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Today, the Commission has decided to fine three banks a total of over €485 million for their participation in what has become known as the EURIBOR cartel. The three banks are Crédit Agricole, HSBC and JPMorgan Chase. They colluded on a financial product called euro interest rate derivatives, in breach of EU antitrust rules.
They did so together with four other banks that had chosen to settle the case with the Commission in December 2013. These four banks were Barclays, Deutsche Bank, the Royal Bank of Scotland and Société Générale.
Today's final decision sends a clear message: Banks, like all companies, have to respect EU competition rules.
And financial markets need to be competitive. The financial products concerned by this cartel, euro interest rate derivatives, are highly important not only for banks but for many businesses in the EU.
These derivatives are traded globally on international money markets worth trillions of euros. Companies use them to manage their interest rate risks and reduce uncertainty in the business environment. We can think of these products as a sort of insurance policy against interest rate fluctuations.
So, you can imagine what is at stake if this market is rigged to benefit only a few. This is exactly what the seven banks did: Over different periods between 2005 and 2008, participating traders were in regular contact through corporate chat-rooms or instant messaging services. They exchanged confidential and sensitive information about their trades and strategy.
So, what exactly did they do?
The aim of the cartel was to distort a pricing component for euro interest rate derivatives, the so-called EURIBOR rate.
The EURIBOR rate is set based on quotes submitted daily by a panel of banks. The seven cartelists were part of this panel. The traders involved tried to submit quotes in order to either move the EURIBOR rate up or down, depending on what benefitted them. On days when a trader received money calculated on the basis of EURIBOR, he had an interest in a high EURIBOR rate. On days when he needed to pay, he would want a low EURIBOR rate.
To give you just one concrete example – given how contracts are set up in this market, the EURIBOR rate on specific days can make a huge difference to the cash flow of a bank. Monday, 19 March 2007, was one of those days.
The cartelists decided that it would be beneficial to them to have a lower EURIBOR rate on that day. Therefore, already weeks before the 19 March, they agreed to submit quotes that would allow them to move the EURIBOR down on the day.
And it worked. We found a number of chats between traders congratulating each other and thanking each other for the work well done.
The participation in such schemes was very lucrative for the banks. Already tiny movements of the EURIBOR rate can have a huge impact given the trading volumes at stake.
In December 2013 Barclays, Deutsche Bank, the Royal Bank of Scotland and Société Générale admitted that they took part in this cartel and paid a fine of over €820 million in total.
On the other hand, Crédit Agricole, HSBC and JPMorgan Chase chose not to settle with the Commission – and of course this was their right. Our investigation into their role in the cartel therefore continued under the standard procedure and we looked at all the evidence again. As always we fully respected the parties' rights of defence. The Commission set out its concerns in a statement of objections. We then carefully reviewed the banks' written response and the arguments they presented in an oral hearing.
On this basis, the Commission has now concluded that the three banks have breached EU antitrust rules. We have imposed a fine of over €114 million on Crédit Agricole, €33 million on HSBC and €337 million on JPMorgan Chase.
The fines take into account the value of their sales for the products concerned within the European Economic Area, how long they participated in the cartel as well as the very serious nature and geographic scope of the infringement.
This decision marks the end of several investigations the Commission carried out into cartels set up by major international banks to manipulate the trading of derivatives. At least, I really hope it does. Over the past three years the Commission has taken six decisions on cartels imposing fines of just above €2 billion. In addition to this case, we also sanctioned cartels concerning derivatives linked to the Japanese Yen and the Swiss Franc.
That said, our work in the financial sector is not done. And, the Commission will not hesitate to investigate and sanction any new cartel it may uncover in the future in the financial industry.
Also, this case is another example of how enforcement of competition rules and regulation go hand-in-hand. The enforcement of competition rules brought to light widespread collusion between banks. It also showed that we needed to find better ways to regulate how financial instrument benchmarks are set.
The Commission therefore proposed new European rules to prevent the manipulation of financial benchmarks. And the new rules were adopted by the European Parliament and Council in July this year.
The common goal is to make sure that financial markets are competitive to the benefit of European consumers and businesses.
