Thank you Luke (Woodward, partner at Gilbert + Tobin) for that introduction and thank you for inviting me to speak at this forum.
Today, I would like to update you on some major legislative reforms to enhance competition in our markets.
As most of you would be aware, on 24 March the Deputy Prime Minister introduced the Competition and Consumer Amendment Bill (No.1) 2011 to address anti-competitive price signalling and information disclosures.
This Bill introduced tough new reforms to the competition provisions of the Competition and Consumer Act 2010 that will help to ensure the competitiveness of our banking sector.
Competition is vital to the ongoing prosperity of Australia. It improves productivity and efficiency in the economy, and ultimately benefits all Australians through greater choice and lower prices.
Generally speaking, information disclosure plays a vital role in any economy and should be encouraged. But the free flow of information is not always beneficial, and in some cases, can work against competitive outcomes. Competitors can use price signalling and other information disclosures to push prices above the competitive level. This can lead to inefficient outcomes for the economy - and ultimately higher prices for consumers.
Although these anti-competitive disclosures can be just as harmful to competition and consumers as a cartel arrangement, they fall short of explicit cartel conduct as they do not involve a "contract, arrangement or understanding" to act in a particular way.
The intention to introduce these new laws was announced in December 2010 as part of the Deputy Prime Minister's Competitive and Sustainable Banking System package.
The laws will be targeted at the banking sector, where the Australian Competition and Consumer Commission has indicated there is strong evidence that anti-competitive price signalling has been occurring.
We have been very clear that these laws would only be extended to other sectors of the economy after further detailed consideration.
The new laws will give the ACCC strong powers to investigate and pursue banks that are signalling prices or other information in a way that could undermine competition.
The laws will close an identified gap between Australian competition law and the laws of major international jurisdictions, such as the United Kingdom, United States and the European Union, which deal with anti-competitive price signalling and information disclosures.
The problem of anti-competitive price signalling and information disclosure is not new, and the Government has been monitoring global developments in the development of our policy. The OECD's Roundtables on Facilitating Practices and Information Exchanges, the first of which took place in 2007, have highlighted the harm to competition and consumers that can arise from anti-competitive information disclosure. The Roundtables also provided us with a valuable insight into how other jurisdictions address these issues.
For several years, the ACCC has been concerned that our competition law does not adequately cover facilitating practices such as information disclosures. In particular, it has been concerned that banks which, more than ever, are aware of their liability for penalties for engaging in cartel conduct, are effectively able to achieve cartel-like outcomes with impunity, simply because facilitating practices are not adequately regulated under Australian law.
Under our competition laws at present, although the ACCC may be able to demonstrate the existence of a meeting or communication between banks about prices, if it cannot demonstrate a commitment to adjust prices accordingly, the courts have held that there is no requisite "contract, arrangement or understanding".
In particular, the ACCC expressed concerns that courts have, over time, narrowed the conduct that is caught by the term "understanding". Competitors can achieve cartel-like outcomes when they agree to share pricing intentions, but deny the existence of a commitment to adjust prices accordingly.
The ACCC has also raised concerns about the willingness of the courts to draw inferences from the evidence in determining whether parties have reached an understanding. To address these concerns, the ACCC recommended that the Act be amended to broaden and clarify the meaning of the term "understanding".
The Treasury issued a discussion paper canvassing stakeholder views on the adequacy of the current interpretation of the term "understanding" in the Act. Many submissions agreed that anti-competitive price signalling and information disclosures were not captured by the Act. However, rather than amend the meaning of "understanding", stakeholders considered that this conduct could be better targeted by providing new, specific prohibitions under the Act.
Since then, the Government has worked closely with the ACCC to develop laws which will effectively address the issue of anti-competitive price signalling and information disclosures, while minimising the risk of capturing legitimate or pro-competitive conduct.
On 12 December 2010, as part of the Competitive and Sustainable Banking System package, we released exposure draft legislation for consultation. I know that a lot of time and effort went into preparing the many submissions that were made through the consultation process, and I would like to thank those of you who participated in that process. The submissions played a valuable role in shaping the final legislation.
Key amendments in the Bill
The Bill that has been introduced into Parliament provides two new prohibitions to address anti-competitive price signalling and information disclosures.
For the purposes of this Bill, a "disclosure" is an active and deliberate communication of information to one or more competitors. Reciprocity from the disclosing business' competitors is not required. It is the act of unilateral disclosure that is targeted by the Bill, rather than the subsequent use of the information disclosed.
The per se prohibition of private disclosures of pricing information
The first of these prohibitions is the per se prohibition, which prohibits outright the private disclosure of pricing information to one or more actual or likely competitors. This prohibition is targeted at those disclosures which are the most clearly anti-competitive. Apart from the circumstances indentified by, and accounted for, in the exceptions to this prohibition, the clearly anti-competitive nature of these disclosures makes it appropriate to ban them outright.
The Bill clearly defines what is - and is not - a private disclosure to a competitor. Where legitimate conduct may fall within this definition, appropriate exceptions have been provided. These work to limit the scope of the prohibitions so that they do not capture this legitimate conduct.
The Bill provides that a disclosure of pricing information will only be prohibited outright where the information is communicated to one or more competitors, and not to anyone else. In other words, where a communication is made to customers of a bank or to the general public, as well as to competitors, it will not be prohibited outright, as the communication will not be deemed to be "private".
This prohibition recognises that it is the private circumstances in which the information is disclosed which provides the greatest risk of collusion. Therefore, private disclosures are prohibited outright, regardless of whether competitors are otherwise able to ascertain each other's prices from the market.
We understand that businesses need certainty and appropriate guidance so that legitimate activities are not unintentionally caught by the regulatory regime. Since mid-2010, we have worked closely with the ACCC to design these amendments, consulting extensively on the draft legislation with the banking industry, legal experts and other stakeholders.
There are clear exceptions for banks considering forming joint ventures for commercial lending arrangements. Depending on the circumstances, an arrangement like a syndicated loan would likely fall within the definition of this exception.
There are also exceptions to cover distribution arrangements and the buying or selling of financial products between banks.
For situations where a disclosure is likely to be captured by this prohibition, but where it also provides a net public benefit, the Bill provides appropriate arrangements for businesses to obtain immunity.
The prohibition of information disclosures if they have the purpose of substantially lessening competition
The second prohibition is on the disclosure of information related to price, supply or production capacity or commercial strategy to a competitor, where that disclosure has been made for the purpose of substantially lessening competition in a market.
This prohibition uses the language of many of the existing competition provisions contained in the Act. In drafting the Bill, we intended that the new prohibition be interpreted in line with those existing provisions and the case law which has developed around them.
The legislation recognises that commercial conduct, such as the disclosure of information, frequently has more than one purpose. A disclosure of the kind of information I just described will only be prohibited if the substantial purpose behind the disclosure is to substantially lessen competition. Ultimately, it will be up to the courts to consider whether the disclosure in question, if it has multiple purposes, was made for the substantial purpose of substantially lessening competition.
Importantly, this prohibition recognises and targets disclosures with an anti-competitive purpose made either privately or in public. However, in recognition of the wide variety of disclosures that take place, this prohibition requires that more elements be established to prove a breach than is the case for the per se prohibition.
The Bill is not directed towards ordinary commercial communications and banks will continue to be able to communicate with their customers, shareholders, market analysts, employees and other stakeholders in the ordinary course of business.
The Bill contains specific exemptions that will allow banks to be able to fully comply with any continuous disclosure obligations that they have, such as discussing their funding costs, as well as any other legal or regulatory obligations.
This prohibition also acknowledges that it is not only the disclosure of pricing information that may have an anti-competitive purpose. Information relating to supply or production capacity, or any other elements of commercial strategy, may also be disclosed for an anti-competitive purpose.
Again, the Bill recognises that appropriate exceptions and immunity arrangements need to be provided for this prohibition. I will discuss each of these issues in more detail.
Exceptions and defences
The submissions we received during the consultation process included several examples of legitimate or pro-competitive information disclosures which may have been subject to the prohibitions. The Government has carefully considered stakeholder concerns, and these are reflected in the range of exceptions to the prohibitions.
The Act currently provides a number of exceptions and defences in respect of existing prohibitions against anti-competitive behaviour.
Similarly, this Bill provides specific exceptions for the new prohibitions. In particular, the following exceptions are provided for in respect of both prohibitions:
- disclosures made to comply with continuous disclosure obligations;
- disclosures authorised by law;
- disclosures between related bodies corporate;
- disclosures in relation to a collective bargaining notice;
- disclosures covered by an authorisation; and
- disclosures covered by an exclusive dealing or private disclosure of pricing information notification.
In addition to these exceptions, and in response to concerns raised by stakeholders regarding the relationship between a principal and its agent, the Bill also specifically makes it clear that disclosures made by a principal to its agent will not be captured by the new prohibitions.
The following exceptions, some of which I have already mentioned, also apply in relation to the outright prohibition of the private disclosure of pricing information:
- disclosures of information to an acquirer or supplier of goods or services;
- disclosures to an unknown competitor;
- disclosures made for the purposes of an actual or proposed joint venture; and
- disclosures made in connection with an acquisition of shares or assets.
Where the business conduct of a firm falls within one of these four exceptions to the outright prohibition, it will not be automatically exempt from the "substantially lessening of competition" prohibition. In other words, if it can be proved that the business made the disclosure for an anti-competitive purpose, the business may still be found to be in breach of the substantially lessening of competition prohibition.
Following consultation with the business community, the Bill now includes a 'notification' regime for conduct prohibited by the per se prohibition, to meet shorter commercial timeframes. This regime will complement the 'authorisation' regime, which will also be available for conduct prohibited by either prohibition.
Where a bank can demonstrate a net public benefit, they can seek immunity by describing the proposed conduct to the ACCC in a notice.
The ACCC then has a limited period of 14 days to respond if it has any concerns about the proposed behaviour.
If a business obtains immunity from the outright prohibition by lodging a notice, the conduct described in the notice will also receive immunity from the substantial lessening of competition prohibition.
Notification is a more cost-effective and timely process than authorisation, and is more suitable for one-off disclosures which are likely to have a clear public benefit. Providing these options to obtain immunity will give businesses flexibility and choice in determining the most appropriate immunity option for them to pursue.
Confidentiality arrangements will be available for parties concerned about the commercial sensitivity of proposed conduct.
These new prohibitions will be subject to the same civil pecuniary penalties that apply elsewhere in the competition provisions of the Act and as defined in section 76. That is, breaches of the prohibitions will be subject to civil penalties of up to $10 million, 10 per cent of a business's annual turnover, or three times the benefit of the conduct - whichever is higher.
Other remedies applicable to other competition provisions in the Act will also apply.
This Bill will close a gap in the law and prevent businesses in specified sectors from engaging in anti-competitive price signalling and information disclosures.
The new laws strike the right balance between allowing the continuation of legitimate and pro-competitive conduct, and prohibiting conduct which is clearly anti-competitive. The prohibitions are backed up by strong enforcement capabilities.
I mentioned earlier, the new laws will also better align Australia with other key international jurisdictions.
The Government recognises the importance of competition and these new laws will ensure a more competitive banking sector and ultimately enhance the wellbeing of Australian consumers.