In its judgment of 10 November 2017, the General Court of the European Union (GC) partially annulled the European Commission’s decision against the British broker ICAP (Case T-180/15). In 2015, the Commission had imposed a fine of almost EUR 15 million on the ICAP Group for – according to the findings of the Commission – facilitating several bilateral cartels relating to yen interest rates derivatives (YIRD). The cartels concerned the exchange of commercially sensitive information on trading positions and future yen LIBOR quotations between banks which, according to the Commission, ICAP supported and enabled in the first place. However, the judgment of the GC cannot be seen as a relief for the financial services sector since the judgment appears more favourable than it is: first, the GC only partially annulled the decision of the Commission. Second, the General Court based its judgment on formal aspects such as the failure of the Commission to produce adequate evidence and insufficient justification of the method of calculating the fine. In contrast, the GC confirmed significant substantial positions of the Commission, some of which must be seen as antitrust novelties.

Background to the case

As previously reported (see our News of 23 February 2015), the European Commission imposed a fine of approx. EUR 14.9 million on the British broker ICAP on 4 February 2015. The European Commission held that the London-based financial company facilitated six cartels relating to yen interest rates derivatives (YIRD), thus violating European competition law. Back in December 2013, the European Commission had imposed fines – reduced by way of settlement – totalling approx. EUR 670 million on the banks RBS, Deutsche Bank, JP Morgan, Citigroup and on the broker RP Martin for manipulating the LIBOR interest rate for Japanese yen (JPY). Another member of the YIRD cartel, the bank UBS, was granted full immunity under the Leniency Notice.

Reference interest rates as the LIBOR interest rate for JPY serve as a basis to reflect the costs of interbank lending in JPY. Such reference interest rates as the JPY LIBOR and Euroyen Tibor are widely used in international money markets. They are set by respective price quotations of the relevant panel banks which are submitted to the calculation agent responsible on a daily basis.

Following further investigations, the European Commission accused the broker ICAP of having supported six of the seven bilateral infringements of European competition law relating to YIRD. According to the Commission’s findings, these infringements occurred between 2007 and 2010 and lasted between one and ten months. For example, ICAP is alleged to have disseminated misleading “forecasts” or “expectations” about JPY LIBOR rates to such JPY LIBOR panel banks that were not involved in the infringements. By this, ICAP is supposed to have influenced these banks to submit LIBOR rates for JPY that were in line with these adjusted “forecasts” or “expectations”. In addition, ICAP is said to have served as a communication channel between traders of the Citigroup and RBS, thus enabling the anticompetitive conduct of the two banks.

Unlike the banks that had been fined and that had admitted their involvement in the cartels and whose proceedings had therefore been terminated by way of settlement, ICAP decided not to settle. Consequently, the ordinary procedure was applied to ICAP which came to an end with the Commission’s decision of 4 February 2015 and a fine amounting to approx. EUR 14.9 million. As a result, ICAP brought before the GC an action for annulment of the Commission’s decision, which was largely successful, particularly for procedural reasons.

Judgment of the General Court

GC confirms anticompetitive object of bilateral cartels

In its judgment of 10 November 2017, the GC, however, initially stated explicitly that the Commission did not commit an error of law or assessment in finding that the infringements alleged against ICAP had an anticompetitive object. Thus, for the first time, the judgment provides legal clarity with regard to the – previously controversially discussed – question of whether a coordination or an exchange on reference interest rates is competitively relevant at all. In the past, it has inter alia been argued that reference interest rates are not price-related components but a pure “confidence indicator” of the credit industry that is neutral from an antitrust perspective. Also ICAP argued that there was no competitive relationship between the banks involved.

However, the GC did not accept this plea but explicitly confirmed the Commission’s assessment that the exchange of information even had an effect on both components (“legs”) of interest rate derivatives. It significantly reduces any uncertainty about the level of JPY LIBOR’s reference interest rates and confers on the banks involved a competitive advantage over the uninvolved banks as regards the negotiation and offer of derivatives. This has an effect,

  • on the one hand, on current contracts, especially on the floating rate (“floating leg”) that can be influenced directly by the reference interest rates (and thus also by their coordination); and
  • on the other hand, also on the fixed rate (“fixed leg”) of future contracts since the calculation of these interest rates requires a forecast and this forecast substantially relies on the development of the interest rate curve for derivatives, which, in turn, depends on the reference interest rates.

ICAP participation in bilateral cartel between UBS and RBS in 2008 not proven

However, the GC subsequently concluded that in the context of a bilateral cartel – between UBS and RBS in 2008 – the Commission did not succeed in proving that ICAP was aware or should at least have suspected that UBS’s requests in 2008 were based on collusion with RBS. Accordingly, the GC annulled the decision in respect of this alleged participation in 2008.

Duration of ICAP’s participation in three further cartels not sufficiently proven

Further, the GC found that the European Commission had not been able to sufficiently prove the duration of three further cartels in which ICAP was deemed to have participated.

Method of calculating the fine not explained

Following the finding that the Commission had infringed the presumption of innocence vis-à-vis ICAP (which had ultimately not affected the Commission’s decision, though), the GC finally criticized the Commission for not having explained its method of setting the fines imposed on ICAP. In particular, the Commission had not sufficiently justified why it had deviated from its principles set out in the 2006 Guidelines on the method of setting fines. However, this is necessary since the Commission’s discretion is generally bound by these Guidelines and any deviation requires sufficient grounds. Therefore, the Commission’s decision is void also with regard to the setting of the fine due to insufficient grounds.

Significance of the judgment

The first court ruling in the area of interest rate derivatives shows that the European Commission – despite the negative outcome at first glance – is likely to see its position and the prosecution of cartels in the financial sector strengthened. It is very likely that the European Commission will learn its lesson from the ruling of the GC and that – taking into account these recent findings – cartel prosecution in the finance sector will continue to be a focus of the European Commission’s practice. The amount of the fine originally imposed on the broker ICAP also demonstrates that the European Commission’s cartel prosecution in the financial sector is not limited to sanctioning “large players” and credit institutions. This, too, is unlikely to change in the future.

Against this background, the importance of effective antitrust compliance measures in the financial sector is increasing. Even in the case of an infringement, much can be achieved with the right defence strategy and comprehensive advice on antitrust law during the antitrust investigations or – as the judgment of the GC demonstrates – ultimately before European courts which are generally considered as being rather “Commission-friendly”.

Follow this link to read the GC’s ICAP and others v Commission judgment of 10 November 2017 (Case T-180/15). Follow this link to read the GC’s press release on the judgment.