PRODUCTIVITY COMMISSION PUBLISHES DRAFT REPORT ON COMPETITION IN THE FINANCIAL SYSTEM
The ACCC could become 'competition champion' in financial services in the future after the Productivity Commission published its much-anticipated draft report on competition in the financial system on 7 February 2018. The final report is due by 1 July 2018.
The draft report has taken on special significance due to its timing and content. It comes at the same time as the Royal Commission into Financial Services kicks off in earnest and before the ACCC publishes its preliminary report into pricing of the major banks' residential mortgage products, which is due imminently. In related news, the Treasurer has also released the Federal Government's Review into Open Banking in Australia. Our detailed summary and analysis of the open banking review is available here.
The Productivity Commission's view is that competition has taken a back seat to financial stability, primarily due to the regulatory actions of APRA and conflicting responsibilities of regulators, and that greater weight should be given to consumer outcomes. The draft report also recognises the potential for disruption from innovative financial services start-ups ('fintechs') to enhance competition, but concludes that reform is needed to support them.
The report contains numerous findings and draft recommendations on a range of topics, including barriers to entry and expansion, concentration and integration, competition in payments systems and home loans, and the role of regulators. If implemented, the draft recommendations would be a major shake-up of the Australian financial system:
- Either the ACCC or ASIC would be designated 'competition champion' and tasked with promoting competition in the financial system through the Council of Financial Regulators. The draft report considers that there is currently a vacuum in the regulatory framework with shared responsibility between ASIC, the ACCC, APRA and the RBA, and no particular regulator having paramount responsibility for competition.
- APRA would collect and publish monthly data from residential mortgage lenders on median interest rates for new residential home loans. ASIC would develop an online tool that enables consumers to enter loan and borrower characteristics and view median interest rates that satisfy those criteria.
- An 'evidence base' is needed to properly assess concentration and integration in the financial system. All financial services firms that engage in M&A within the financial system should be required to notify the ACCC and ASIC of transactions. ASIC should maintain a public database on the relationships between related entities and report annually on notifications it receives.
Submissions to the Productivity Commission on the draft report are open until 20 March 2018.
PROPOSED CHANGES TO AUSTRALIAN CONSUMER LAW
On 31 January 2018, the Federal Government released exposure draft legislation and regulations implementing 14 recommendations from the final report of the Australian Consumer Law Review by Consumer Affairs Australia and New Zealand.
The proposed changes have a range of implications for business, including:
- all classes of 'consumers', including well-resourced publicly listed companies, will be able to rely on the unconscionable conduct protections;
- unsolicited sales that occur in public places, such as city squares, public streets and shopping malls, will be subject to the unsolicited selling provisions;
- a product's single price will have to include any additional fees or charges that are pre-selected or not de-selected on a purchase form to avoid the prohibition on component (or drip) pricing; and
- the ACCC and ASIC's information gathering powers will be extended to investigations in relation to unfair contract terms.
For more detailed information about the proposed changes, see our analysis of the key changes.
The Federal Government is seeking views on the design of the exposure draft legislation and regulations, as well as on the accompanying draft explanatory materials. Submissions are open until 28 February 2018.
The government has accepted other recommendations from the Australian Consumer Law Review, subject to further analysis and consultation, and we can expect a further round of exposure draft legislation and regulations in due course.
One recommendation from the Australian Consumer Law Review is not subject to consultation: the Federal Government last week introduced a Bill to increase penalties for contraventions of the Australian Consumer Law and bring them in line with penalties for contraventions of competition law. This means that penalties for consumer law contraventions for corporations will increase from $1.1 million per contravention to the greater of $10 million per contravention, 10 per cent of the annual turnover or three times the gain.
ACCC IN A SPIN AFTER LOSS IN LAUNDRY DETERGENTS CASE
The ACCC has lost its cartel case against PZ Cussons after the Federal Court dismissed its action in relation to an alleged cartel involving two other detergents suppliers (Colgate-Palmolive and Unilever) and retailer Woolworths. The case represented the first contested proceedings involving an alleged 'hub-and-spoke' arrangement. Allens acted for PZ Cussons. The ACCC has appealed the decision.
PZ Cussons, Unilever and Colgate-Palmolive are the major suppliers of laundry detergent in Australia. In early 2009, these suppliers transitioned from standard concentrate laundry powder to ultra-concentrate powder, which is half the size but double the strength.
The ACCC alleged that the suppliers entered into an arrangement or understanding to cease supplying any standard concentrate laundry detergents and simultaneously move to supplying ultra-concentrate laundry detergents. In addition, the ACCC alleged that Woolworths, acting as a 'hub', was knowingly concerned in the alleged arrangement or understanding.
In 2016, Colgate-Palmolive and Woolworths admitted contraventions in relation to the alleged cartel and paid penalties of $18 million and $9 million respectively. The third supplier, Unilever, was granted immunity and avoided court action after bringing the alleged cartel to the attention of the ACCC.
PZ Cussons was the only party to contest the proceedings to trial. On 22 December 2017, the Federal Court handed down its decision, rejecting the ACCC's case theory and dismissing the proceedings. Justice Wigney found that Woolworths entered into a series of agreements with each supplier concerning the transition for its own commercial reasons and, while PZ Cussons may have had a hope or expectation the other suppliers would meet Woolworths' timing preferences in relation to the transition, it did not intend to induce the other suppliers to act in a certain way.
The outcome is a significant win for PZ Cussons, represented by Allens.
Our more detailed summary and analysis of the case, including what it means for you, is available here.
VALVE RUNS OUT OF STEAM
The Full Federal Court has dismissed an appeal by Valve against a ruling that it engaged in misleading or deceptive conduct and made false or misleading representations to Australian consumers about the consumer guarantees. The conduct related to representations Valve made in the terms and conditions of its online game distribution platform Steam.
The Full Court also dismissed a cross-appeal by the ACCC in relation to certain representations made by Valve in online chats to individual Australian consumers.
Valve argued on appeal that it did not carry on business in Australia, and that the representations were not made in Australia, and therefore that the Australian Consumer Law did not apply to its conduct. Valve relied on the fact that it predominantly operated and uploaded content to the Steam platform from the United States, and that it did not have physical premises or employees in Australia.
The Full Court rejected these arguments, finding that Valve, which had 2.2 million Australian customers using the Steam platform, carried on business in Australia. The Full Court also found that that the representations were made in Australia because they were contained in agreements accessible to consumers in Australia.
Valve Corporation has been ordered to pay penalties totalling $3 million.
This case emphasises that global businesses must comply with the Australian Consumer Law when providing goods or services to Australian consumers, even where the business has no physical presence in Australia.
ACCC INSTITUTES FIRST CRIMINAL CARTEL PROCEEDING AGAINST AN AUSTRALIAN CORPORATION
The ACCC has filed criminal cartel charges against the Country Care Group, its managing director and a former employee. The company is a supplier of assistive-care products such as mobility aids and related services to aged care homes and health facilities, and is based in Mildura, Victoria.
This is the first time that criminal cartel charges have been laid against an Australian corporation, and it is also the first time that individuals have been charged since the criminal cartel laws came into effect in 2009. In August 2017, Japanese shipping company NYK was fined $25 million after becoming the first company convicted of criminal cartel conduct in Australia. The conviction related to the fixing of international shipping rates for the transportation of vehicles to Australia.
In January this year, ACCC Chairman Rod Sims indicated that 2018 would be a 'turning point' for cartel enforcement, with 'three or four' criminal cartel prosecutions to be commenced.
DIGITAL PLATFORMS INQUIRY ISSUES PAPER
The ACCC has released an initial issues paper for its inquiry into digital platforms. Media content creators/journalists, media outlets, platform providers, advertisers, consumers and small business interest groups have been encouraged to provide written feedback by 3 April 2018.
In December 2017, the Federal Government formally directed the ACCC to commence the inquiry, which will consider a broad range of issues including:
- the extent to which digital platforms exercise market power in their dealings with media content creators, advertisers or consumers;
- the impact of digital platforms on the quality and range of news and journalistic content;
- the ways in which technological change and innovation has affected competition in media and advertising markets; and
- the extent to which digital platforms collect, use and share data, and the impact of this in media and advertising markets.
The digital platforms inquiry in Australia is considered to be the first of its kind globally, given the ACCC's wide mandate and powers to investigate both competition and consumer concerns. In particular, the ACCC will be looking at:
- the effect of media companies' reduced advertising revenue on the creation of news content. The ACCC has asked for submissions about 'the appropriate metrics for measuring the choice and quality of news and journalistic content'; and
- the impact of collecting data and using algorithms on the plurality of news content presented to consumers. The ACCC has asked for submissions about the extent to which consumers are aware of the contractual nature of their dealings with digital media platforms, including the value of the data they provide in exchange for access to products and services on these platforms.
The ACCC is expected to submit its preliminary report to the Treasurer by 3 December 2018, and a final report before 3 June 2019. The inquiry may lead to legislative and policy changes, recommendations to the Federal Government and potentially enforcement action to address behaviour that raises concerns under the Competition and Consumer Act 2010. The ACCC has also flagged that potential outcomes may include findings regarding structural, competitive or behavioural issues in the relevant markets, increased information about competition, and improved transparency for Australian consumers regarding media, advertising and news content on digital platforms.