Competition Law Update: LMA Issues Notice Application of Competition Law to Syndicated Loan Arrangements

20 June 2014

Practice Area: EU and Competition



The Loan Market Association (LMA) has published a notice to its members on the application of EU and UK competition laws to syndicated loan arrangements in an effort to ensure that members adopt appropriate compliance measures governing contact between banks.


The Competition Act 1998 prohibits agreements which have as their object or effect the prevention, restriction or distortion of competition within the UK. The equivalent EU provision is contained in Article 101(1) of the Treaty of the Functioning of the EU. Cartels are the most serious type of anti-competitive agreements and include agreements to:

  • fix prices (including discounts, margins, credit terms etc);
  • share customers or markets;
  • engage in bid rigging (i.e. agreeing to distort a competitive tender process);
  • fix or limit production;
  • exchange commercially sensitive information.

Business and individuals engaged in anti-competitive behaviour may face severe sanctions, including provisions or entire agreements being unenforceable, fines of up to 10% of world-wide group turnover, claims for damages from customers and competitors, director disqualification orders and potential prison sentences of up to five years. Cartels are the most serious form of anti-competitive behaviour which carry the highest penalties.

From 1 April 2014, the Enterprise and Regulatory Reform Act 2013 (ERRA) removes the requirement to prove dishonesty in criminal cartel cases. As a result, it will now be sufficient to show that an individual knowingly participated in a criminal cartel. ERRA also introduced new defences available to individuals who can show that they did not intend the nature of the arrangements to be concealed from customers or from the Competition and Markets Authority or who took reasonable steps to ensure that the nature of the arrangement would be disclosed to legal advisers for the purpose of obtaining advice on it before it was entered into. 

Application of law to syndicated loan arrangements

Competition law applies to multi-bank dealings in the same way as it applies to other business activities. There is no specific guidance on the application of competition law to the syndicated loan sector. 

The LMA has published the notice in light of the changes introduced by ERRA and to remind its members of the need for compliance with competition law. It urges members to obtain legal advice and to adopt appropriate compliance procedures which it believes should at least address the following areas:  

  • general market soundings;
  • conduct during the bidding phase to ensure there is no inappropriate contact between competing originating desks that may raise the possibility of the unacceptable exchange of competitively sensitive information, price fixing or market manipulation;
  • dealing with the receipt of any unsolicited commercially sensitive information;
  • interaction between members of a syndicate related to the establishment or flexing of terms;
  • conduct between banks in the context of refinancing or distressed arrangements.

The LMA recommends that, as a general guiding principle, members should seek the prior consent of (and keep a record of) the borrower to any proposed contact with competitors, whether in contemplation or following the appointment of the lead arranger/underwriter and formation of the banking group. 


The LMA has issued the notice following on from the removal of the dishonesty requirement in the ERRA. The change means that there will be an increased risk for individuals involved in cartels. 

In addition, the Notice comes in the wake of the €1.7 billion fine imposed by the European Commission on eight banks in December 2013 for engaging in illegal cartels related to benchmark interest rates. The investigations related to alleged manipulation of EURIBOR (interbank borrowing rates between European banks) and Yen-dominated LIBOR (the London Interbank Offered Rate).

Banks and other related companies would do well to heed the LMA’s warning to ensure that they have an effective competition compliance programme in place. This should include a comprehensive training programme for employees to ensure that they have a solid understanding of what they can (and can’t) do under competition law.

If you would like to discuss this article or if you have any other queries about competition law, please contact Dorit McCann.