Measures to spur competition in the retail banking market

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


Decision no.22/2017 of the Icelandic Competition Authority (‘ICA'), 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. Previously, the ICA had completed corresponding settlements with Landsbankinn and Arion banki (the other big Icelandic banks). Just as in the case of these settlements, the main goals with the measures (commitments) set out in the settlement with Islandsbanki 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.

Páll Gunnar Pálsson, Director of the Icelandic Competition Authority:

The settlement with Islandsbanki represents a certain milestone since as of its completion, settlements have been reached with all the large retail banks regarding measures that are conducive to spur competition in retail banking.

It is important to note that the settlements are not only suited to bring benefit to individuals when they do business with the banks but also a large number of companies. Thus, the banks have agreed to a ban on prepayment fees on loans that carry variable interest rate in the case of smaller companies and the banks have also committed to make it easier for smaller companies to switch banks.

Commitments of the Settlement:

As part of the settlement, Islandsbanki 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. 
  • Contractual rights to revise interest rates of the bank's older mortgage loans will not be exercised to raise interest rate of the loans because a customer has transferred his payment account to another bank.

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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