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RBS Fined $38.5 Million for Sharing Pricing Details

Royal Bank of Scotland has been fined £28.59 million ($38.5 million) by the Office of Fair Trading after admitting breaches of competition law, adding weight to concerns that the UK banking sector operates in a club-like atmosphere rather than a highly competitive industry.

A Royal Bank of Scotland logo is seen outside the company's offices in central London, Tuesday May 29, 2007. A consortium led by Royal Bank of Scotland PLC said Tuesday it will launch a hostile bid of euro71.1 billion (US$95.5 billion) for ABN Amro, topping a friendly offer from Barclays PLC and pressing Bank of America Corp. for control of the Dutch bank's U.S. arm. (AP Photo/Matt Dunham)
Matt Dunham
A Royal Bank of Scotland logo is seen outside the company's offices in central London, Tuesday May 29, 2007. A consortium led by Royal Bank of Scotland PLC said Tuesday it will launch a hostile bid of euro71.1 billion (US$95.5 billion) for ABN Amro, topping a friendly offer from Barclays PLC and pressing Bank of America Corp. for control of the Dutch bank's U.S. arm. (AP Photo/Matt Dunham)

RBS , which was bailed out by the government last year, admitted to sharing information on the pricing of loans for professional services clients with rival Barclays, which used the data to price its own loans.

The two banks, which dominate the loan market for UK professional services firms, were raided by the OFT last year. Barclays did not pay a fine as it blew the whistle to the OFT. RBS cut its fine from £33.6 million by co-operating with the investigation.

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Banks have been in the cross-hairs of the OFT since the financial crisis put their industry under greater scrutiny. As some banks have disappeared and others merged, politicians and regulators have become concerned that competition has suffered.

This year the OFT lost a high-profile lawsuit over the fairness of charges on unarranged overdrafts. However, the competition body is still determined to force banks to lower the penalty charges that earn them billions of pounds each year.

The OFT is also looking at the fees charged by investment banks and considering launching a formal probe into whether a lack of competition has allowed banks to generate big profits and pay large bonuses.

Lord Myners, City minister, said last week there was clear evidence of restricted competition in investment banking. The opposition Tory party has promised to review the retail and investment banking industries if it wins this year’s general election.

“Any company that discloses confidential future pricing information to its competitors risks a substantial penalty,” said Ali Nikpay, OFT senior director of cartels and criminal enforcement. “This case underlines the OFT’s commitment to protecting competition in the financial services sector.”

The OFT said RBS disclosed information on the pricing of its loans to large solicitors, accountants and real estate practices “in the course of a number of contacts on the fringes of social, client or industry events or through telephone conversations”.

“As well as general disclosures on future pricing, the investigation found that RBS had supplied specific confidential future pricing information in relation to two proposed loan facilities,” the OFT said.

It added that RBS’s penalty reflected its co-operation during the investigation, as well as the bank’s admission to wrongdoing and “the further co-operation it has agreed to enable the case to be resolved more speedily and effectively”.

The OFT has recently taken a more aggressive approach to tackling price-fixing, imposing heavier fines and using tougher legal powers that allow it to threaten executives with up to five years in jail. In 2008 it imposed a record fine of £132 million on Gallaher, the tobacco company, and five retailers for inflating the cost of cigarettes.