Breaching Competition Law – RBS Receives Fine of £28.6m

  • Date: April 01, 2010
  • Source: Admin
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What is Competition Act?
At present, the Competition Act 1998 along with the Enterprise Act 2002 is a major source of competition policy. This act provides an efficient and modernized framework to categorize and deal with restrictive business practices and to put stop to abusive dominant market position.
The act was introduced to create open and vigorous competition as it offers lower price, better quality and increased choice to the consumers. Along with consumers, fair-dealing businessmen also get opportunity to flourish in competitive markets.
The Competition law works to harmonize the UK with EU competition policy. Any anti-competitive behavior is restricted in UK by two major ways:

Anti-competitive agreements – Chapter I of the Competition Act 1998 (CA98) and Article 81 of the EC Treaty prohibits anti-competitive agreements between businesses. This chapter talks about prohibiting business agreements that put stop, limit or misrepresent competition or are tried to do so and which affect trade in the UK and/or EU.

Abuse of a dominant position – Chapter II of CA98 and Article 82 of the EC Treaty prohibits dominant market holders from abusing the dominant position in a market. In a dominant position, a business usually becomes dominant enough to behave independently which can result into charging excessive high price, restrictive production, refusal of product supply and etc. Hence, to eradicate the mentioned problems from a market, the chapter II attempts to put a stop to abusing the dominant position in the market.

Role of OTF OTF or the Office of Fair Trading works as the authority of consumers and competition in order to make markets more accessible and fair for the consumers.
By stopping hardcore or deliberate offenders, OTF functions to encourage businesses to comply with competition and consumer law and improves their trading practices through self-regulation. The agency also empowering consumers with the knowledge and skills to make informed choices and get the best value from markets, and helping them resolve problems with suppliers through Consumer Direct.

What Went Wrong for RBS
Between October 2007 and February or March 2008, two staffs of RBS's Professional Practices Coverage Team disclosed pricing and loan related information to counterparts at Barclays. According to Barclays Bank's disclosure, both generic and specific details about their bank's loan facilities have been leaked by the staffs, either over the phone or during social, client or industry events.
OFT's investigation revealed that Barclays' staff then used the information to fix its own pricing.
During the time of credit crunch, when banks found it much harder, and more expensive, to borrow from each other in the wholesale money markets, the offences took place, investigation suggests.
While RBS has blamed two of its employees for this ‘regrettable and isolated case' and lent its cooperative hands to OFT, Barclays also claimed that it had, too, "voluntarily notified" the OFT about the fraudulent action of RBS staff.

Fine Low Down for RBS
Initially, RBS was fined with £33.6m, but the OFT considered the partially nationalized bank's acknowledgement of penalty and cooperativeness throughout the investigation thereby reducing the fine to £28.6m. Barclays, however, escapes any fine or other penalty.

Cases of OFT Fines
In 2007
, British Airways was fined £121m by the Office of Fair Trading (OFT) for the former's anti-competitive behavior. The fine amount till date is the largest penalty OTF has levied against a single company. The charge against BA was price fixing and collaborating with Virgin Airways over the price of fuel surcharges.
In 2008,
Connaught, Balfour Beatty, Carillion received penalties from OFT for various price fixing cases.
In 2009,
OFT fined Hays with £30m. Hays, a recruitment firm was charged for forming a cartel that fixed prices and was accused for boycotting another firm in the construction job market.
Now in 2010,
RBS is fined for price fixing.
OFT believes this case will prove that companies indulging disclosure of confidential information, will risk serious penalty.
Ali Nikpay, the OFT's senior director of cartels and criminal enforcement, priding OFT's commitment to protect fair competition in market, announces "It is important that companies operating in the UK understand the seriousness of such conduct and ensure effective competition compliance throughout their organisation".



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