RegulationOct 22 2014

RBS granted ‘immunity’ after revealing banking ‘cartels’

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The European Commission has fined a number of global banks a combined €94m (£74m) after finding that they operated illegal “cartels” influencing the prices of Swiss franc denominated interest rate derivatives and benchmarks in two separate cases.

Taxpayer-backed Royal Bank of Scotland was implicated in both cases, but escaped fines in both cases after it was granted “immunity” for bringing the existence of the cartels to light.

One case involved RBS, Swiss bank UBS, US giant JP Morgan and French group Crédit Suisse, which collectively operated a cartel on ‘bid-ask’ spreads - the difference between the price at which a market maker is willing to sell and to buy a given product - of Swiss franc interest rate derivatives.

The Commission imposed fines worth a total of €32.3m (£25.6m), with RBS escaping without penalty while UBS and JPMorgan received reductions for cooperating with the investigation.

Joaquín Almunia, the Commission’s vice-president in charge of competition policy, said that unlike in previous cartels, this one did not involve any collusion on a benchmark.

“Rather, the four banks agreed on an element of the price of certain financial derivatives. This way, the banks involved could flout the market at their competitors’ expense.”

The second case found that RBS and JPMorgan also participated in an illegal bilateral cartel aimed at influencing the Swiss franc Libor benchmark interest rate between March 2008 and July 2009.

RBS again received immunity from fines, while JPMorgan was fined €61.6m (£49m) after benefitting from a reduction of its fine for its cooperation with the investigation, as well as a 10 per cent reduction for agreeing to settle the case.

Mr Almunia said: “This is the third case where the Commission finds a cartel related to the manipulation of a financial benchmark, in which major banks colluded instead of competing with each other.”

An investigation found that in the Swiss interest rate derivatives case, between May and September 2007 the four named banks agreed to quote to all third parties fixed spreads on certain categories of over-the-counter derivatives, whilst maintaining narrower spreads for trades among themselves.

The aim of the agreement was to lower the parties’ own transaction costs and maintain liquidity, while imposing wider spreads on third parties and preventing other market players from competing on the same terms.

In the Swiss franc Libor case, between March 2008 and July 2009 the two banks tried to distort the normal course of pricing by discussing future rate submissions of one bank and exchanging information concerning trading positions and intended prices.

peter.walker@ft.com