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Competition law and policy in the financial Services
Industries in the EU and in Italy
Workshop for the Chamber of Economy
Belgrade
September 30, 2014
Масимилијано Ганђи
Кључни економски експерт
EU-SCS
Пројекат финансира ЕУ
Спроводи конзорцијум под вођством
Introduction
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The banking industry plays an important role in most economies of Europe
for its contribution to total turnover and employment. In 2004, retail
banking, which represents around 50% of total banking activity, generated
gross income of 250-275 billion Euros in the EU, which represented
approximately 2% of total EU GDP. The total banking sector contributes
around 3 million jobs in the EU.
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Efficient financial services provide an important contribution to any
country’s economic competitiveness since financial services supply a
fundamental input to all sectors.
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It is therefore essential that also in this sector, competition forces exercise
adequate pressures on market players so that consumers are placed in the
position to choose between competing offers and to benefit from highquality services at the lowest possible cost.
Introduction
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Two important general principles are at the base of European competition
policy as regards the financial services :
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The first principle is that a clear distinction between competition
enforcement and prudential supervision of the banking system is set.
While the first type of public policy is clearly assigned to the competition
enforcement agency, the second is usually assigned to the Central Bank (or
an ad hoc financial services regulator).
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The second principle is that promotion of competition is perceived as
strongly desirable in this sector as well. The objective of the promotion
of competition coexists and is not in contrast with the necessary regulation
preventing systemic failures spreading from a failing bank to other banks.
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Individual inefficient banks, in fact, are expected to exit the market as in
any other industry to the benefit of consumers and the economy as a whole.
Introduction
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With the decentralization of EU competition policy enforcement, both the
European Commission (“EC”) and the National Competition Authorities
(“NCAs”) of the Member States are responsible for the enforcement of
articles 101 and 102 of the Treaty on the Functioning of the European Union
(“TFEU”). The EC and most NCAs have carried out substantial effort in the
financial services sector, by:
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directly enforcing competition rules against banks’ conduct breaching TFEU
articles 101 and 102.
advocating for changes to the regulatory and supervisory framework when
spotting unnecessary regulatory or administrative barriers to competition.
The work carried out by the EC and Member States’ NCAs appears relevant for
Serbia and could be a source of inspiration for government policy or
competition law enforcement initiatives in the banking industry.
The 2006 Report on “Competition Issues in Retail Banking
and Payment Systems Markets in the EU” by the ECA
Financial Services Working Group
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The report “Competition Issues in Retail Banking and Payment Systems
Markets in the EU” was finalized in 2006 by the ECA Financial Services
Working Group. The Group was set up in 2004 “to consider competition issues
in retail banking and payment systems markets in the EU” .
The report is based on the replies to a questionnaire sent to all 28 National
Competition Authorities of the EU Member States with respect to the practical
experience gained on competition issues in the banking industry. Responses
were received by 17 ECA Members. Three specific areas of competition
concern in the banking industry were identified:
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Consumer mobility;
Access to payment systems;
SEPA (Single European Payment Area)
This presentation only reviews the aspects of the report related to consumer
mobility.
The 2006 Report on “Competition Issues in Retail Banking and Payment
Systems Markets in the EU” by the ECA Financial Services Working
Group
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The Report stresses the importance of a well-functioning financial sector for
the European economy since it represents an important share of the overall
European economy. It is therefore fundamental to promote competition in the
industry to ensure it functions efficiently.
With the aim of promoting competition in banking, the Report notes that both
the European Commission and many NCAs have carried out inquiries and
enforcement procedures in order to examine obstacles to market entry and
competition.
According to the survey, “national banking markets (in terms of total
assets) are moderately to highly concentrated”. The survey notes however,
that very substantial differences exist among countries with regard to both
market concentration, market entry and banks’ conduct. Concentration is
generally higher in the new Member States and in the smaller countries.
The 2006 Report on “Competition Issues in Retail Banking and Payment
Systems Markets in the EU” by the ECA Financial Services Working
Group
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Also, in spite of significant technological and regulatory innovation
facilitating cross-border trade flows, competition in retail banking
remains national in scope.
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In fact, for several bank services, competition occurs at regional or local
level. Therefore, competition problems need to be tackled at national level
by the national competition authority.
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A key finding of the ECA Report is that customer mobility in all
countries participating in the survey is low, with significant effects on
competition in the banking industry.
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Customer mobility, the report notes, is a fundamental component of
competition in the banking industry: only when customers can easily
switch to alternative suppliers, perceived as provider of better services or
lower prices, competition can function.
The 2006 Report on “Competition Issues in Retail Banking and Payment
Systems Markets in the EU” by the ECA Financial Services Working
Group
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The Report identifies four main barriers to customer mobility:
Direct switching costs
In many Member States, customers must pay a significant fee, often not related
to the actual costs incurred, when they discontinue a relationship with a bank.
Customers may be very reluctant to switch to another bank in case the imposed
fees for bank account closure are significantly high.
Indirect switching costs
These costs involve the administrative procedures for switching to a different
account. For example, in many countries, it is a responsibility for the customer to
inform all relevant parties (utility companies, employer, etc.) about the new
account details and to ensure it is taken on board by them.
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The 2006 Report on “Competition Issues in Retail Banking and Payment
Systems Markets in the EU” by the ECA Financial Services Working
Group
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Lack of transparency
It is often difficult for customers to choose the best offer even when alternative
banks supply better services, because of inadequate information available to
potential customers. Serious information asymmetries between customers and
suppliers exist, to the benefit of incumbent banks.
High transportation costs
Customers face significant transportation costs. Therefore, they tend to give
preference to suppliers located nearby. The increasing use of internet has only
partially reduced such costs and broadened the scope of retail markets.
The 2006 Report on “Competition Issues in Retail Banking and Payment
Systems Markets in the EU” by the ECA Financial Services Working
Group
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All National Competition Authorities have reported that in their jurisdictions
customer mobility is very low. The Danish Competition Authority collected
evidence showing that customer mobility in banking is significantly lower
compared to other services markets.
Several NCAs provided information that the volume of customers switching
to different banks significantly increased following the adoption and
implementation of measures directly aimed at reducing costs and difficulties
associated with switching bank.
With this regard, a “Switching Code” has been adopted in some countries.
The “ABI ( Italian Banking Association) Proceeding”: The notified
agreements
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In October 2004, the Italian Competition Authority (ICA) concluded an
investigation into two model contracts voluntarily notified by the Italian
Banking Association (ABI).
The first of these model contracts, called “Investment Services”, contained
clauses defining the financial services providers’ right to withdraw and
amend contracts and the related procedures for notifying customers
unilaterally for portfolio management services;
The second model contract, denominated “General conditions for the use
of credit cards” defined contractual rules governing the relationship
between banks that issue or place credit cards and their clients.
The “ABI ( Italian Banking Association) Proceeding”: The ICA’s
assessment of the notified agreements
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First, the ICA observed that - insofar as the standardized conditions applied
to all their customers-, the model contracts constituted a form of
horizontal coordination.
Although ABI’s indications were not binding, they were nonetheless a
point of reference, which - by reducing the level of uncertainty over the
behavior of market competitors - could make uniform aspects of the
commercial strategies adopted by each operator.
The “ABI ( Italian Banking Association) Proceeding”: The ICA’s
assessment of the notified agreements
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In particular, the ICA felt that competition was restricted by:
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the clause regulating unilateral changes in financial conditions by banks
(ius variandi), contained in both of the model contracts notified;
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the rules on financial transactions carried out by banks in situations of
conflict of interests set out in the model contract on investment services;
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the clauses aimed at introducing an artificial “tie-in” between unrelated
services, also present in both the two model contracts.
“ABI ( Italian Banking Association) Proceeding”: The ICA’s assessment
of the notified agreement
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With regard to the ius variandi clause, the Authority felt that the
ability for banks to change the economic conditions of contracts to
the detriment of customers, at any time and without having to
explain the reasons for such changes, restricted competition by
standardizing practices and hindering client mobility.
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The ICA also pointed out that the clauses regulating how
intermediaries could operate in a situation of conflict of interests
with respect to individual portfolio management services also
contained elements of horizontal coordination. Authorization to
operate in such scenarios was granted by the investors on a once
only basis and not on a case-by-case basis as and when individual
sales transactions were carried out.
“ABI ( Italian Banking Association) Proceeding”: The ICA’s assessment
of the notified agreement
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The ICA judged that information provided to customers on this aspect was
entirely generic and inadequate, in view, on the one hand, of the absence of
any obligation on the bank to clearly describe situations of conflict of
interests, and on the other, of the impossibility for investors to revoke the
authorization to carry out operations in the event of any change in the
conflict of interest situation.
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The Authority took a similarly negative view of clauses limiting the range
of choices available to customers, whereby clients who requested an
intermediary to carry out individual portfolio management or brokerdealing services were obliged to hold a deposit account with that
intermediary as well as a securities safekeeping account.
“ABI ( Italian Banking Association) Proceeding”: The changes introduced
by ABI with respect to the notified agreements
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During the course of the investigation, ABI made significant changes to
the model contracts as originally notified. In particular, the clauses
relating to the ius variandi rule were eliminated from both models.
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As regards conflicts of interests, the new contracts include a separate form
that every single bank must make available, containing specific
information on the nature of each conflict, and on the possibility for
customers to revoke, even during the life of the contract, the authorization
to continue providing services in such scenarios.
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Finally, customers would be allowed to open deposit and securities
accounts with two different intermediaries. Given the significance of the
changes, the Authority ruled that ABI’s new model contracts did not
restrict competition.
Commission Regulation n° 267/2010 for the Insurance Sector
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Before the entry into force of Council Regulation 1/2003 on the application of the
competition rules, companies had to notify agreements or concerted practices to the
European Commission to obtain clearance under the competition rules.
Since May 1st, 2004, Regulation 1/2003 abolished the notification system and
introduced the principle that companies need to assess for themselves whether their
agreements are compatible with the ban on restrictive business practices (Article
101 of the Treaty).
The new approach applies to all sectors, including the insurance sector. Sector
specific rules are now rare.
Commission Regulation n° 267/2010 for the Insurance Sector
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The European Commission adopted in 2010 a new “Block Exemption”
Regulation (n°267/2010) that block-exempted certain types of agreements in
the insurance sector from the EU's general prohibition of practices restrictive
of competition.
The new Regulation renewed with some amendments two of the four
categories of agreements previously exempted, namely:
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joint compilations, tables and studies;
co(re)insurance pools.
Commission Regulation n° 267/2010 for the Insurance Sector
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Certain information exchange is important for the insurance sector because
large amounts of data are required in order for companies to assess the
costs of covering risks.
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Access to the data is also crucial to facilitate the entry of new or foreign
market players.
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The regulation includes a right of access to the results of the information
exchange for customer and consumer organizations, except for public
security reasons.
Commission Regulation n° 267/2010 for the Insurance Sector
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The Regulation also exempts, subject to certain strict conditions, pools
(common coverage of risks by insurance companies) which cover either
"new" risks or fall below certain market share thresholds (20%) if
they cover risks which are not "new".
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The Commission stated in several occasions that it will cooperate with
national competition authorities to ensure that insurance companies and in
particular co-insurance pools, assess correctly whether their agreements
meet the exemption conditions and do not use the Block Exemption
Regulation as a blanket protection.
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Thank you !
massimiliano.4@hotmail.it