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The Icelandic State‘s acquisition of 95% share in Islandsbanki hf.

8/25/2016

With its decision no. 9/2016 the Icelandic Competition Authority („ICA“) authorised the Icelandic State‘s acquisition of 95% share in Islandsbanki hf, one of Iceland‘s largest commercial banks, subject to certain conditions that the ICA considered necessary in order to protect competition in the Icelandic banking market, especially in view of the State‘s majority ownership in Landsbankinn hf. which is also one of the three largest banks in the country. The conditions are based on ICA‘s powers as defined by Article 17c of the Icelandic Competition Act, no. 44/2005. The conditions are as follows:

Merger Settlement:

 „Glitnir‘s surrender of 95% share in Íslandsbanki to the Icelandic government is a merger in the meaning of Article 17 of the Icelandic Competition Act no. 44/2005 (“the Act”). On the basis of the powers defined by Article 17 of the Act, the merger is approved subject to the following conditions.”

 1. The banks shall operate as independent competitors

Íslandsbanki and Landsbankinn shall operate as independent competitors on their relevant markets. This means that all contracts and agreements, guiding as well as binding, between the banks are prohibited. Coordinated behavior whose aim is to reduce or distort competition, or that leads to a restriction of competition, is prohibited according to Article 10 of the Icelandic Competition Act and Article 53 of the EEA agreement.

 ny employees or members of the board of Íslandsbanki or Landsbankinn that perform or encourage coordinated behavior, between these banks, in breach of Article 10 of the Icelandic Competition Act, can be held privately responsible according to paragraph a of Article 41 of the Icelandic competition act.

 Any exemptions that the ICA has previously granted to these banks regarding their cooperation shall remain unaltered independent of this agreement. The ICA can, according to Article 15 of the Icelandic Competition Act, grant an exemption from Article 10 of the Act.

 2.Policy aims and administrative execution at the Icelandic State Financial Investments[1]

Icelandic State Financial Investments (ISFI) shall ensure, as far as its powers enable, the competitive independence of commercial and savings banks in which the Icelandic State is a shareholder. This shall be achieved, inter alia, by means of the following measures: 

  1. Any board member elected by ISFI to the board of a commercial or savings bank shall be independent of other commercial or saving banks in Iceland. They shall also be independent from those who have control over other commercial or savings banks in Iceland. Independence is defined in clause 3 of this agreement.  

  2. Members of the Selection Committee, who nominate the board members of banks and savings banks on behalf of the ISFI, shall be independent of other commercial and savings banks in Iceland in the meaning of clause 3 of this agreement. Each year at least one member of the Selection Committee shall be replaced by a new member.  

  3. In the Selection Committee's code of conduct, which the ISFI shall draw up, there must be provisions stipulating that the selection committee members must specifically take note of these settlement conditions regarding the competitive independence of banks in which the state has shareholding interest. 

  4. The ISFI shall use its influence to ensure that the boards of the banks, in which it holds majority share, will draw up a code of conduct including i.a. provisions that specifically address the issue of how to ensure the competitive independence of the bank from other state owned banks.  

  5. Contracts regarding specific or general goals in the operation of a state owned banks, cf. paragraph e of Article 4 in Act no. 88/2009, the ISFI is prohibited from making any demands that can directly or indirectly lead to a collusion between these banks on price or service, division of markets, or other market behavior.  

  6. The ISFI shall take measures to ensure that any procurement, maintenance and distribution of information by the institution does not affect competition between competitors in which it is a shareholder. This means i.a. that the ISFI shall make sure that confidential information in the hands of the ISFI does not  get out to competitors in the market. The institution shall draw up rules regarding the maintenance of information from competitors and publish them on its website. Such rules can for instance contain provisions regarding safeguarding of data, delineation of tasks and access control.  

  7. When shares in a bank owned by the State are offered for sale, the ISFI shall ensure that the preparation and sales process does not harm competition between the banks in which it is a shareholder. The institution will not grant competitors of Íslandsbanki on the one hand and Landsbanki on the other hand access to the sales process of the bank in question.  

  8. The Ministry of Finance shall make sure that the State Ownership Policy reflects this merger settlement. 

 

3. Definition of independence

Board members and members of the Selection Committee are considered independent if they are not employees or board members of those who have control over other commercial or savings banks in Iceland, are not employees or board members of other commercial or savings banks in Iceland or their subsidiaries, are not domestic partners of board members or managing directors of any of the aforementioned parties nor related lineally to them nor collaterally related to them in the first degree. An individual cannot be considered independent if working as an advisor to any of the aforementioned parties on a regular basis or receives the majority of his/her income from them.

 4. Declarations of Selection Committee members and elected Board members

Members of ISFI's Selection Committee and board members elected by the committee  shall sign a declaration confirming that they have read and understood this settlement with the Competition Authority  and will act in accordance with its provisions and the Competition Act and will not act in any way that could restrict the competitive independence of commercial or savings banks at issue.

 A copy of the declaration of each board member shall be sent to the ICA within 30 days after nomination to either ISFI Selection Committee or to the board of a bank.

 5. Reporting to the ICA

The ISFI shall prepare a report regarding the implementation of this settlement and send it to the ICA no later than 31st December 2016.


 


[[1] The ISFI is the Icelandic State‘s holding company for shares in financial companies.]

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