RBS 2011 Annual Report Download - page 406

404 RBS Group 2011
32 Memorandum items continued
Litigation and Investigations continued
Summary of other disputes, legal proceedings and litigation
In addition to the matters described above, members of the Group are
engaged in other legal proceedings in the United Kingdom and a number
of overseas jurisdictions, including the United States, involving claims by
and against them arising in the ordinary course of business. The Group
has reviewed these other actual, threatened and known potential claims
and proceedings and, after consulting with its legal advisers, does not
expect that the outcome of any of these other claims and proceedings will
have a significant effect on the Group’s consolidated net assets,
operating results or cash flows in any particular period.
Investigations, reviews and proceedings
The Group’s businesses and financial condition can be affected by the
fiscal or other policies and actions of various governmental and
regulatory authorities in the United Kingdom, the European Union, the
United States and elsewhere. The Group has engaged, and will continue
to engage, in discussions with relevant regulators, including in the United
Kingdom and the United States, on an ongoing and regular basis
regarding operational, systems and control evaluations and issues
including those related to compliance with applicable anti-bribery, anti-
money laundering and sanctions regimes. It is possible that any matters
discussed or identified may result in investigatory or other action being
taken by the regulators, increased costs being incurred by the Group,
remediation of systems and controls, public or private censure, restriction
of the Group’s business activities or fines. Any of these events or
circumstances could have a significant effect on the Group, its business,
authorisations and licences, reputation, results of operations or the price
of securities issued by it.
Political and regulatory scrutiny of the operation of retail banking and
consumer credit industries in the United Kingdom, United States and
elsewhere continues. The nature and impact of future changes in policies
and regulatory action are not predictable and are beyond the Group’s
control but could have a significant effect on the Group’s consolidated net
assets, operating results or cash flows in any particular period.
The Group is cooperating fully with the investigations and proceedings
described below.
Retail banking
In the European Union, regulatory actions included an inquiry into retail
banking initiated on 13 June 2005 in all of the then 25 member states by
the European Commission’s Directorate General for Competition. The
inquiry examined retail banking in Europe generally. On 31 January 2007,
the European Commission (EC) announced that barriers to competition in
certain areas of retail banking, payment cards and payment systems in
the European Union had been identified. The EC indicated that it will
consider using its powers to address these barriers and will encourage
national competition authorities to enforce European and national
competition laws where appropriate. In addition, in late 2010, the EC
launched an initiative pressing for increased transparency in respect of
bank fees. The EC is currently proposing to legislate for the increased
harmonisation of terminology across Member States, with proposals
expected in 2012. The Group cannot predict the outcome of these actions
at this stage and is unable reliably to estimate the effect, if any, that these
may have on the Group’s consolidated net assets, operating results or
cash flows in any particular period.
Multilateral interchange fees
In 2007, the EC issued a decision that while interchange is not illegal per
se, MasterCard’s current multilateral interchange fee (MIF) arrangements
for cross border payment card transactions with MasterCard and Maestro
branded consumer credit and debit cards in the European Union are in
breach of competition law. MasterCard was required by the decision to
withdraw the relevant cross-border MIF (i.e. set these fees to zero) by 21
June 2008.
MasterCard appealed against the decision to the European Court of First
Instance (subsequently re-named the General Court) on 1 March 2008,
and the Group has intervened in the appeal proceedings. In addition, in
summer 2008, MasterCard announced various changes to its scheme
arrangements. The EC was concerned that these changes might be used
as a means of circumventing the requirements of the infringement
decision. In April 2009, MasterCard agreed an interim settlement on the
level of cross-border MIF with the EC pending the outcome of the appeal
process and, as a result, the EC has advised it will no longer investigate
the non-compliance issue (although MasterCard is continuing with its
appeal). The appeal was heard on 8 July 2011 by the General Court and
judgment is awaited. This could be delivered in spring or summer 2012,
although it may take longer.
Visa’s cross-border MIFs were exempted in 2002 by the EC for a period
of five years up to 31 December 2007 subject to certain conditions. On 26
March 2008, the EC opened a formal inquiry into Visa’s current MIF
arrangements for cross border payment card transactions with Visa
branded debit and consumer credit cards in the European Union and on 6
April 2009 the EC announced that it had issued Visa with a formal
Statement of Objections. At the same time Visa announced changes to
its interchange levels and introduced some changes to enhance
transparency. There is no deadline for the closure of the inquiry.
However, on 26 April 2010 Visa announced it had reached an agreement
with the EC as regards immediate cross border debit card MIF rates only
and in December 2010 the commitments were finalised for a four year
period commencing December 2010 under Article 9 of Regulation
1/2003. The EC is continuing its investigations into Visa’s cross border
MIF arrangements for deferred debit and credit transactions.
In the UK, the Office of Fair Trading (OFT) has carried out investigations
into Visa and MasterCard domestic credit card interchange rates. The
decision by the OFT in the MasterCard interchange case was set aside
by the Competition Appeal Tribunal (CAT) in June 2006. The OFT’s
investigations in the Visa interchange case and a second MasterCard
interchange case are ongoing. On 9 February 2007, the OFT announced
that it was expanding its investigation into domestic interchange rates to
include debit cards. In January 2010 the OFT advised that it did not
anticipate issuing a Statement of Objections prior to the General Court’s
judgment, although it has reserved the right to do so if it considers it
appropriate.
The outcome of these investigations is not known, but they may have a
significant effect on the consumer credit industry in general and,
therefore, on the Group’s business in this sector.
Notes on the consolidated accounts continued