Anti-Competitive Price Signalling Laws Come into Effect for Banking Sector
From 6 June 2012 the civil prohibitions against anti-competitive price signalling and information disclosures in the Competition and Consumer Act 2010 ("Act") come into effect. These provisions will initially only apply to the banking sector. A summary of these prohibitions can be viewed in our previous alerts, Price Signalling Prohibitions – Draft regulations released for consultation and Price Signalling Prohibitions Pass Parliament – Where To Now?.
In summary, the new prohibitions will apply to authorised deposit taking institutions within the meaning of the Banking Act 1959 ("ADIs"), such as a bank, building society or credit union. Under the new laws it is illegal for an ADI to:
- disclose information to a competitor in private where the information relates to a price for a deposit or loan supplied or acquired (or that is likely to be supplied or acquired) by the firm and the disclosure is not in the ordinary course of business (the per se prohibition); or
- disclose information (in public or in private) for the purpose of substantially lessening competition in the market (the general prohibition).
The per se prohibition is confined to a narrow range of private disclosures relating to price whereas the general prohibition encompasses disclosures relating to price capacity and commercial strategy.
Private disclosures to competitors which are in the ordinary course of business are not caught by the per se prohibition. For example, where Bank A seeks a loan from Bank B and Bank B discloses its fees and conditions to Bank A to provide that loan, this will be in the ordinary course of business.
Additionally, there are a range of exceptions which have been created to protect legitimate business activities such as exemptions to the per se prohibition for private disclosures between parties in a joint venture, to an acquirer or supplier, in relation to an acquisition of shares or assets, or part of a corporate workout.
The authorisation and notification provisions of the Act also enable businesses to seek legal protection to engage in conduct which might otherwise breach these provisions where such conduct is in the public interest.
The general prohibition contained in Section 44ZZX prohibits companies making certain disclosures for the purposes of substantially lessening competition. This applies to public or private disclosures of information relating to:
- prices of goods or services;
- capacity or likely capacity of the firm to supply or acquire; or
- commercial strategy of the firm for the purposes of substantially lessening competition.
The key proviso of the general prohibition is that it must be done for the purpose of substantially lessening competition. Ordinary promotions or advertisements would not fall foul of this prohibition unless it could be proved that they had the purpose of substantially lessening competition.
Types of conduct which might raise questions under this general prohibition include:
- Bank A devises a campaign to signal its intention not to reduce its rates and test its rivals' willingness to do the same. The campaign might also include Bank A executives giving a series of public statements indicating Bank A's reluctance to pass through (or fully pass through) reductions in the cash rate ahead of an announcement by the Reserve Bank.
- A banking executive from Bank B announces at an industry conference that Bank B would be reluctant to lift rates beyond that of the Reserve Bank cash rate or introduce new fees, but if others did so, Bank B would be prepared to follow.
ADIs should review their policies and practices on private and public disclosures of price related information.
ASIC Issues Draft Credit Advertising Guidelines
On 5 June 2012 ASIC released Consultation Paper 178, Advertising Credit Products and Credit Services: Additional Good Practice Guide (CP178). The object of this Consultation Paper is to promote good practice and help industry comply with their legal obligations not to make false or misleading statements or engage in misleading or deceptive conduct when advertising credit products or services. CP178 proposes to amend Regulatory Guide 234: Advertising Financial Products and Advise Services: Good Practice Guidance (RG234), which applies to all types of financial products.
The Consultation Paper focuses on concerns ASIC has identified in advertisements for credit products and services. These include:
- lending to consumers for personal, domestic or household purposes (home loans, personal loans, credit cards) or for residential investment;
- small business lending;
- consumer leases;
- sales of goods by instalments and rent to buy arrangements; and
- assisting a consumer in relation to a credit product including advertising by mortgage or finance brokers and retailers advertising the availability of credit at point of sale.
Comments on the Consultation Paper and the draft Regulatory Guide are open until 6 August 2012.
Memorandum of Understanding between Clean Energy Regulator (CER) and Australian Securities and Investments Commission (ASIC)
On 4 June 2012 the CER and ASIC signed a Memorandum of Understanding (MOU) on the working relationship between the two agencies to deliver their regulatory responsibilities in respect of the clean energy legislation. Under the clean energy package of legislation the CER is responsible for administering the substantive legislation while ASIC is responsible for overseeing activities which involve financial services for regulated emission units. The MOU outlines how ASIC and CER will work together to pursue common interests and co-operation in the enforcement of their respective roles. Kathleen Harris and Patrick Dwyer have recently given a presentation on the Clean Energy Legislation.
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