Financial services is a sector of great importance to the EU economy. This sector includes the banking and insurance markets, which are integral parts of European citizens' lives, and the capital markets. These financial markets are the lifeblood of the real economy, giving businesses and consumers access to financial products. The better and more competitively they function, the better the economy will perform.
The financial services sector has been facing major challenges and opportunities in recent years leading to rapid and profound changes. EU competition policy with its three enforcement instruments – antitrust, merger and State aid control – plays an important role in ensuring that, given these circumstances, competition takes place on fair and equal terms throughout the financial sector and that disruptive technologies are developed and applied for the benefit of consumers and businesses alike.
Following the financial crisis that began in 2007 the European Commission has taken swift action to overcome it and to create a more transparent and stable financial system. Along the enhancement of the EU regulatory and supervisory framework applying to the financial sector (for further details, please see: https://ec.europa.eu/info/law/law-topic/eu-banking-and-financial-services-law_en), the European Commission has taken numerous steps to upgrade its State aid framework in light of the lessons learnt from the crisis.
Preserving the level playing field between aid recipients and their competitors while ensuring that public support can only be provided to viable institutions were (and remain) among the key objectives of the European Commission. Furthermore, beyond cases where banks are the final beneficiaries of the aid, compliance with State aid rules is also ensured for cases where the aid is channeled through the banking sector.
Recent developments have shown that the improved resilience of the sector as a whole enabled EU banks to immediately play a role supportive of the real economy when the COVID-19 crisis started. Financial intermediaries are key in passing on public support to households and firms in need of liquidity, as allowed by the Commission’s Temporary Framework for State aid measures to support the economy.
New players in financial services have recently entered payments markets and providers of FinTech services continue to gain ground in many areas. They compete with established providers of financial services like card schemes in payments, banks for deposits and credit services, as well as traditional insurers.
Certain developments have been accelerated by the Covid-19 pandemic such as increase in contactless and digital payments in shops with digital wallets, payment apps and contactless cards. This was accelerated by consumer preferences for contactless payments without interaction with a terminal/keypad. Similar considerations apply to mobile payments with digital wallets and apps, which are becoming increasingly popular as a payment method. Also the rise of alternative payment methods such as cryptocurrencies needs to be mentioned.
Index tracking funds and investment vehicles continue to grow in significance within the EU capital markets and the significance of the index producing industry as well as the market for market data on which index users rely, has become increasingly apparent. This market is being disrupted by policy initiatives encouraging shifts towards sustainable investment patterns. The insurance industry also relies heavily on data and data pools for risk assessment purposes. It is also being disrupted by the advent of Insuretech and enhanced big data analytics.
Regardless of the benefits which innovation may bring to the financial services markets, the European Commission continues to closely monitor developments in these areas and intervenes with enforcement actions where necessary to ensure that competition takes place on the merits and that a level playing field is maintained. It thereby complements regulatory activities by other Commission services concerning the financial services sector.
Innovative business models disrupt existing markets in the financial service sector, and established companies see themselves challenged by new competitors such as start-ups or big tech companies. Mergers and acquisitions between competitors are one consequence of such market dynamics. Whether involving new players or established ones, the Commission – through its merger enforcement instrument – closely scrutinises consolidations between competitors and vertical integrations in the financial services sectors.
This is notably the case when mergers may create or strengthen market power due to use of and access to data and new technologies. As in other industries, the progress of digital technologies can also lead to concentration tendencies on markets to the ultimate benefit of few remaining competitors. The objective of EU merger control is to allow companies to grow and develop including through acquisitions, but to intervene when such a concentration would impede competition to the detriment of the consumer.