Bank bombshell: Competition watchdog finds traders at five banks shared intel on UK bond sales
Traders at five of the world’s biggest banks shared “commercially sensitive” data related to the purchase and sale of UK government bonds in Bloomberg terminal chats, the UK’s competition watchdog has provisionally found.
A “small number” of staff at Citi, Deutsche Bank, HSBC, Morgan Stanley and Royal Bank of Canada shared information which, the competition watchdog says, could have “denied the full benefits of competition” to sellers of UK gilts – and taxpayers.
Deutsche Bank reported their involvement to the CMA, with the activity occurring between the years of 2009 and 2013. Citi then also applied for leniency as part of the CMA’s investigation, effectively admitting to wrongdoing.
As such Deutsche will not be fined, and Citi’s will be mitigated, if the CMA’s ongoing probe makes a firm decision.
A Deutsche Bank spokesperson said: “Deutsche Bank proactively reported the issue to the UK authority and has cooperated 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.”
A Citi spokesperson said: “We have co-operated fully with the CMA on this matter and are pleased to put it behind us.”
HSBC, Morgan Stanley and Royal Bank of Canada have not admitted any wrongdoing. At this stage, no assumption should be made that any of the banks have broken the law.
HSBC spokesperson it “refutes the CMA’s allegations” and “will continue to make our case to the CMA as appropriate whilst we await a final decision.”
Similarly Morgan Stanley said it “disagree(s) with the CMA’s provisional allegations and intend(s) to contest them.” The bank said it has “cooperated fully with the CMA during this investigation and will continue to constructively engage in the process.”
Royal Bank of Canada said: “While we disagree with the CMA’s provisional findings, we have cooperated fully with the CMA during its investigation, and take any allegation of employee misconduct very seriously.”
The contract is said to relate to the sale of gilts by the UK Debt Management Office via auctions on behalf of HM Treasury, the subsequent buying and selling of gilts and gilt asset swaps, and buy-back auctions of gilts by the Bank of England.
Michael Grenfell, Executive Director of Enforcement at the CMA, said: “Our provisional decision has found that, in the aftermath of the global financial crisis, 5 global banks broke competition law by taking part in a series of one-to-one online exchanges of competitively sensitive information on pricing and other aspects of their trading strategies on UK bonds. This could have denied taxpayers, pension savers and financial institutions the benefits of full competition for these products, including the minimisation of borrowing costs.”
Banks or individuals who are found guilty as a result of the investigation are likely to face hefty penalties.
Partner at Fladgate Douglas Cherry said that there would likely be a “variety of outcomes” reflecting the degree of cooperation and culpability, but where fines are imposed “they will be substantial and meaningful…the CMA wants to ensure that an element of real pain is felt by the target of a fine.”
“Given the apparent desire to be perceived as active and effective, fines are often as high as may reasonably be sustained based on the facts. What is certain is that the CMA will want to be seen to be ‘sending a message’ as the result of its investigation,” Cherry continued.