The National Court has annulled the 91 million euro fine imposed by the National Competition Market Commission CNMC on four banking institutions over alleged arrangements to offer interest rate derivatives that did not align with terms agreed with clients. The Administrative Chamber found that there was no proven, ongoing common plan across all sanctioned entities from 2006 to 2016 that would justify treating the conduct as a single continuous violation.
In a related development, the Sixth Section considered appeals filed by Banco Santander, BBVA, Sabadell and Caixabank against the CNMC decisions dated February 13 2018. The CNMC had levied fines of 31.8 million on Caixabank, 23.9 million on Santander, 19.8 million on BBVA, and 15.5 million on Sabadell for agreeing to price derivatives that exceeded market conditions. These derivatives were used to hedge interest rate risk tied to syndicated loans for project financing.
The CNMC had justified the sanctions by arguing that the four banks violated Article 1 of Law 15/2007 on the Protection of Competition and Article 101 of the Treaty on the Functioning of the European Union at least from 2006 through 2016. The court’s ruling indicates that the penalties do not automatically translate into a uniform outcome for each party involved.
Agreed interest
Evidence of collusion exists in certain transactions, including contracts with the VAPAT Group between 2010 and 2012, where the banks allegedly set an interest rate before presenting offers to clients for financial derivatives that were not tied to the client investor. The court notes that clients often believed the rate offered at closing reflected market price, while the rate had been predetermined by the banks through mutual agreement that did not take market conditions into account.
For other operations, the court found that the syndicated loan deal involved a hedging instrument, typically a swap, tied to a fixed rate shared by all sanctioned entities. This suggested a prior agreement to set the derivative price in a way that did not transparently reflect market conditions. The court emphasizes that even if the fixed rate matched the market rate, it does not prove that the price-setting occurred behind the client’s back. The contracts did not show client complaints or surprise at undisclosed margins or commissions when the guarantee was formalized.
The chamber underscores the existence of concerted activity among financial institutions to secure favorable prices through illegal agreements. It notes that this is illegal only if it is conducted with clear disregard for the customer, a distinction the court holds to be most evident in the operations of the VAPAT Group and not in the other cases.
The court likewise states that to treat the derivative contracts as a single and continuous violation, it would have been necessary for the CNMC to examine each operation, determine the specific terms of the derivative contracts, and prove that margins or prices above market levels were imposed. That analysis was not performed across all transactions, and as a result the court rejected the notion that all derivative contracts included in the sanctions decision formed part of the same prejudicial scheme as the VAPAT Group cases. Classifying the violation type as single and continuous is considered unlawful under these circumstances. In its broader assessment, the court indicates that a number of factors must align for a single continuous violation to be established, and they did not for the agreements in question. While the VAPAT Group cases clearly demonstrated illegal pricing dynamics, the broader set of transactions did not meet that threshold according to the court’s evaluation, as reported by the official records and subsequent commentary from observers. Source attributions are listed in the public case materials. (CNMC case notes and summaries.)