20 September 2012

Commission VP Almunia: Competition enforcement in the knowledge economy

Speaking at Fordham University in New York City, Almunia said that the banking sector needed a change of culture, and that competition control – together with the enforcement of financial service rules and new legislation – could help it happen.

Financial markets

Over the past 30 years or so, banks and other financial institutions have grown spectacularly in size and complexity and information technology has changed the industry beyond recognition. For regulators and antitrust enforcers this means that to keep financial markets open and fair we must refine our tools and update our expertise. It’s an uphill struggle. We all know that for too long the financial-services sector has not had the same constraints and standards that were imposed on other industries to protect us from the harm it could do – nowhere near the standards for environmental protection, for instance.

The EU competition authority is trying to keep a level playing field in the industry and prepare the ground for the sounder, safer and more transparent financial sector of the future. Our action covers a broad area.

• In February, following an extensive investigation, we blocked the proposed merger between Deutsche Börse and NYSE Euronext, which would have created a quasi-monopoly in European financial derivatives traded globally on exchanges.
• We are also investigating possible infringements in the market for Credit Default Swaps. Here we want to see whether a number of leading investment banks have adopted strategies to preserve their stronghold in this profitable market.
• Finally, we have been investigating two leading market-information providers on concerns that the prices or restrictions they imposed on the use of proprietary data were excessive.

Benchmark rates manipulation

And then, we are also active in investigating the manipulation of benchmark rates such as Libor, Euribor, and Tibor. These cases concern financial information of the highest order. In the past few months the press has extensively reported the story and the actions taken against Barclays.

Our investigations focus on the markets for derivatives that are priced by reference to benchmark rates for various currencies. We are investigating whether cartel arrangements took place between a number of international banks. I want to make clear that we cover the competition aspect of the story, whereas other authorities deal with fraud and other forms of criminal conduct and financial regulators are examining the matter from yet another perspective.

The European cartel proceedings – unlike in other jurisdictions such as the US – are multiparty proceedings. This means that we can solve the matter in one go, rather than one company at a time.

The banking sector needs a change of culture, and competition control – together with the enforcement of financial-service rules and new legislation – can help it happen. It is simply unacceptable that leading figures in the business behave as if it were above the law and immune from social responsibility. We need to foster a new ethics in the business using the most appropriate means. Banks need to return to their primary function, which is to provide credit to the real economy at competitive terms. They also need to be more open, transparent and accountable. And they must stop posing recurrent threats to stability.

These are the long-term objectives we have been pursuing since the end of 2008 when the European Commission was entrusted with the task of controlling the rescue and restructuring of banks in distress by EU governments. We have been using a special State aid regime to make sure that the bailouts would occur under the same conditions throughout the Single Market. The conditions we have imposed on the bailouts have helped maintain stability in financial markets and are paving the way for a more stable and safer financial sector for the post-crisis environment.

The EU is active on the regulation front too. We are debating new European laws on market abuse – including criminal sanctions – to protect investors and ensure market integrity. In July, the European Commission amended its proposals so that they would cover the sort of manipulation that is emerging from the Libor scandal, making it a criminal offence.

Finally, earlier this month, the Commission launched a consultation on how benchmarks such as Libor and Euribor are compiled, produced and used.

We all agree that we must go after those who fall on the wrong side of the law and punish them, but that’s not enough. The system that is currently used to set these benchmarks does not offer enough guarantees – not for the most important number in the world. We should do a whole lot better than that. We need a better system that guarantees that the benchmarks are accurate measures, are free from conflicts of interest; and are used appropriately.

Full speech

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