Australia: Price signalling to be prohibited in the banking industry

Introduction

The prohibition against price signalling has now passed both houses of parliament and will come into force on 6 June 2012. As reported by Norton Rose Australia in December 2010¹, the amendments to the Competition and Consumer Act 2010 (CCA) seek to address perceived concerns that the law as it stood did not sufficiently prevent the signalling of price intentions between competitors, particularly financial institutions, with the objective or effect of distorting competition.

The new price signalling provisions prohibit private disclosures of price information to a competitor in the same market, and further, prohibit non-private price disclosure if it is for the purpose of substantially lessening competition. There are many exceptions that apply to both prohibitions, and importantly, where private disclosure of price is in the "ordinary course of business", such disclosure will not be caught by the prohibition.

The price signalling prohibition applies to goods or services specified by Regulation, which draft Regulation currently only proposes application to the banking sector. Specifically, coverage of the new provisions is proposed in the draft regulation to apply to a "banking business" as defined in the Banking Act 1959, being a business which is carried on by a corporation to the extent of both taking money on deposit and making advances of money².

Price Signalling Prohibition

Private disclosure

The price signalling prohibitions contain an outright prohibition on the private disclosure of price information to a competitor within the same market, except for those disclosures made in the "ordinary course of business". There is currently little guidance on what will constitute "ordinary" in the course of business. However, given the sometimes complex nature of banking sector transactions, it is possible that the exceptions may, depending upon the circumstances, cover a broad range of communications.

Other specific exceptions also apply to private price disclosures, being those:

• made to an acquirer or supplier of goods or services;
• made to a competitor or potential competitor and the corporation does not know, and could not reasonably be expected to have known, that the entity was a competitor;
• to participants in connection with an actual or proposed joint venture;
• between two corporations providing, or likely to provide, loans to one borrower (such as a syndicated loan);
• between a credit provider and provider of credit services;
• related to an acquisition of shares or assets by a corporation; or
• for the purpose of considering whether to take measures to return a borrower to solvency, or to avoid or reduce the risk of a borrower being insolvent.

Disclosure which substantially lessens competition

Any price disclosure is prohibited where it is for the purpose of substantially lessening competition. The legislation provides that a court may have regard to a broad range of matters when determining whether a disclosure was made for the purpose of substantially lessening competition, including the degree of specificity of the information, whether the information relates to past, current or future activities, and how readily available the information is to the public. Importantly, the court may infer from conduct that the purpose of a given disclosure was to have that prescribed anti-competitive effect. The requirement of "purpose" will no doubt raise evidentiary challenges in the necessity to find the "smoking gun".

Exemptions for both types of disclosure

Price disclosure, whether private or public, is exempt from the price signalling prohibition where disclosure is:

• authorised by law;
• to a body corporate related to the corporation (such as a subsidiary);
• for the purpose collective bargaining;
• authorised by the ACCC;
• protected by notification; or
• made for the purpose of complying with Chapter 6A of the Corporations Act 2001.

Regulations

Treasury is currently consulting on the Regulations which prescribe the classes of goods and services to which the price signalling prohibition will apply. The current proposal only targets a good or service:

• provided by an authorised deposit-taking institution within the meaning of the Banking Act 1959; and
• consisting, to any extent, of taking money on deposit (otherwise than as part-payment for identified goods or services), or
• provided by an authorised deposit-taking institution within the meaning of the Banking Act 1959; and
• consisting, to any extent, of making advances of money those goods or services anti-competitive price signalling in the banking sector.

A "banking business" is defined in the Banking Act 1959 as "a business that is carried on by a corporation to which paragraph 51(xx) of the Constitution applies and that consists, to any extent, of:

1. both taking money on deposit (otherwise than as part payment for identified goods or services) and making advances of money; or
2. other financial activities prescribed by the regulations for the purposes of this definition."

The draft Regulation also provides a process to be gone through before the price signalling legislation is extended to other sectors of the economy, which may include consultation with industry experts and hearing of submissions from people affected by the proposals.

Concluding remarks

Currently, it is proposed that the price signalling prohibition will only apply to a "banking business". The extent to which the banking sector will rely on the "ordinary course" exception is yet to be realised and may be difficult to define. The broad scope of the exclusion provides the sector with the ability to legitimise their communications through "ordinary" dealings. Further, where banking sector transactions are complex and often structured to meet commercial needs, what is "ordinary" in the course of business will inevitably change with time and may be difficult to determine as being risk free during the pressure of a particular transaction.

Although the draft Regulation is still subject to consultation, it appears inevitable that the banking sector will be subject to the prohibition. Banking businesses should consider preparing internal procedures now to ensure compliance on 6 June 2012 and familiarise themselves with the legislated exceptions. Documentation of decision processes leading to disclosures will be of particular importance. Further, what is likely to be considered at this time to be disclosures made in the "ordinary course of business" will be crucial to day-to-day operational compliance with the law.

The consultation period for the draft Regulation close 22 March 2012.³

Footnotes

¹ Banking sector build up begets new laws on price signalling
²Other financial activities are prescribed by the Banking Regulations 1966 as 'banking activities'
³You can read the Regulations Consultation Draft here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.