Five banks broke competition law over gilts, UK watchdog provisionally finds

Five of the world’s largest banks broke UK competition law by sharing sensitive information when trading British government bonds in the wake of the financial crisis, according to provisional findings from the country’s competition regulator.

A small number of traders at Citigroup, Deutsche Bank, HSBC, Morgan Stanley and Royal Bank of Canada unlawfully shared sensitive information, including on pricing and strategies, in chat rooms on Bloomberg terminals between 2009 and 2013, according to the provisional finding published by the Competition and Markets Authority on Wednesday.

As a result, the regulator said, the banks could have “denied the full benefits of competition” to those they were trading with, including pension funds and the UK’s Debt Management Office.

Traders swapped information “in the context of” government bond sales by the DMO and the repurchase of gilts by the Bank of England, the CMA added.

“A properly functioning, competitive bond market benefits tens of millions of taxpayers and pension savers as well as being at the heart of the UK’s reputation as a global financial hub. These alleged activities are therefore very serious and warrant the detailed investigation we have undertaken,” said Michael Grenfell, director of enforcement at the CMA.

The regulator said if it concluded that at least two banks engaged in anti-competitive behaviour, it might issue fines. It has the power to levy fines as high as 10 per cent of a company’s global turnover in a relevant market.

There is no ongoing investigation into individual traders as part of the probe, which was opened in 2018. 

“The language used here is quite punchy,” said Kate Pollock, a partner at law firm Stewarts, adding that any potential fines could be “hefty”, depending on factors such as the extent and length of misconduct.

There could also be follow-on civil lawsuits brought by investors such as pension funds, she said.

Deutsche Bank first alerted the CMA to the behaviour. As Germany’s biggest bank had admitted its involvement in “anti-competitive” activity, it will therefore not be subject to any fines.

Citigroup has also admitted involvement and entered into a settlement agreement with the CMA. The Wall Street bank will receive a discounted fine if penalties are imposed, the regulator said.

HSBC, Morgan Stanley and Royal Bank of Canada have not admitted any wrongdoing, the CMA said, adding that its probe was ongoing and its findings were provisional. “No assumption should be made that any of the banks have broken the law,” it said.

The banks will now formally respond to the findings and the CMA will take the final decision on whether competition law has been infringed and any level of fine. Any decision could then be appealed to the Competition Appeal Tribunal.

The Royal Bank of Canada said: “While we disagree with the CMA’s provisional findings, we have co-operated fully with the CMA during its investigation, and take any allegation of employee misconduct very seriously.” 

Morgan Stanley said it had “co-operated fully with the CMA during this investigation and will continue to constructively engage in the process. However, we disagree with the CMA’s provisional allegations and intend to contest them.”

HSBC said it “refutes the CMA’s allegations”. It added: “We will continue to make our case to the CMA as appropriate whilst we await a final decision.”

Deutsche Bank said it “proactively reported the issue to the UK authority and has co-operated fully in the subsequent investigation, which related to activity prior to 2014. As a result, we have been granted provisional immunity by the CMA and do not, therefore, expect to receive a financial penalty.” it said.

Citi said: “We have co-operated fully with the CMA on this matter and are pleased to put it behind us.”

The CMA’s provisional findings follow a 2021 decision by the European Commission, which found seven banks — Bank of America, Natixis, Nomura, RBS (now NatWest), UBS, UniCredit and WestLB (now Portigon) — breached EU antitrust rules through the participation of a group of traders in a cartel in the primary and secondary market for European government bonds. Fines totalling €371mn were imposed on Nomura, UBS and UniCredit.

Pollock said Wednesday’s announcement showed that the CMA was “showing its teeth and stepping out of the shadows of the European Commission post-Brexit”.

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