WRITTEN QUESTION E-3096/02

by Brice Hortefeux (PPE-DE) to the Commission

(28 October 2002)

Subject: Financial control

The Enron scandal highlighted the fragility of financial stability and the interrelation between this and audit firms in the USA and Europe.

For some years now, the number of large audit firms has been steadily decreasing. The upshot of this structural change has been to limit the choice of large companies or multinationals looking for such a firm.

The choice of a reliable audit firm has therefore become a major issue. The limited number of players in the field of financial management control (there are only four such companies in the USA) is also a cause for concern because, as the Enron episode has shown, there is an attendant risk of this situation undermining the stability of the financial markets, which have already been weakened by a series of crises.

Over 80 % of the EU's 100 largest undertakings in Belgium, France, Italy, the United Kingdom and the Netherlands call on the services of just four audit firms. This trend is clearly anticompetitive and tends towards monopolisation of the world market by a few large specialist firms.

Will the Commission act to counter this negative trend, which greatly endangers the stability of the markets, and what measures will it propose under Articles 81 and 82 of the EC Treaty?

Answer given by Mr Monti on behalf of the Commission

(16 December 2002)

Following the Enron scandal, Andersen ceased to operate as a global company and Andersen partners in the Union sought to join one of the other four large accounting firms (i.e KPMG, PricewaterhouseCoopers, Deloitte & Touche Tohmatsu and Ernst & Young). The arrangements that were negotiated varied from one Member State to another.

Only three of the mergers that were agreed in the Community fell within the scope of the Community Merger Regulation(1), these being the transactions that took place in Germany, France and the United Kingdom. The investigation carried out in these cases confirmed that the large five accounting firms served a distinct market for large and international firms which would in any case have recourse to the big accounting firms with an international network only. Thus the local Andersen companies, deprived of the network, were no longer able on their own to keep their large customers, and the mergers, in themselves, would not contribute to the possible worsening of competition resulting from the loss of one of the Big Five auditors. No significant concerns regarding competition in this market were raised by customers during the investigation. Thus the three transactions were cleared by the Commission(2). Other transactions were scrutinised by the national competition authorities of the Member States concerned and were eventually cleared.

The Commission is not aware of grounds for intervention in this sector on the basis of articles 81 and 82 of the EC Treaty. The Commission shares the concerns of the Honourable Member on the structure of the industry, and will continue to pay close attention to this industry and in particular to possible regulatory developments emerging from the recent scandals.

(1) Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of concentrations between undertakings, OJ L 395, 30.12.1989.

(2) M.2810 Deloitte & Touche/Andersen UK, Art. 6(1)(b) decision on 1 July 2002 M.2824 Ernst & Young/Andersen Germany Art. 6(1)(b) decision on 27 August 2002M.2816 Ernst & Young/Andersen France, Art. 6(1)(b) decision on 5 September 2002 http://europa.eu.int/comm/competition/mergers/cases/index/by_cy_a.html

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