Financial Conduct Authority & Cartels

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Posted in:Banking and Finance|June 3, 2015 | Join the mailing list

When the Independent Commission on Banking headed by Sir John Vickers issued its report competition amongst banks was seen as being of vital importance.  Where banks are seen to collude with each other consumers lose out.  When acting in that way it is
said that they are acting as a cartel.  The EU has historically taken a very strict approach to the issue of banks acting as cartels, especially where there is illegality at the base of it, such as the LIBOR manipulation.

Between 2009 and 2015 the reviews, proposals and implementations of investigations into how the 2007 to 2009 collapse occurred have been extensive.  In 2015 we are seeing the fruits of this labour.

As part of the raft of changes brought about following the Vickers Report is the implementation of powers for the FCA and the Competition & Markets Authority (“CMA”) within the Financial Services (Banking Reform) Act 2013, which amended and updated the Competition
Act 1998.  The powers for the FCA to regulate the financial services sector concurrently with the CMA.

Will this change many things?  In reality, most banks carry on the business of making profits in the knowledge of what their competitors do.  In the heady days of corporate greed between 2004 and 2008 there were occasions (in some cases, many of them) where
employees of Banks worked out how to manipulate markets in order to maximise their profits.  Calls, emails and instant messages between traders show that traders not only manipulated markets themselves, but they would call up traders at other banks to specifically
request that the other bank act ina way to ensure the manipulation created even larger profits.

The significant number of reviews, reports and Government activity since 2008 has resulted in many changes.  The concurrent powers between the FCA and CA came into force on 1 April 2015.  Indeed, 7 day account switching was one of the requirements included
in the Vickers report, demonstrating that much has been done.  However, the severe outcomes for banks and employees for manipulating the markets (tens of billions in fines, employees will be jailed and, more, the ultimate ignominy and shame associated with
the very public deterioration of bankers’ reputations will likely mean that we are unlikely to see much use of the new powers for a generation.  

But that is what they said after the collapse of 1987/88 and again in 1991/92 …

If there are any issues in this update or more generally that you would like to discuss, please contact one of our Banking and Financial Regulatory team on 0161 833 9211.

(The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Berg or any of its partners or employees. Professional legal advice
should be obtained before taking, or refraining from taking, any action as a result of this article.)

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