THE ROYAL Bank of Scotland was recently fined £28.6m by the Office of Fair Trading for breaking competition law after the bank shared information with Barclays. But the case raises a number of questions, not least about the regulator’s intentions in imposing the fine, and its efficacy in deterring such behaviour in future.
Firstly there is the timing. The fine relates to an infringement that occurred between October 2007 and March 2008, when Barclays itself brought it to the OFT’s attention, so escaping without a fine even though the bank made use of the information provided in its own pricing. The wheels often grind slowly in these matters but given this background two years seems a long time. The cynic would point to the need for the OFT to show it has teeth before an election which is likely to be followed by budget cuts. What better target than the banks? This case might be particularly gratifying for policymakers following the OFT’s setback in the Supreme Court last November in relation to bank overdraft charges, and the high-profile enjoyed by the FSA after it recently moved on alleged insider dealing. Bank bashing is currently the popular pastime and the OFT perhaps does not want to be left out. A case where the parties have confessed is therefore a gift – it’s a good time to resurrect and serve it up.
Second is the question of what deterrent this fine serves and who has suffered. As in the case of construction cover pricing, the public sector is very often a major victim. Here, however, the infringer is a bank already largely owned by the taxpayer and the fines levied by the OFT can be seen as simply circulating money from one part of the state to another. The immediate impact effect on RBS’s share price may have been short-lived, but again insofar as it has any longer legacy, this might be seen to add insult to the taxpayer’s injury.
The biggest losses will actually have been incurred by large law firms and accountants in the professional services sector. RBS and Barclays have a dominant share of this lending market segment, and the fines will do nothing to compensate those who have overpaid for lending terms renegotiated at an unduly high level during the infringement period when conditions were already difficult – and bear in mind that the effects may have continued to be felt well after March 2008.
However, it would be surprising if any of the major victims litigates. Major law firms and accountants have very close ties to the banks, and in many cases open litigation would be unthinkable. Any discussions or adjustments will be made behind closed doors. Most large law firms act for the banks in some capacity, or won’t risk damaging the prospects of doing so in the future. Even where client interests are at stake few significant firms will take on cases against major banks.
Finally there is the question of whether this fine will go any way to solving the problem. The endemic nature of cover pricing in the construction sector, after 10 years of compliance training and previous cases in the roofing industry establishing that cover pricing is illegal, shows how widespread anti competitive practices can be, and how difficult to root out.
Notwithstanding the massive and unprecedented fines regularly handed out by the EU Commission, various companies still end up as repeat offenders, notably the global chemicals giants. Presumably this just goes to show how much profit there can be in cartels and what pressure businesses or their employees feel under to maximise returns. Given how great such pressures are on banks and their staff in the current environment, one has to ask whether this self confessed crime represents the full extent of what is going on in terms of competition infringements.
Jonathan Sinclair is the head of antitrust and head of commercial Litigation at Stewarts Law