WRITTEN QUESTION P-2164/99

by Christopher Huhne (ELDR) to the Commission

(19 November 1999)

Subject: Inquiry into rising foreign exchange costs

Will the Commission confirm that there has been a very sharp rise in the foreign exchange dealing costs between the euro and the pound sterling over the past year, and will it consider whether there has been any illicit collusion between participants in this market, or whether there is an abuse of a dominant position?

Answer given by Mr Monti on behalf of the Commission

(7 December 1999)

The Commission is aware of cases where the foreign exchange dealing costs between the euro and the pound sterling have risen following the introduction of the euro. The Commission understands that this has arisen for the following reasons.

The bid/offer spread on foreign exchange markets is measured in pips. Thus, if the bid price for sterling/euro is 0,6397 and the offer price is 0,6399, there is a spread of two pips. The Commission understands that prior to the introduction of the euro, the bid/offer spread on the retail market for sterling/deutschmarks was in the region of five pips for GBP 5 million. Following the introduction of the euro, the bid/offer spread on the retail market for sterling/euro is in the region of three pips for 10 million. Given the difference in value between the euro and the deutschmark, although the spread has gone down in absolute terms, the cost in percentage terms has increased significantly. The Commission understands that there is also currently a bid/offer spread of around three pips for sterling/euro on the interbank market. This apparently makes it difficult for banks to charge less than three pips on the retail market.

These facts could suggest an absence of competitive pressure on providers of foreign exchange services to reduce their spreads, either at the retail level or at the interbank level or both. However, they are not evidence in themselves that infringements of Community competition law either have been or are taking place.

So far as the application of Article 82 (ex Article 86) of the EC Treaty is concerned, there are many hundreds of banks which deal in sterling/euro and provide foreign exchange services to corporate customers. It seems unlikely therefore that any individual bank is in a dominant position or that there are a number of banks which could be considered to be in a joint dominant position. As regards the application of Article 81 (ex Article 85) of the EC Treaty, the Commission has no evidence that collusion has taken place. Indeed, in general terms, successful collusion to maintain or increase spreads would probably require two elements, both of which appear to be missing on this market. The first is that there would need to be a relatively small number of participants in the collusion. A cartel involving hundreds of participants would seem most unlikely. Secondly, successful collusion would require some degree of transparency of prices in order to allow for enforcement. However, on the retail market, the spread is in principle only known to the buyer and seller. For these reasons, it might be considered that a spreads cartel on the foreign exchange retail market would be unlikely to succeed.

Finally, although the Commission has not received any formal complaint regarding the subject matter of the Honourable Member's concern, it will continue to monitor the situation.