The future of the Irish bank will be decided in the coming months

The competitive landscape of the Irish retail banking market is expected to change dramatically in 2022. The imminent departures of Ulster Bank and KBC appear, at first glance, to consolidate the market position of the only remaining incumbents, namely Bank of Ireland , AIB and the permanent TSB.

This follows the significant consolidation that took place in the banking sector ten years ago following the crash of 2008. A central element in Ireland’s economic recovery has been the creation by the Minister of Finance of the era, Michael Noonan, of the “pillar” banking system.

The pillar banks were designed to bring together the multitude of Irish financial institutions operating at the time into a small nucleus, with foreign-invested banks – such as Ulster Bank and KBC – helping, in the words of the Minister, to ” maintain the competitive fabric of the market. “Now that the last overseas retail banks are about to leave, what does this mean for competition in Irish banking and what impact will it have? it on consumers?

This is where the Competition and Consumer Protection Commission (CCPC) comes in. As the watchdog of competition in Ireland, the CCPC will have an important say in how these issues play out over the next year.

Indeed, the CCPC is currently investigating the BoI’s proposed acquisition of KBC’s Irish loan portfolio, as well as the planned purchases of elements of Ulster Bank by AIB and PTSB.

Transactions require regulatory approval

These transactions all require regulatory approval from the CCPC under Irish Merger Control Rules before they can be closed.

The BoI / KBC agreement is particularly remarkable. It was first notified to the CCPC for approval last April before the CCPC case team subsequently decided to open a detailed “phase 2” investigation in October.

A phase 2 process is initiated when the CCPC is, in accordance with its guidelines, “unable, on the basis of the information available to it, to form an opinion that the result of the merger or acquisition will not reduce considerable competition in the markets for government goods or services.

This process allows the CCPC to conduct a thorough market review before it has to make a decision (whether to approve a transaction, conditionally or unconditionally, or to prohibit it).

A phase 2 investigation is not taken lightly. The experience of the last 20 years shows that only a small handful of single-digit agreements will advance to phase 2 in any given year.

But the CCPC’s preliminary ruling in the BoI / KBC deal makes sense from a competition law perspective in the context of any proposal for further consolidation in the banking sector.

The existing high level of concentration has already been highlighted by the Central Bank of Ireland. Indeed, Mario Draghi, then president of the European Central Bank, went further by evoking a “quasi-monopoly” in 2018.

Similar logic will also apply to the Ulster Bank split. The agreement with AIB was notified at the end of July and is ongoing. Its outcome is likely to influence the way in which the PTSB transaction is viewed, as the latter transaction was not notified to the CCPC until more recently on December 22.

It is in this context that other developments in the banking sector must also be considered.

Payment application

One of the most innovative decisions of Ireland-based retail banks in recent times has been to come up with the creation of a payments app, called Synch Payments.

Synch is intended to be a new industry-wide mobile payment system service. It is designed to compete with digital banks such as Revolut and N26, which have made significant inroads into the Irish market for online accounts and payment services.

Since Synch is a joint venture, mainly between BoI, AIB and PTSB (which are otherwise competitors of each other), it must also be approved by the CCPC. The deal was first notified last January, but quickly hit a stumbling block when the merger notification was – in a rather unusual move – rejected outright by the CCPC. This was on the basis that insufficient information had been provided on the transaction to allow the CCPC to assess the banks’ plans for implementation.

It took another three months before the deal was notified again in April. Following a detailed initial assessment, the CCPC announced earlier this month that it would demand a full Phase 2 investigation into the case. This review is now underway, with third party submissions being accepted by the CCPC until January 5.

It is clear that the CCPC has a base full of in-depth agreements with the banking sector to consider as 2022 approaches. By opening Phase 2 investigations into a number of these cases, the CCPC has sent the signal that competition concerns must be resolved before the agreement. approvals will be issued. It is no exaggeration to say that the Irish retail banking landscape for the next decade will now likely be determined by the decisions of the CCPC over the coming months.

  • Ronan Dunne is Head of EU and Competition Law at Philip Lee Law Firm

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