Court annuls €33.6m fine imposed on HSBC for distortion of competition in interest rate derivatives sector

The General Court of the European Union has annulled a hefty fine imposed by the European Commission on HSBC for for anticompetitive practices in the interest rate derivatives sector. This becomes clear from an announcement published by the Court earlier today.

The case concerns HSBC Holdings, the parent company of HSBC France, which owns HSBC Bank. HSBC France and HSBC Bank are responsible for the negotiation of Euro Interest Rate Derivatives (EIRDs). HSBC France is responsible for submitting rates to the Euribor (Euro Interbank Offered Rate) panel.

In June 2011, the Barclays banking group made an application to the European Commission to benefit from the Commission Notice on Immunity from fines and reduction of fines in cartel cases, informing it of the existence of a cartel in the EIRD sector and expressing its wish to cooperate. On October 14, 2011, Barclays was granted conditional immunity.

Following examinations conducted at the premises of a number of financial institutions in London and Paris, including those of HSBC, the European Commission launched infringement proceedings against certain financial institutions, including HSBC.

According to a decision dated December 7, 2016, the Commission found that Crédit Agricole, HSBC and JPMorgan Chase participated in a single and continuous infringement consisting of the restriction and/or distortion of competition in the EIRD sector. Due to that infringement, the Eurppean Commission imposed a fine of €33,606,000 on HSBC.

Under today’s judgment, the Court largely upholds the Commission’s finding that HSBC participated in an infringement of competition law. However, it annuls the fine imposed for insufficient reasoning.

The Court has looked into HSBC’s arguments contesting the Commission’s finding of infringement by object. In that regard, the Court concludes that the Commission was right to find that the manipulation of March 19, 2007 in which HSBC participated fell within the definition of an infringement by object. By contrast, the Court holds that the Commission’s finding concerning two discussions in which the HSBC traders had exchanged information on their trading positions with traders from other establishments was incorrect.

Further, the Court considered the pleas contesting the Commission’s finding concerning HSBC’s participation in a single and continuous infringement jointly with other establishments. In the light of the circumstances in the present case, the Court concludes that HSBC’s participation in such an infringement could be upheld only in respect, first, of its own conduct in that infringement and, second, of the conduct of other establishments forming part of the manipulation of March 19, 2007 and any potential repeat of that manipulation.

Finally, regarding the fine imposed, HSBC contests, inter alia, the reasoning for determining the value of the sales used as the basis for calculating the fine.

The Court stresses that since the Commission decided to determine that value by using a figures- based model, taking as its starting point all the cash flows received under EIRDs, the reduction factor which it applied to it plays an essential role. It is necessary that the undertakings concerned be placed in a position to understand how the European Commission arrived at a reduction factor set precisely at 98.849% and that the Court be in a position to carry out an in-depth review of that factor of the contested decision.

According to the Court, the Commission did not provide in its decision a sufficient explanation of the reasons why the reduction factor was set at that precise level, and therefore it is unable to conduct its review on a factor of the decision which could have had a significant effect on the fine imposed on HSBC. That is why the Court annuls the fine for insufficient reasoning.