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EU anti-trust law (Articles 85 and 86) and their potential impact on the banking sector of the Czech



Monique Negenman


Fédération Bancaire de l’Union Européene (FBE)









EU competition law

EU competition rules may be divided into three categories. First, rules monitoring anti-competitive behaviour by undertakings, i.e. cartels and abuses of dominant positions (laid down in Articles 85 and 86 of the EU Treaty). Secondly, rules with regard to possible restrictive effects of mergers (Merger Regulation of 1989, recently revised) and thirdly rules monitoring distortions of competition by governments, i.e. state aid (Articles 92-94 of the Treaty). This presentation will be limited to Articles 85 and 86, and their impact on the banking sector in particular. Before we turn to the main developments in the application of EU anti-trust law on the banking sector, a few words about the content of Articles 85 and 86.

Article 85(1) prohibits, in short, agreements and concerted practices between undertakings which restrict competition and may affect trade between Member States. The most obvious examples are price fixing arrangements and market sharing cartels. Such agreements are hard-core cartels and per se illegal. Other agreements or practices, such as exclusive or selective distribution agreements and various forms of co-operation agreements, may also restrict competition. However, under certain conditions these may be exempted from the prohibition under Article 85(1). In essence this will be the case if it can be established that their benefits outweigh their anti-competitive effects. To that end they should be notified to the Commission, and in each case it will have to be considered carefully whether the requirements for an exemption under Article 85(3) are met.

Article 86 prohibits abuses of dominant positions which may affect trade between Member States. Examples of such abuses are imposing unfair purchase or selling prices or other unfair conditions and tying arrangements. It is noted that, while Article 85(1) refers to arrangements between several different undertakings, Article 86 relates to an individual firm’s practice. Another difference with Article 85(1) is that, under Article 86, naturally, no exemptions can be granted to an undertaking abusing its dominant position.

Application of EU competition law in the banking sector


Until the beginning of the eighties, doubts remained to exist as to whether Articles 85 and 86 also applied to the banking sector. The banks themselves held that their specific position in national economies, influenced by continuos government intervention on capital markets and central bank supervision, excluded the application of EU competition rules. On the contrary, the Commission held the view, as expressed in its annual report of 1972, that EU competition law also applied to the banking sector. In 1981, the Court of Justice in the Züchner case, finally settled the debate by declaring EU competition law, without exception, applicable to the banking sector. In this judgement the Court in particular held that banks could not be considered as undertakings entrusted with the operation of services of a general economic interest within the meaning of Article 90(2). Hence, just as any other undertaking, banks have to respect the EU competition rules.

So far, the Commission has adopted, since 1984, seven formal anti-trust decisions in the banking sector. One decision (Banque National/Dresdner Bank) relates to an interbank co-operation agreement. All the other decisions deal essentially with the operating rules of certain payment systems. Moreover, in 1995 the Commission adopted a notice on the application of the EC competition rules to a specific payment system, i.e. cross-border credit transfers (OJ C 251/3, 1995).

Apart from these formal activities, the Commission, over the years, dealt with a considerable number of cases in the banking sector in an informal way, i.e. means of administrative letters. The most important cases are explained in the respective annual competition reports.

The main orientations of the application of EU law in banking sector may be summarised as follows. A distinction may be made between price competition issues and non price competition issues.

Price competition issues

client fees

Agreements between banks fixing the tariffs charged to clients, whether fixed, minimum or maximum tariffs, are prohibited under Article 85(1), provided they may affect trade between Member States. Such agreements may not be exempted under Article 85(3). The Commission stated its position with regard to common client fees in several decisions, for example in the Eurocheque- Helsinki Agreement decision of 1992. The position of the Commission was confirmed by the Court in First Instance in 1995.


Interest rates

So far, the Commission has not taken a formal decision with regard to agreements between banks on interest rates charged or granted to their clients. However, it follows from a judgement from the Court of Justice of 1988 (Van Eycke) that interbank agreements on interest rates may also fall within the scope of Article 85(1). An investigation, which the Commission undertook in the beginning of the nineties in several Member States, shows that, in case of sufficient proof for such agreements, these are unlikely to benefit from an exemption under Article 85(3) regardless of their relation with the economic and monetary policy of the Member State in question.


Apart from agreements between banks on client fees (i.e. fees relating to the vertical bank-client relationship), banks may also conclude agreements on fees they pay to each other when they co-operate in handling a particular payment, so-called multilateral interchange fees, MIF’s. For example, in credit card payment systems the bank of the creditor has to pay a fee to the bank of the debtor. Some payment card operators consider this fee as a remuneration for certain services provided by the debtor bank (e.g. processing or providing a guarantee). Others consider this fee rather as an instrument to restore imbalances of costs and revenues in a four party agreement.

So far, the Commission has expressed its views on MIF’s in four of its decisions, (1) all of which cleared the MIF’s, either by means of a negative clearance or by means of an exemption. In addition, the Commission has explained its MIF policy in the earlier mentioned notice on cross border credit transfers of 1995. In the meantime, the Commission services have developed the competition reasoning with regard to MIF’s in further detail in the context of some pending cases, some of which are expected to result in formal decisions within the near future. The current thinking with regard to MIF’s can be summarised as follows.

Interchange fee agreements between banks will normally fall outside the scope of Article 85(1) if they are agreed upon bilaterally. However, a multilateral interchange fee is in principle considered as a restriction of competition falling under Article 85(1) because it restricts the freedom of the banks individually to decide their own pricing policies. In addition, this restriction is likely to have a restrictive effect of distorting the behaviour of banks vis-à-vis their customers, since creditor banks who have to pay the fee will normally surcharge their costs to the merchants (even in the absence of any agreement). The emphasis on the vertical relationship banks/merchants is a first novelty in the reasoning but it is mainly in the context of Article 85(3) that we have tried to develop economic thinking.

However, although an MIF will normally be caught by the prohibition of Article 85(1), it will in principle be exemptible under Article 85(3), provided certain conditions are fulfilled. The reasoning, in a nutshell, goes as follows. First of all, the Commission services consider that it is entirely up to the banks participating in a payment system to decide how to allocate operating costs of the system and thus that banks should be free to agree on an interchange fee. The MIF is considered as a legitimate cost shifting device, which leads to the best possible satisfaction of the demands from both debtors and creditors. It is found to be a more efficient cost-allocating device than a set of bilateral interchange fees. Therefore, an MIF is found to be exemptible, under the conditions that a) the MIF is the default option and banks can agree on different interchange fees and b) there are no price restrictions in the bank client relations, in particular no so-called no-discrimination rule (NDR, to be discussed hereafter). In addition, in payment systems where there is (almost) no intersystem competition, further conditions may be imposed to guarantee that the banks in question will not set the level of the MIF at an excessive level. In such cases, the Commission might impose a regular review of the level of the MIF by an independent external expert.


Contrary to the two other price competition issues discussed so far (i.e. common client fees and MIF’s), the Commission has so far not taken a position with regard to the so-called no-discrimination rule (NDR). The NDR is a rule in certain international (such as Visa and Eurocard) and national (such as Cartes Bancaires) payment systems, prohibiting merchants to surcharge customers for the use of a certain payment system. This rule has already been prohibited by several national Competition Authorities, i.e. in the UK (1990), Sweden (1994) and the Netherlands (1995, confirmed by the Administrative Court in appeal in 1997).

The views of the Commission services with regard to the NDR may be summarised as follows. It could be argued that the NDR is restrictive of competition since it weakens the bargaining power of merchants vis-à-vis banks when they negotiate the conditions under which they will accept the means of payment offered by a particular payment system. Moreover, an NDR prevents customers from getting a better picture of the relative costs of that particular means of payment. Hence it restricts inter-system competition. Finally, it deprives merchants of the freedom to decide whether or not to pass on the card-using customer one component of their costs (the merchant fee).

Moreover, strong doubts might be expressed on the exemptibility of an NDR under Article 85(3). Although the necessity to protect consumers by ensuring a certain predictability of costs of use of payments systems might be recognized, this predictability should not be achieved at all costs. The NDR could be seen as a disproportionate price to pay in terms of competition since other, less restrictive, means to achieve the purpose exist. There are other means, which are less restrictive than the NDR, to ensure predictability. In particular, merchants could be obliged to publish clearly and in advance (for example by announcements at the entrance of their premises) possible charges for means of payment. Moreover, in order to avoid fluctuations in the amounts charged to cardholders and to avoid abusive surcharges, a "cap" of charges by merchants could be required. For example, merchants may be required to charge no more than the commission they have to pay to their bank. These two conditions (transparency and ceiling) have been applied in the UK, to the satisfaction of both consumer organizations and merchant organizations. Moreover, the experiences in the Member States where the NDR has been abolished show that the negotiating position of merchants improved and merchant fees actually cam down, while at the same time the use of the cards continued to increase.

The Commission hopes to clarify its position on the NDR in the near future in the context of some pending cases.


Non price competition issues

Access to essential facilities

Of interest from a competition point of view are also the conditions for access to payment systems or other financial systems, in particular if these can be considered as essential facilities. The Commission has set out its views on this issue in the earlier mentioned notice on cross border credit transfers of 1995. In this notice an essential facility is defined as a facility or infrastructure without access to which competitors cannot provide services to their customers. A payment system will be an essential facility when participation in it is necessary for banks to compete on the relevant market. In other words, lack of access to the system amounts to a significant barrier to entry for a new competitor.

In its notice the Commission set out that membership criteria of an essential facility should be objectively justified, i.e. written, accessible and non-discriminatory. They may, for example, lay down requirements for members concerning their financial standing, technical or management capacities, and compliance with a level of creditworthiness. The payment of an entry fee may also be required, but must not be set at so high a level that it becomes a barrier to entry. In any event, the level of an entry fee must not exceed a fair share of the real cost of past investments in the system. The membership criteria may not make membership in the system conditional upon acceptance of other unrelated services. Refusal of membership to an essential facility should be accompanied by a written justification for the reasons for the refusal and should be subject to an independent review procedure.

An example of a case in which the Commission actually applied these criteria is the SWIFT case. SWIFT (Society for Worldwide International Financial Telecommunications), which offers a network for the international transfer of order transfer messages, was considered by the Commission as an essential facility. The French La Poste filed a complaint against SWIFT in 1996 for its refusal to accept la Poste as a member. Following objections by the Commission under Article 86, SWIFT agreed to provide access to its network, services and products on the basis of objectively justified admission criteria, to be applied in a non-discriminatory manner. This undertaking by SWIFT was published in the Official Journal in November 1997. (2)


Co-operation agreements between banks

The Commission is aware of the importance of co-operation between banks to some extent, in order to provide improved services to consumers and in order to promote the integration of the Community’s banking systems. Article 85(1) will not apply if banks agree on certain technical forms of co-operation in the context of a payment system. For example, this will be the case for agreements relating to common banking hours, clearing rules, setting up a direct debit scheme (Irish Banking Committee decision of 1986) and guidelines contributing to the security of a payment system (eurocheque decision of 1989).

Forms of co-operation between banks beyond purely technical co-operation will in principle be restrictive of competition. However, where restrictive co-operation arrangements between banks promote efficiency, such arrangements may be exempted from the prohibition under Article 85(1), provided that they are no more restrictive than necessary to achieve their objectives. As an example can be named the agreement between Banque Nationale de Paris and Dresner bank, which was notified to the Commission in 1993 and which provided for close co-operation especially in the field of international business (international finance, merchant banking and placing of securities) in particular by placing of products at the disposal of the other party for distribution through its network. The Commission found that this kind of co-operation was caught by Article 85(1). However, after the modification of a far reaching exclusivity clause contained in it, (3) the Commission held that the agreement satisfied the conditions for an exemption under Article 85(3). It stated that the co-operation would lead to an improvement in the production of banking services provided to customers in those countries (achievement of economies of scale, sale of new banking products). The Commission also held that the co-operation agreement would improve the distribution of the products of each of the parties to the agreement in the country of the other (decision of 24 June 1996, OJ L 188/37).


Prohibition on participants to adhere to other payment systems

As an illustration for another non-price competition issue, the following case can be named. In 1996 the Commission received complaints from American Express and Dean Witter, the issuer of the Discover Card, against a rule proposed by Visa that would have banned its members from issuing some competing cards in Europe. The proposed rule was based on an existing Visa USA rule.

The Commission’s Competition services considered that the proposed rule, if adopted, would have fallen within Article 85(1) because it would have restricted competition between payment card systems as well as between banks offering international general purpose cards. This can be explained as follows.

First, the proposed rule would have led to a restriction on inter-system competition: it would have substantially restricted competition between global general purpose card systems by impeding card systems other than Visa from licensing the vast majority of EC banks as issuers since Visa includes a substantial majority of the major European banks as its members. If the rule had been adopted, it was unlikely that any of those banks would have risked exclusion from Visa membership because they derive substantial revenue from it, and would lose substantial actual and potential sums were this membership sacrificed (market foreclosure effect).

Secondly, the rules would have restricted competition between banks by decreasing the broad range of products they could present to customers. Offering a range of different cards may enhance the services of banks to customers and increase their ability to target particular market segments.

After Commissioner Van Miert warned publicly that Visa’s proposal could not be accepted, the EU Board of Visa International decided to drop the proposal. As a consequence, the complaints were withdrawn and the investigation was closed without the Commission taking any formal action (annual competition report 1996).


Restrictions on cross border services and exclusivities

Some payment systems restrict the freedom of their member banks to provide cross border services, i.e. issuing cards to cardholders in other Member States and/or acquiring merchants for card transactions in other Member States. For example, some payment systems only allow their member banks to provide cross border services when they have established a branch or subsidiary in the territory concerned. Moreover, in some payment systems, banks are only allowed to acquire an international merchant for all its activities within the EU if this merchant fall within certain limited categories, such as car rental companies and international hotels (so-called central acquiring). Merchants falling outside these categories, such as for example large retailers and petrol companies, may not be centrally acquired by one bank for all their EU transactions but they will have to conclude contracts with banks in several Member States. Naturally, this will not only restrict the commercial freedom of action of the banks participating in the payment system at stake. It will also have a restrictive affect on the freedom of merchants who are restricted in shopping around for the supplier of payment card services of their choice.

In addition to these restrictions on cross border services, in some payment systems banks in certain Member States hold an exclusive licence to acquire merchants within their territory. In other Member States, merchant acquirers in some payment systems hold a de facto monopoly. Naturally, these exclusive rights have a restrictive effect on intra-system competition.

The Commission is currently investigating these issues in some pending cases and hopes to clarify its position with regard to these type of restrictions in the near future.


Potential impact of EU competition law on banking sector in Czech Republic

According to the Europe agreement concluded between the EU and their Member States and the Czech Republic (decision of the Council and the Commission of 19 December 1994) the Czech Republic shall adopt the necessary rules in order to develop an effective competition policy along the lines of the EU competition law.

Already in 1992-1993 the Czech Republic adopted several acts on the protection of economic competition, basicly following the EU competition rules. The provisions of these acts are also fully applicable to the banking sector. Moreover, a national competition authority, the Office for the Protection of Economic Competition, has been established. So far, this Office had to deal with the application of competition law in the banking sector only in a few cases.

Once the Czech Republic will join the EU, the EU competition rules will be directly applicable. In order to ensure the consistent application of competition policy in the banking sector, close co-operation between the national competition authority and the Commission will be of importance. Equally important will be the awareness of banks in the Czech Republic as to what extent their activities may be found to be prohibited under competition law. I hope my presentation has contributed to this.

Monique Negenman


(1) Helsinki Agreement of 1984, Association des Banques Belges, Associazione Bancarai Italiana (both of 1986) and Dutch Banks of 1989.



(2) OJ of 6.11.97, C335/3.



(3) Initially the agreement contained a far reaching reciprocal exclusivity clause, providing that either bank might veto outright a co-operation agreement which the other wished to conclude with a home country competitor of the former bank. The parties agreed to limit the scope of this clause to cases where a co-operation agreement with a third bank involved the utilization of know-how or business secrest either resulting from the notified cooperation or originating with the bank having the right of veto.


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