Sky News has learnt from senior banking industry figures that a Competition and Markets Authority (CMA) investigation into “certain types of financial product”, revealed in a brief statement on Friday, is focused on activity in London’s multibillion pound bond markets.
The inquiry, which the CMA said had been launched earlier this week, relates to “suspected anti-competitive arrangements in the financial services sector which may infringe Chapter 1 of the Competition Act 1998 and/or Article 101 of the Treaty on the Functioning of the European Union”.
London’s bond markets, which are among the largest and most liquid in the world, are used by companies and governments to sell debt to institutional investors.
Details of the CMA investigation remained ?sketchy this weekend, including which banks were under scrutiny.
The investment banks with a major presence in London’s bond markets include the likes of Citi, Deutsche Bank and HSBC, although they refused to say whether they had been contacted as part of the CMA inquiry.
It was unclear whether the CMA was examining banks’ ability to manage potential conflicts of interest in their bond trading activities or more straightforward allegations that traders had colluded to fix prices.
The fixed income divisions of global investment banks are a major contributor to their earnings, forming part of the vast ecosystem which has made London Europe’s dominant financial centre for decades.
That status ?is in danger of being eroded by the uncertainty surrounding the UK’s departure from the European Union, with banks such as Barclays and Credit Agricole shifting some government bond traders from London to other locations on the Continent.
?A CMA inquiry into a key area of London’s financial markets therefore comes at an awkward time for the City, and amid a debate about whether Brexit should pave the way for a lighter-touch approach to regulating the UK’s financial services sector.
It follows a wave of civil and criminal inquiries into other areas of the industry in the decade since the crash, with the most prominent being the billions of pounds in fines handed out to banks for fixing benchmark interest rates such as Libor.
In 2016, the Serious Fraud Office closed an investigation into allegations of fraudulent conduct in the $5trn-a-day foreign exchange market which had focused on a group of traders in a chatroom called ‘the Cartel’.
?Two years earlier, Barclays was fined £26m for failings relating to conflicts of interest in the London Gold Fixing.
One senior banker said that global lenders had been “on notice’ for some time that regulators were examining potential collusion in the bond markets.
The CMA has a huge workload in the run-up to Brexit, with it due to absorb additional powers to handle inquiries that are currently the responsibility of the European Competition Commission.
It is engaged in reviews of Asda’s £15bn merger with J Sainsbury and a study of the UK audit market, which has come under fire following the collapse of BhS and Carillion.
In relation to the financial services probe disclosed on Friday, the watchdog said: “The case is at an early stage and no assumption should be made at this point that competition law has been infringed.”
“The CMA has not reached a view as to whether there is sufficient evidence of an infringement of competition law for it to issue a statement of objections to any of the parties under investigation.”
It added that it could not yet provide an estimate of the timing of further steps in its investigation.
The CMA and the Financial Conduct Authority both have the authority to enforce breaches of competition law in the financial services sector, and it was unclear this weekend why the City watchdog was not playing a leading role in this probe.
A CMA spokesperson said it did “not comment on speculation relating to investigations”.
Spokesmen for Citi, Deutsche Bank, HSBC and other banks contacted by Sky News declined to comment.