24 September 2012

Commission VP Almunia: New rules for finance - Putting the genie back in the bottle

At the public hearing on tackling the culture of manipulation, Almunia stressed that banks were not the root of all evil, and that the financial and economic evolution of the past three decades was not an inexorable law of nature.

"The Commission intends to step up its vigilance in the financial sector, which is already high. At present, our investigations cover market-information providers, Credit Default Swaps, as well as benchmark rates and financial derivatives. The experience we are gathering as we throw light into these areas of finance can help us understand where the rules of the game are too weak.

We brought two cases against Standard & Poor’s and Thomson Reuters; two leading providers of financial information. Among other things, we were concerned that the restrictions they imposed on the use of their data and codes made it too difficult for their clients to use alternative providers if they wished to... We have also opened two investigations in the market for Credit Default Swaps; one concerning the clearing of credit default swaps and the other on CDS information.

We are currently running several cartel investigations in which a number of financial operators are cooperating. In October 2011 the Commission carried out unannounced inspections at the premises of several banks active in the sector of euro interest rate derivatives linked to Euribor. We have also sent requests for information.

Our concerns are that certain companies, in particular banks but also brokers, may have violated EU antitrust rules that prohibit cartels. Certain market players may have colluded to submit aligned rates in order to benefit their trading positions in these interest rate derivative products to the detriment of their trading counterparties as well as non-colluding competitors. Among other things, they also appear to have exchanged information about their trading positions and about their pricing intentions of interest-rate derivatives and their expectation of future trends in derivatives prices. Given the number and value of transactions in interest-rate derivatives and their crucial role in the management of risk, these products are of high significance to the financial sector and the European economy as a whole. These investigations are still ongoing and we expect to conclude them as soon as possible. We are giving high priority to these cases.

While our investigations aim at verifying some of the banks’ and brokers’ collusive behavior, I believe that the endemic problems that these investigations bring to the surface – in particular the existence of perverse incentives in the functioning of the current system, issues of conflict of interest, and lack of transparency in the financial-data market – will eventually need regulatory solutions. And the Commission is already acting upon these issues as mentioned to you by my colleague Michel Barnier. But it is also the responsibility of the Commission to check whether or not EU antitrust rules have been breached. We have to ensure that competition in financial markets takes place on a level playing field.

I have left for last our control of the public bailouts of European banks in distress. Our main goals here are maintaining stability in financial markets and preserving the integrity of the Single Market.

To conclude, our experience confirms that financial services need new and better rules. I hasten to add that these rules need not stifle business. As an enforcer, I can tell you that good regulation is easy to implement and easy to comply with. It is also clear that the new rules should result from a concerted global process. Since finance is a highly integrated global industry, national or even regional efforts would be futile – even within major jurisdictions such as the US or the EU. Finally, I am convinced that the success of any new framework crucially depends on implementation; because without a good enforcement system – including competition control – its intended effects would not be felt on the ground."

Full speech

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