Measures to enhance competition in general commercial banking services for individuals and small businesses – Based on a settlement with Arion Bank

The decision describes an agreement the supervisory authority has made with Arion Bank on measures to strengthen competition in business banking services. The measures provided for in the agreement are primarily aimed at:

1. Reduce the costs incurred by customers when switching banks.

2. Promote more effective competition from individuals and small businesses with those providing commercial banking services in Iceland.

3. To work against situations that could undermine tacit coordination in the market/markets for commercial banking services.

The measures that Arion Bank is undertaking under the settlement are in all material respects similar to the measures provided for in the Competition Authority's settlement with Landsbankinn (see the link to the news story here: http://www.samkeppni.is/utgafa/frettir/nr/2943).

With the settlement, Arion Bank specifically commits to following the following conditions in its operations:

No arrangement fees will be charged on overpayments by borrowers on any new or outstanding variable-rate loans for individuals and small businesses, regardless of the legislation under which the relevant loans were originally granted.

• Caps are introduced on fees for the transfer of tied personal pension savings from the bank to other providers offering personal pension management. This is primarily intended to reduce the lock-in effect of such fees on customer mobility, thereby promoting more effective competitive pressure in this area.
• The assumption of a mortgage in a property transaction will not be conditional on the buyer moving their banking business to the bank. By 'banking business', we mean a current account and, where applicable, other concurrent business.
• It will be made easier for customers to move their banking between banks. The selection, development and implementation of systems and technical solutions will be aimed at this, and service surveys will be used to identify customer priorities in this regard, to which the bank will respond.
• Customers will be specifically informed of significant changes to interest rates and the price list before they take place, to give the customer the opportunity to move their business elsewhere if they so choose.
• The bank will arrange for all information on general fees, terms and conditions, which are publicly published on the bank's website, to be accessible via an open API interface (an information technology gateway for customised programming solutions) which third parties (individuals, companies or organisations) could retrieve and use the information to set up a comparison website that could facilitate more effective consumer oversight.This could also present certain business opportunities for companies interested in establishing themselves in the field of financial technology (FinTech) in Iceland.
• Certain provisions in the terms and conditions of residential mortgages, which, in the opinion of the Competition Authority, involve a significant tying arrangement and were the initial subject of an investigation by the Competition Authority, will not be activated by the bank.

In addition to the above conditions, the newly enacted law on consumer mortgages (No. 118/2016) stipulates that banks are prohibited from setting loan fees as a percentage of the loan amount, as has been customary. During the processing of the bill that became the aforementioned law, the Competition Authority advocated for a ban on this practice, as noted in the Authority's opinion to the Economic and Commercial Committee, dated 7 January 2016. The legislature acceded to these requests.

The agreement presented here also constitutes a contribution to the policy-making currently facing the government and the banks in the financial market, in relation to changes in the banks' ownership and rapid developments in financial services on the international stage.