European Commission opens formal investigation into biofuel benchmarking

The European Commission has announced that it has started a formal probe into alleged manipulation of ethanol benchmarks contrary to Article 101 TFEU.  It named three companies (Abengoa, Alcogroup and Lantmannen) based in Spain, Belgium and Sweden as the targets.

The Commission alleges that that the companies conspired to manipulate the prices that they submitted to the international price benchmarking agency Platts whose indices are widely used to price ethanol and ethanol derivatives.  Ethanol is widely used in the production of biofuel used in vehicles.

The Commission believes that the alleged infringement, if proven, could compromise the EU’s energy market objectives by inflating prices for renewable energy.

The Commission launched its investigation in 2013 with dawn raids of some of some of the biggest oil companies.  It then extended its investigation to ethanol with investigations of some ethanol companies in 2014, although it did not formally confirm the names of the companies involved.  The Commission also conducted a further raid in March 2015, again not stating the target of its investigation other than to confirm that the company was active in the production, distribution and trading of ethanol.

In 2013 the Commission proposed a Regulation on indices used in financial contracts and which it intended would promote better standards and integrity in financial markets.  In announcing the formal stage of the current investigation, the Commission has stated that the Regulation is approaching the final stage of adoption by the Council and the Parliament.

The Commission is conducting a separate investigation into whether producers of bioethanol have colluded to fix prices or share markets (Case AT.40244 - Bioethanol).

Case AT.40054 - Oil and Biofuel Markets. Commission press release IP/15/6259.

European Commission backs down on credit default swaps investigation

In a rare case closure, the European Commission has ended its antitrust investigation into the credit default swaps (CDS) market finding no evidence that 13 investment banks were involved in a cartel. The investigation was one of many launched in the wake of the financial crisis but the Commission has now announced that the evidence it has gathered is insufficient to confirm its original concerns.

A CDS is a contract used by a purchaser of debt to mitigate their potential losses in the event of debtor default.  CDS were often traded for speculative purposes in the run-up to the financial crisis.

In July 2013 the Commission issued a statement of objections to the largest banks, including Bank of America Merrill Lynch, UBS, Goldman Sachs JPMorgan, Morgan Stanley, Barclays, HSBC, Bear Stearns, BNP Paribas, Deutsche Bank, Citygroup, Credit Suisse and the Royal Bank of Scotland, as well as the International Swaps and Derivatives Association (ISDA) and Markit, a provider of financial information.  The Chicago Mercantile Exchange and Deutsche Börse attempted to launch a trading platform for credit derivatives.  Participation in the market required licences to be issued by ISDA and Markit, entities controlled by the banks.  The Commission had alleged that the banks conspired to prevent ISDA and Markit from issuing the requisite licences and that they agreed to provide data for valuation purposes solely to Markit.

The Commission’s volte face was not unexpected, although some practitioners expected it to issue a supplementary statement of objections.  Given recent European Commission and Court decisions into, for example, information exchange, there was some question as to how the investigated companies would fare in mounting an effective defence.  The Commission’s case closure announcement is carefully worded but as regards the specific allegation of collusion among the banks it has not found sufficient evidence of infringement.

It is rare for the Commission to abandon a case after the objections stage.  In the air cargo cartel case the Commission did not pursue its objections against all the initial addressees, dropping allegations against 11 carriers and a consultancy firm but it did maintain charges against 11 other carriers.

However, the antitrust scrutiny of CDS is not over.  The Commission’s separate investigations in relation to ISDA and Markit are continuing and the US Department of Justice has launched a parallel probe into Markit.  Some of the banks have also been subject to US antitrust private lawsuits over similar allegations to those examined in Europe.

Source:  Commission MEX/15/6254

CMA warns of competition implications of TfL’s proposals for regulation of vehicles for private hire

The Competition and Markets Authority (CMA) has published a response to a consultation by Transport for London (TfL) on proposed amendments to its regulation of private hire vehicles.  The CMA considers that the proposals will harm competition between private hire vehicles such as Uber and licensed taxis and that the proposed regulatory regime is disproportionate.  The CMA also considers that the proposals will distort a level playing field, in some instances by introducing rules that do not apply to London taxi drivers.

The main elements of the proposals are advanced fixed fares, minimum five-minute waiting time requirements for passengers, obligatory pre-booking facilities and restrictions on drivers working for multiple operators at any given time.  Operators would also be banned from displaying the location of vehicles on smartphone applications.

The CMA accepts that some form of regulation is needed but it is concerned that the proposals go beyond what is necessary and could operate to the detriment of users of taxi and private hire services in London.  It is also keen to avoid regulatory divergence between the regulatory regimes applying to taxis and private hire vehicles and which would potentially curb market developments that benefit passengers.

The CMA has published guidance for policymakers on how to take account of competition (Competition impact assessment: guidelines for policymakers).  It suggests that TfL might find this guidance useful when considering the impact of its regulatory regime on competition.

It should be emphasised that this is not a case of one regulator overriding the views of another.  The CMA is highlighting that TfL must consider the impact of its measures on competition, a duty that applies to all central and local government departments. 

This is not just an issue for London.  As new business models emerge, regulators in the UK and elsewhere are grappling with how to adapt their regulation to the demands of a changing market.  To take one example, Uber operates in over 50 countries around the world and has often encountered a legal and regulatory battleground.  On the one hand, Uber wants to operate wherever there is a demand for its services.  On the other hand, taxi drivers argue for preservation of the licensing regime that reserves territory to themselves.  The issue, then, is not whether regulation is needed.  It is a case of asking about the scope of regulation, i.e. to what, to whom and to what extent regulation applies?  And all against dramatic changes to technology allowing for service delivery in ways not contemplated before now.

CMA response to TfL's private hire regulations proposals, 2 December 2015