interactions between competition authorities and sector regulators in caricom – kusha haraksingh -...

Competition in Financial Markets

Session III

LACCF 2017

Presented by:

CARICOM Competition Commission

Interactions between Competition Authorities

and Sector Regulators in CARICOM

Acknowledgement

Presentation on behalf of the CARICOM Competition

Network

Members of the Network:

• CARICOM Competition Commission

• Jamaica Fair Trading Commission

• Barbados Fair Trading Commission

• Trinidad and Tobago Fair Trading Commission

• Guyana Competition and Consumer Affairs Commission

Objective of the Presentation

Main focus is on the commercial banking sector.

Also includes aspects of Jamaica’s contribution to the Latin

American and Caribbean Competition Forum which looks at the

broader financial sector.

Commercial Banking Sector in CARICOM

Antigua &

Barbuda Barbados

Belize

Dominica

Grenada

Guyana

Jamaica

Montserrat

Saint Kitts &

Nevis

Saint Lucia

Saint Vincent &

the Grenadines

Suriname

Trinidad &

Tobago

0

1

2

3

4

5

6

7

8

9

10

No

. o

f C

om

mer

cia

l B

an

ks

Median = 5

Max = 9

Min. = 2

Legislative Framework for Competition in CARICOM

(Commercial Banking Sector)

Country Competition

Law

Draft

Competition

Bill

Is the Banking Sector

Exempted?

YES NO

Barbados

Belize

Guyana

Jamaica

Suriname

Trinidad & Tobago

OECS: Antigua & Barbuda

Dominica

Grenada

Montserrat

Saint Lucia

St. Kitts & Nevis

St. Vincent & Grenadines

Competition Authorities in CARICOM

─ Chapter 8 of the Revised Treaty states that each Member State shall enact its competition law and establish a national competition authority.

─ The Treaty also provides for the establishment of a regional competition authority to ensure that anti-competitive business conduct does not frustrate the Single Market objective:

─ To date the following authorities have been established in CARICOM:

• CARICOM Competition Commission (regional institution)

• Jamaica Fair Trading Commission

• Barbados Fair Trading Commission

• Trinidad and Tobago Fair Trading Commission

• Guyana Competition and Consumer Affairs Commission

Why is assessing the banking sector important to the

Competition Authorities in CARICOM?

The need for assessments are customer driven.

• Concerns raised about possible high bank charges

• Possible collusion amongst banks

Assessments by Competition Agencies in CARICOM

Country Studied (Year) Method Results

Barbados

(2012) Market Study

─Banks appeared to compete in

interests on loans.

─Evidence suggested that

competition in sundry bank charges

was not as robust as with interest

rates.

Jamaica

(2011) Market Study No evidence of collusion

Suriname

(2017)

Panzar-Rosse Monopolistic competition

HHI Highly concentrated

Guyana

(On-going)

Panzar-Rosse

To be determined

HHI

Sector Regulators (Commercial Banking Sector)

• Central Banks

- Barbados

- Jamaica

- Guyana

- Other CARICOM countries

• Central Bank

• Securities and Exchange Commission

- Trinidad and Tobago

Roles of Central Banks

(Commercial Banking Sectors)

Objective of all Central Banks in CARICOM

─ Promote and develop sound financial structures in each country.

None of the Central Banks have a clear responsibility to promote or

protect competition! But a consumer element for a few.

Bank of Jamaica

─ Banking Services Act of Jamaica provides for a Code of Conduct

addressing dealings with customers, e.g.

Simplification of language in customer contracts and

obligations to provide reasonable notice of changes in fees and

charges, interest rates and terms and conditions

Roles of Central Banks

(Commercial Banking Sectors)

Central Bank of Trinidad and Tobago

─ Office of the Financial Services Ombudsman (established by an amendment to the Financial Act) and Code of Conduct

To provide assistance to customers who are not satisfied with their financial services provider; and

To mediate on behalf of those who have a complaint with their institution.

Eastern Caribbean Central Bank

─ Code of Conduct (not legally binding)

To ensure a fair and consistent approach in customer relations and provide minimum standards for customer care.

To promote full disclosure of information.

To increase customer awareness of their rights and obligations.

Financial System Total Assets as % of GDP (2014)

113.6 141.5

87.2

163.6

66.2 46.2 52.3 58

74.3 81.1

52.2

0

50

100

150

200

250

Bahamas Barbados Belize ECCU Guyana Haiti Jamaica Suriname Trinidad &

Tobago

CARICOM

To

tal A

sset

s a

s a

% o

f G

DP

Banks Credit Unions Insurance Companies Other

Why is assessing competition in the banking sector important to Central Banks?

Data Source: Caribbean Region Financial Stability Report 2015

In terms of assets, the banking sector is the dominant financial intermediary in the

financial systems of CARICOM Member States.

Competition Assessments by Central Banks in CARICOM


Trinidad and Tobago

(2000)


Conjectural variation

model

Competition greater than Cournot

behaviour, with no increase in the

level of competition after 1989.

Jamaica

(2003)

HHI Highly concentrated


Barbados

(2004) Bresnahan-Lau

The level of competition in the sector

increased from 1992-2002.

Competition decreased in 1991 and

2003, coinciding with mergers during

those years.

Eastern Caribbean

Currency Union (2011):

Antigua & Barbuda

Grenada

Saint Lucia

Saint Kitts & Nevis

HHI

HHI for Antigua and Barbuda below

2000 for most years but highly

concentrated for the other countries.

Panzar-Rosse Monopolistic competition in all

countries

Lerner Index

Lerner Index lowest for Antigua and

Barbuda and highest for St. Kitts and

Nevis.

Competition – Financial Stability Nexus?


Jamaica

(2009) Regression analysis

Competition improves commercial

bank soundness but increases

financial instability in the merchant

bank sector.

Eastern Caribbean

Currency Union (2011):

Antigua & Barbuda

Grenada

Saint Lucia

Saint Kitts & Nevis

Granger-causality Competition negatively affects

financial stability.

Roles of other Sector regulators

(Commercial Banking Sector)

Trinidad and Tobago

─ Established by the Securities Industries Act.

─ Four primary functions:

Registers companies (including banks) on the securities exchange.

Ensuring orderly, fair and equitable trading in the securities market by

conducting investigations of possible breaches of the Securities Act

and customer complaints against registered market actors.

Ensuring investor protection and instilling investor confidence through

investor education programmes.

Enforcement of the legislation which governs the functioning of the

industry.

Framework for protecting competition in the banking

sector of Trinidad and Tobago?

Securities and

Exchange

Commission

Financial Services

Ombudsman

Mergers Unilateral Conduct

Restrictive agreements

Challenges to Competition Law Enforcement in

CARICOM (Commercial banking sector)

─ Uncertainty of the role of the Central Bank and SEC of Trinidad and Tobago in addressing competition concerns.

What type of analysis or procedures will be used to examine mergers between banks, or investigations regarding abuse of dominance and restrictive agreements?

Particularly for abuse of dominance and restrictive agreements given the mandate of the Office of the Financial Services Ombudsman!

─ Overlapping jurisdiction in Jamaica

The Jamaica Stock Exchange vs. The Jamaica Fair Trading Commission (JFTC)

Court held that JFTC jurisdiction is ousted in sectors governed by other legislation

JFTC could investigate but might not have the power to enforce the national competition law.

Jamaica has no merger provisions. Merger assessment is conducted by the central bank – no consideration to consumers.

Challenges to Competition Law Enforcement in

CARICOM (Commercial banking sector)

─ Challenges to cross-border competition law enforcement

CCC relies on national laws and cooperation from national

authorities – e.g. securing evidence.

Member States with exemptions in their national laws (e.g.

banking sector in Trinidad and Tobago) might make it difficult

for the CCC to access evidence.

Treaty speaks to cooperation with national competition

authorities and not “sector regulators”. It also refers to

“competent authorities” but this is not defined.

The laws establishing sector regulators do not allow for

cooperation with non-national competition agencies like the

CCC.

Overcoming the Challenges to Competition Law

Enforcement in CARICOM through Cooperation

(Commercial banking sector)

Trinidad and Tobago

Trinidad and Tobago Fair

Trading Commission

Central Bank of Trinidad and

Tobago

Securities and Exchange

Commission

(a) Formal relationship

(b) Joint training sessions

in competition law

(a) No relationship exists but

one is necessary for the two

agencies to address

unilateral conduct and

restrictive agreements



(Financial sector)

Jamaica

Financial Inclusion Steering

Committee

Central Bank

Financial Services

Commission

Fair Trading Commission

Consumer Affairs

Commission

Informal relationship Informal relationship



(Commercial banking sector)

CARICOM Competition Commission

─ Amendments/clarifications to the Treaty are needed to secure

cooperation from all sector regulators, including central banks.

Definition of “competent authority” – legal clarity

Possible inclusion of provisions authorising sector regulators to

cooperate with the CCC?

─ Increase the awareness of sector regulators of the role of the CCC

regarding cross-border competition law enforcement.

Capacity building workshops throughout the region in 2016.

Training using internet platforms slated for 2017.

Market Studies in the Financial Sector

Assessment of the banking sector

(Jamaica and Barbados Market Studies)

Barbados (2012) Jamaica (2011)

Motivation behind

the study

Public concerns of collusion

amongst the commercial

banks.

Public concerns of collusion

amongst the commercial banks.

Focus of the study Banking and interest rate

charges

─Minimum balance charges

─Credit and debit card usage

─Standing orders

─Account transfers

─Bank statements

─Inter-bank charges on the

CARIFS Network

Fees charged on ancillary

services relating to:

─credit and debit cards usage

─bill payment

─wire transfers

─Minimum deposit violations

─Dormant accounts

─And more

Information relied

on for the study

─ Commercial bank data

─ Customer survey conducted

by BFTC

─Bank interviews

─Commercial bank data

─ Customer survey from CAC

─Information on regulatory

impediments


(Jamaica and Barbados Market Studies) Barbados (2012) Jamaica (2011)

Techniq

ue used

─structure of the market

─Examination of patterns and trends in

frequency and timing of

implementation of fees and interest

rates.

─structure of the market

─dispersion of fees over 5 years

Findings

from the

study

─Sector moderately concentrated

based on HHI.

─High barriers to entry (regulatory

barriers, sunk costs - distribution

network, e.g. ATMS, POS)

─Low degree of switching by bank

customers (although it is not hard).

─Customers not well informed about

changes in bank charges and interest

rates.

─Competition in loans market (based

on interest rate movement).

─Competition on bank charges for

sundry services not robust.

─Sector highly concentrated based

on HHI.

─Low barriers to entry and exit

offering a competitive constraint.

─Low degree of switching by bank

customers (high costs, loyalty).

─Consumers not well informed

about changes in bank charges.

─Market characteristics could allow

the two largest banks to collude or

exercise collective dominance.

─No evidence of collusive behavior

found.


(Jamaica and Barbados Market Studies) Barbados (2012) Jamaica (2011)

Recommendations ─ Standardised definitions of

services to enable customers to

make comparisons between the

banks.

─ Bankers association inform the

public of developments in the sector.

─Banks frequently review their fee

schedules to make certain they are

relevant to the respective services

offered.

─Mechanisms to make banks

provide adequate information on

their services to customers

─Facilities to make it easier for

consumers to access information

about banking services.

─ Mechanisms to make it easier for

banks to access customer

information on credit worthiness.

What has

changed?

─Recommendations not adopted but

the BFTC found comfort in the

bankers associations acknowledging

that competition in the sector is

important.

─Bankers association challenged

key findings of the study and

resisted the measures

recommended.

─Two credit bureaus introduced.

─Banking Code of Conduct allows

banks to provide adequate

information to customers.

Lessons Learnt by CCC from the banking sector

(Jamaica and Barbados Market Studies) Barbados (2012) Jamaica (2011) CCC comments

HHI ─ Average 5-year

HHI

─ Compared 2005

and 2009

─Prefer a dynamic approach to

analysing HHI. The Barbados

approach does not account for

changes throughout the years,

which could provide more

information about competition in

the market.

Customer

switching

─ Past behaviour of

bank customers

─ Past behaviour

of bank customers

─Information is useful but does

not account for current economic

climates in the region. Customers

might not have switched in the

past but due to economic climate

they may switch in the future.

The analysis should therefore

account for this.

Assessment of the Credit Union sector

(Jamaica 2012 Market Study)

Jamaica (2011)

Motivation behind the study ─Concerns by members that fees charged by credit

unions were high and in some cases higher than

commercial banks

─The need for JFTC to have a deeper

understanding of the sector.

Focus of the study Fees charged on ancillary services relating to:

─debit cards transactions

─withdrawals

─wire transfers

─Standing orders

Information relied on for the

study

─Information on regulatory impediments

─Income from providing ancillary services

─Fees charged

Techniques used ─Dispersion of fees over 4 years



Jamaica (2011)

Findings

of the

study

─No credit union had a market share greater than 15 percent in

relation to assets.

─From the parish level, 9 regions are highly concentrated and 3

moderately concentrated.

─Low barriers to entry and expansion (easy to get a license and to

consummate a merger).

─No significant increases in the fees ( in real terms) for ancillary

services over the review period.

─Price spread between the lowest and highest average fees widened in

2010 relative to 2007.

─For 7 regions the size of the competitors posed competitive

constraints.

─Competitive constraints are limited by membership criteria

─The average credit union fee is lower than the average bank fee for

seven selected comparable services.



Jamaica (2011)

Recommendations ─Qualifications for membership in credit unions

should be adjusted to allow more persons to become

eligible to join any given credit union.

─Since consumers are also part owners of the credit

unions in which they are members, they should be

encouraged to play a more active role in the

operations of their credit union through participation

at Annual General Meetings

interactions between competition authorities and sector regulators in caricom – kusha haraksingh -...

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