Measures to spur competition in the retail banking market - Based on a settlement with Arion Bank

Arion banki hf. has reached a settlement with the Icelandic Competition Authority regarding measures to reinforce competition for the benefit of individuals and small enterprises


The decision of the Icelandic Competition Authority (‘ICA'), no. 22/2017, published today, outlines a settlement that the ICA has reached with Arion banki (one of Iceland's three big banks) on measures to spur competition in retail banking services. The main goals with the measures (set out in the settlement as commitments) are: 

  1. Reduce costs charged to customers when they switch retail banks.
  2. Make it easier and more efficient for individuals and small companies to shop around for financial services and thus exert greater competitive discipline on those offering retail banking services.
  3. Counter conditions that may facilitate tacit collusion in the market for retail banking services.

 Following decision no. 8/2015, dated 30 April 2015 (see press release), which involved significant changes in connection with operations and arrangements in the payment market, the ICA started discussions with the three big commercial banks regarding further actions to spur competition in the retail banking market. Among the aims of the discussions was to bring closure to investigations into certain practices in the market. 

Arion banki is the second after Landsbankinn of the three big Icelandic commercial banks to complete the above mentioned settlement negotiations with the ICA. The commitments of the settlement with Arion banki are largely identical to the commitments in the settlement with Landsbankinn (see press release here). Negotiations for a settlement with Íslandsbanki (one of the three big Icelandic banks), are in the final stages.


Páll Gunnar Pálsson, Director of the Icelandic Competition Authority:

By reducing unnecessary hindrances that customers face when they want to switch banks, customers are provided with the ability to induce greater competitive discipline in retail banking that should inter alia compel the banks to compete more aggressively for customers, e.g. by offering them more favourable rates, fees and terms.

 Commitments of the Settlement:

 As part of the settlement, Arion banki commits to adhere to the following conditions in its operations:

  •  Prepayment fees will not be charged for early redemptions made by debtors in the case of loans that carry variable interest rates when the borrower is an individual or a small enterprise. This applies to such outstanding loans at the time of signing (irrespective under which laws they were granted) as well as to future loans of this type.
  •  Caps on fees will apply in the case of charges for transferring tied private pension savings from the bank to other entities that offer private pension fund management. This commitment is  to reduce the tying effects of such charges on the mobility of customers, thereby promoting more effective competition in this field.
  •  Swapping of mortgage debtors via property transactions will no longer be conditional upon the buyer moving all of his or her banking services to the respective bank. Banking services in this context refer to salary payment account together with, if applicable, other services.
  •  It will be made easier to switch banks. To attain this goal, the selection, development and installation of systems and technical solutions will take account of this aim. Customer surveys will be used to identify the preferences of customers in this regard and the bank will respond accordingly.
  •  Customers will be notified of significant changes to interest rates and service fees before they take effect in order to enable customers to transfer their banking transactions elsewhere, should they choose to do so.
  •  The bank will make sure that all information on general fees, rates and terms that is published on the bank's website is accessible through an open API (application programming interface) that third parties (individuals, enterprises or associations) can download and use to set up comparison websites that could reinforce consumer awareness of prices and consequently trigger more effective competition. The setting up of the API in this regard could also comprise certain business opportunities for companies considering entering the field of FinTech in Iceland.  
  •  Certain contractual rights according to the terms of older mortgage loans, that have significant tying effect in the opinion of the ICA, and which triggered an investigation by the ICA, will not be applied by the bank.

 In addition to the aforementioned commitments, the newly enacted Act on Consumer Mortgages (No. 118/2016) stipulates that it is illegal to charge up‑front fees as a proportion of the mortgage amount, but that used to be the standard practice by mortgage lenders, including the banks. When the draft bill to this Act was under construction, the ICA proposed that this practice be banned, cf. the ICA's letter of opinion to the Economic and Commerce Committee, dated 7. January 2016. The parliament agreed with this proposal.

 The settlements the ICA has reached with the big Icelandic banks also serve as a contribution to a policy framework pertaining to the banking industry that the government will need to build in view of the current ownership structure of the banks and in view of rapid developments (FinTech) in banking services internationally.

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