CMA settles with banks over sensitive information exchanges on UK gilts

The Competition and Markets Authority (CMA) has imposed fines exceeding £100 million on four major financial institutions—Citi, HSBC, Morgan Stanley, and Royal Bank of Canada—for violating competition law in the trading of UK government bonds, commonly known as gilts. The penalties come as part of a settlement following a lengthy investigation into the unlawful exchange of competitively sensitive information by traders from these banks.

The probe, which began in 2018, uncovered that between 2009 and 2013, traders from these banks engaged in one-to-one private conversations via Bloomberg chatrooms, where they shared pricing details and trading strategies related to gilt transactions. The CMA determined that such exchanges undermined market competition, potentially affecting institutional investors, the UK government, and taxpayers.

How Did the CMA Uncover Anti-Competitive Conduct in UK Bond Markets?

The investigation, spanning several years, revealed that individual traders at these banks engaged in private online discussions where they disclosed information about upcoming gilt sales, pricing decisions, and trading intentions. These discussions affected primary gilt sales, when the UK Debt Management Office (DMO) auctioned bonds on behalf of HM Treasury, secondary market transactions, where gilts were traded between investors and banks, and buy-back auctions, when the Bank of England repurchased gilts as part of its monetary policy operations.

The CMA determined that these conversations compromised competition, creating an unfair advantage for the traders involved. Although each bank’s level of involvement varied, all were found to have participated in unlawful information sharing at different points between 2009 and 2013.

What Are the Consequences for the Banks Involved?

As part of the settlement, the four banks have agreed to pay substantial fines, reflecting both the seriousness of their actions and the CMA’s commitment to enforcing competition law in the financial sector. Citi has been fined £17.16 million, a reduced amount due to a 35% leniency discount and a 20% settlement reduction. HSBC has been ordered to pay £23.4 million after receiving a 10% reduction for settling after the CMA issued its Statement of Objections. Morgan Stanley will pay £29.7 million, benefiting from a 10% discount for settling post-Statement of Objections. Royal Bank of Canada has been fined £34.2 million, also receiving a 10% settlement discount.

Deutsche Bank was also implicated in the investigation but avoided financial penalties under the CMA’s leniency policy, having voluntarily disclosed its involvement. Citi, having later cooperated with the investigation, received a partial fine reduction. The banks are required to pay their fines by April 22, 2025, marking the official conclusion of the case.

How Has This Impacted Competition in the UK Financial Sector?

The UK’s financial services sector plays a crucial role in the economy, contributing billions of pounds annually and supporting both public and private investment. The CMA stressed that healthy competition is essential for market integrity, ensuring that financial institutions compete fairly and independently when determining bond prices and trading strategies.

The unlawful exchange of competitively sensitive information could have led to artificially manipulated pricing, reducing market transparency and limiting the benefits of full competition for investors. By intervening, the CMA has reinforced its commitment to ensuring fair market practices and preventing anti-competitive behaviour that could ultimately increase costs for taxpayers and pension funds.

What Compliance Measures Have the Banks Implemented?

In response to the investigation, the penalised banks have strengthened internal compliance measures to prevent similar breaches in the future. These changes include enhanced surveillance of trader communications to detect potential violations, revised internal policies governing the handling of market-sensitive information, and expanded compliance training to ensure all employees understand competition law obligations.

The CMA acknowledged these steps, noting that while the penalties reflect the seriousness of the conduct, the banks’ proactive efforts to strengthen compliance were considered when determining the final fines.

What Are the Broader Implications of the CMA’s Findings?

The CMA’s investigation and settlement send a strong warning to the financial industry, reinforcing that competition law breaches in sensitive markets will be met with firm regulatory action. While the penalties are significant, they would have been substantially higher had the banks not already implemented extensive corrective measures.

Juliette Enser, Executive Director of Competition Enforcement at the CMA, stated that the settlement marks a critical step in ensuring market integrity and preventing collusive practices in the financial sector. She highlighted the importance of maintaining investor confidence in UK bond markets, which play a vital role in government financing and economic stability.

What’s Next for UK Financial Regulation?

While this case concludes the CMA’s investigation into UK bond trading, it raises broader questions about financial market oversight and the need for continuous regulatory scrutiny. In the wake of the global financial crisis, regulators worldwide have increased their focus on market transparency and ethical trading practices.

The case serves as a precedent for future enforcement actions, demonstrating that even highly sophisticated financial institutions are not immune to competition law scrutiny. The CMA’s intervention also signals a growing emphasis on compliance culture, urging financial firms to prioritise ethical conduct and transparent trading practices.

The UK government bond market remains a critical component of the country’s financial stability, and ensuring its integrity is essential for economic confidence. With financial regulators continuing to monitor trading practices, banks and institutional investors must remain vigilant in adhering to competition laws to avoid further regulatory action.