation. Provisional findings and (if required) a remedies notice are expected in September. ► The CMA plans to inform such market investigations with a recent policy paper examining the issues faced by consumers on low incomes. In a retail banking context, it will analyse whether factors such as a lack of time, financial literacy, confidence and the ability to access accurate information may have an impact on consumers’ ability to search for and switch bank accounts. ► Payment systems have continued to draw the attention of the competition authorities this summer. In particular: ► On 9 July the European Commission (EC) sent a statement of objections to MasterCard setting out its preliminary view that MasterCard's inter-regional interchange fees and cross-border acquiring rules breach Article 101. ► Senior EC staff have reportedly warned the European Banking Authority that its new payments security measures (which began on 1 August) could enable banks to artificially restrict the services of new competitors. (In 2013, the EC closed its examination of the European Payments Council's standardisation process for e-payments, announcing it nevertheless planned to monitor the market closely.) ► HM Treasury (HMT) has launched a consultation on how it should implement the EC's Interchange Fee Regulation (IFR). On domestic credit card interchange fee caps, for example, it does not propose to go further than the EC's minimum IFR requirements. (Further details are provided in the round up, below.) ► The Payment Systems Regulator (PSR) has published final guidance on its concurrent competition powers, which generally tracks the FCA's approach (albeit that the PSR does not have an equivalent Handbook). One key difference is that the PSR will not require settling parties to waive their rights of appeal in competition cases. FCA CONCURRENCY AND REPORTING ► On 15 July, the FCA published the final guide to its powers and procedures under the Competition Act 1998 ( CA98). The guidance addresses some of the concerns expressed in response to its consultation. In particular, many feared that the FCA's original proposal, to require notification of all competition law infringements, could jeopardise the leniency regime. ► In a departure from the consultation, which seemed to catch even trivial breaches of competition law, firms will now only be obliged to self-report "significant" competition law infringements under the new SUP 15.3.32 R. In determining whether a matter is “significant”, a firm must have regard to the actual or potential effect on competition, any customer detriment, the duration of any infringement and implications for the firm’s systems and controls. ► The obligation to disclose infringements of competition law will apply only to infringements by regulated firms. Firms will not need to notify the FCA of infringements by other group companies unless such breaches affect the regulated firm. ► Nevertheless, the disclosure obligation still applies to “any applicable” competition law, not just UK or EU competition law. The FCA says that breaches of competition law in other jurisdictions “ may be relevant”. ► The FCA notes it will seek “neither admission nor confessions as part of a disclosure under Principle 11 " but requires “prompt notification under Principle 11 regardless of whether a firm is considering applying for leniency .” As set out in the consultation, the FCA expects leniency applications to be made to the CMA in most cases, as the CMA (unlike the FCA) can grant immunity from the criminal cartel offence to individuals. ► The FCA and CMA have agreed that leniency information passed by the CMA to the FCA may only be used by the FCA to apply and enforce competition law, unless the leniency applicant agrees otherwise. The FCA can, however, use that information to “remind” firms or approved persons of their disclosure obligations under the FCA’s Handbook. ► Further, the FCA says: “there is nothing to prevent us using information properly obtained under one set of powers for our functions under another”. So, for example, if the FCA receives information directly, in relation to a competition law infringement, it could use this to take action under FSMA. MATTER UPDATE HM Treasury consults on UK implementation of the IFR On 27 July HMT launched a consultation on implementing the IFR. At this stage, it does not intend to implement a cap for domestic credit card interchange fees which is lower than the default 0.3% cap provided for in the IFR. It also intends to allow payment services providers to apply a weighted average for the maximum allowable period of 5 years and to exempt three-party schemes for three years (where they do not exceed 3% of the market). HMT will re-evaluate when the PSR concludes its programme of work on card payment systems (on which, see below). It also intends to designate the PSR as competent authority, with roles for (e.g.) the FCA where there is a cross-over with its role as a supervisor under existing legislation. To read the consultation (which closes on 28 August 2015) click here EC sends new statement of objections to MasterCard On 9 July the EC sent a statement of objections to MasterCard setting out its preliminary view that MasterCard's inter-regional interchange fees and cross-border acquiring rules restrict competition, in breach of Article 101. The EC is concerned that such provisions result in higher costs for retailers which are passed on through higher retail prices to all consumers, not just those paying by card. To read the EC's press release click here MasterCard settles Tesco damages action MasterCard has settled a damages claim, brought by Tesco plc over the historic overpayment of interchange fees, for a reported £39 million. Tesco is the largest merchant in the group of claims being brought against MasterCard. Visa succeeds in limiting duration of damages claims against it On 5 August 2015, Visa Europe and Visa Inc. won a ruling in the Court of Appeal preventing a number of retailers from bringing claims which fall outside the statute of limitation. The retailers had sought to claim for damages for the overpayment of interchange fees dating back to 1977. However, the Court of Appeal dismissed the claim and ruled that only claims dated within the last 7 years could be taken forward. FCA Annual Report 2014/15 In its annual report for 2014/15, the Financial Conduct Authority (FCA) notes in the past year it has completed market studies into cash savings, retirement income, general insurance add-on services and credit cards. Most recently the FCA published a review on the operational effectiveness of the current account switch service after its first year in operation. To read the annual report click here FCA publishes discussion and consultation paper on cash savings remedies On 23 July the FCA published a consultation paper on proposed remedies in its cash savings market study. The paper is split into two parts. The first summarises feedback received by the FCA on the proposed remedies and how it intends to take the proposals forward. The second contains a discussion paper on (amongst other things) the next steps relating to the switching box (which sets out the potential benefits of shopping around) and the sunlight remedy (aimed at encouraging firms to offer better value products to existing customers). To read consultation paper click here ROUND UP OF RECENT DEVELOPMENTS MATTER UPDATE FCA and PSR guidance published The FCA and PSR have published guidance on their CA98 powers and procedures, as well as responses and final guidance on market reviews, market studies and market investigation reference powers and procedures. Although the PSR has generally taken the same approach as the FCA, notably, unlike the FCA, it has decided not to ask parties to settlement agreements to waive their rights of appeal. To read FCA guidance click here and the PSR guidance click here PSR Annual Report 2014/15 On 3 July 2015 the PSR published its first annual report. The report contains an overview of the work completed in 2014/15, covering significant milestones achieved, for example the launch of two in depth market reviews assessing the supply of indirect access (for which terms of reference were finalised on 29 May) and the supply of competition in the provision of payment systems infrastructure (summarised below), as well as a look ahead to 2015/16. The PSR now participates in the UK Competition Network and the UK Regulator's Network. To read the full report click here PSR's payment systems infrastructure review: final terms of reference published The PSR is carrying out a market review of ownership and competition in the provision of payment systems infrastructure. The review was originally announced in November 2014, with draft terms of reference published in March 2015. Following a consultation, the PSR has published its final terms of reference. To read the terms of reference click here PSR call for input on card payment systems The PSR is seeking views on the impact of new EU legislation as well as other trends and issues within the card payments sector, to help inform its regulatory approach. In so doing, it notes that concerns around interbank payment systems (such as indirect access, transparency, governance and how service-users are represented in decision making) may also be relevant to card payment systems. To read the call for input click here PSR calls for applications to become a member of its Payments Strategy Forum The PSR has issued a call for members of its Payments Strategy Forum (the Forum), with the aim of recruiting 20 individuals in senior positions who have the ability to shape their own organisations. Individuals and organisations not selected as members to the Forum will still be able to contribute through working groups, and the development of a payments community to work alongside the Forum. To read more click here CMA releases policy paper examining issues affecting consumers on low incomes On 10 July 2015 the CMA published a policy paper examining the issues faced by consumers on low incomes. The paper concludes that consumers on low incomes often have fewer, more expensive options available when buying goods and services, receive poorer quality products and services and have difficulty in obtaining adequate redress. To read the paper click here Payday lending final order published by the CMA The CMA has published a final order in relation to payday lending. The order imposes a requirement that online payday lenders publish details of their products on at least one FCA authorised price comparison website (PCW). In addition, the CMA have set out recommendations for the price comparison websites and the online and payday lenders including recommendations that the FCA implement additional standards for the payday loan PCW and that payday lenders should MATTER UPDATE provide existing customers with a summary of their cost of borrowing. To read final order click here CMA publishes various working papers in its retail banking market investigation The CMA has published numerous working papers in its retail banking market investigation. Recent topics include: the actual and perceived behaviour of personal current account customers; business current account and personal current account pricing analysis; a Dutch retail banking market case study; barriers to entry and expansion, including capital requirements, IT and payment systems; a summary of entry and expansion in retail banking; and the relationship between concentration and outcomes (a review of empirical literature). To read the working papers click here EC procures studies following consultation on Insurance Block Exemption Regulation On 7 August 2015, the EC published a contract notice to procure studies on two issues, relating to the potential renewal of the Insurance Block Exemption Regulation (IBER). In August 2014, the EC invited views on the future of IBER. These two issues were identified in the responses to the consultation, namely: the switching of tangible and intangible assets between different insurance products; and different forms of co-operation between insurance companies. To read the contract notice click here KPMG DK and Ernst & Young reported to Danish prosecutor The Danish competition authority has reported KPMG DK and Ernst & Young Europe LLP (EY) to the Danish Prosecutor for Serious Economic and International Crime (DPSEIC). The authority alleges that KPMG DK breached the merger standstill obligation by terminating its cooperation with the international KPMG network prior to the Danish competition authority approving its merger with EY. An infringement of the Danish merger rules could lead to fines, although DPSEIC's investigation will not have an impact upon the approval of the merger. CMA's proposal on RBS / Williams and Glyn divestment delayed HM Treasury has asked the CMA to delay finalising its advice on the competition implications of the latest proposals for the divestment, by RBS, of Williams and Glyn. The CMA has agreed to delay finalising its advice, as such advice would be reliant upon Williams and Glyn's business plan, which has not yet been completed. To read the CMA press release click here EC further extends Greece's removal from the list of marketable risk countries in the communication on short-term export-credit insurance On 1 July 2015 the EC extended the period for which Greece is removed from the list of marketable risks (for the purposes of export credit insurance) until 30 June 2016. The EC considers that private insurers are unlikely to increase their exposure until there is more clarity over the political and economic policies in Greece. It therefore concluded there is insufficient private capacity to cover all economically justifiable risks and, as such, further extending Greece's removal from the list of marketable risks is justified. To read the EC communication click here EC opens in-depth state aid investigation into the restructuring of Portuguese Bank Banif On 24 July the EC announced plans to open an in-depth state investigation in relation to a €11.1billion state recapitalisation, by Portugal, of Banco Internacional do Funchal S.A. (Banif). The EC is concerned Banif's restructuring plan does not ensure long-term viability of the bank, whilst also minimising distortions of competition resulting from state aid. To read full press release click here MATTER UPDATE EC approves extension of Portuguese guarantee scheme On 22 July 2015 the EC approved the extension of a guarantee scheme for credit institutions in Portugal, to 31 December 2015. The EC found the extension is in line with its guidelines on state aid to banks during the financial crisis. It observed the measure was well targeted, proportionate and limited in time and scope. To read the EC alert click here EC approves liquidation aid for Banca Romagna Cooperativa On 18 July 2015 the EC approved the liquidation aid granted by Italy in favour of Banca Romagna Cooperativa. The bank had been under special administration since 2013 and was put into liquidation by the Italian authorities on 17 July 2015. The Italian authorities have pledged their support through the provision of the Italian mandatory deposit guarantee scheme. To read statement click here CONTACT THE ADDLESHAW GODDARD COMPETITION TEAM Phil McDonnell +44 (0)161 934 6700 email@example.com Bruce Kilpatrick +44 (0)207 544 5214 firstname.lastname@example.org Rona Bar-Isaac +44 (0)207 160 3357 email@example.com Al Mangan +44 (0)207 544 5352 firstname.lastname@example.org 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 infomation only. 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