As readers of our regular client updates will know, the Competition Ordinance will introduce cross-sector competition law rules to Hong Kong for the first time. The Ordinance specifically prohibits:
- Agreements between businesses which have the object or effect of preventing, restricting or distorting competition in Hong Kong; and
- Companies with market power, including monopolists, abusing their power.
There are very severe penalties for breach of either conduct rule, including financial penalties of up to 10% of Hong Kong annual revenues for each year a company has infringed - up to a maximum of three years.
The Ordinance is likely to come into force during the final quarter of 2015, which means businesses only have limited time to ensure their current practices are compliant. To help support you in this process, we have outlined just a few simple measures for you to follow as you prepare.
1. Audit arrangements and practices
Businesses need to understand their risks to work out if remedial action is required, to address latent risks, properly anticipate future issues and to ensure compliance programmes are adequately tailored to the business.
What is appropriate will depend on the business in question, but relevant questions include the following:
Do you know what contact your staff have with competitors? Do you know what they discuss? What trade association meetings do company staff attend and are they conducted in a manner compliant with competition law? Is the company party to any agreements with competitors? Does the company restrict any of its customers or suppliers in any way (for example in their resale pricing or from dealing with competitors)? What is the market position of the company in its relevant markets?
2. Devise a compliance strategy
Having identified the current state of compliance of the business, you can make an assessment of how best to address the risks. Depending on the result of any audit, this might include termination or amendment of agreements, withdrawal from or amendment of trade association protocols, review of distribution strategies etc. You should also have made an assessment of potential future risks, which will enable production of tailored guidance and training to meet the needs of the specific business.
3. Brief the board
Critical to the success of any compliance programme is creating a culture of compliance. Key to this is a visible commitment to compliance from the company’s leadership. If the company's directors do not encourage compliance, it is unlikely such a culture will flourish. Worse, if they were to encourage wrongdoing, this could increase the fines any infringement may attract. Given the level of potential fines, the board need to be aware of the conduct rules, the risks identified by your audit, the business' potential exposure to financial penalties and you need to secure their support for your compliance programme.
4. Draft a policy
Whilst committing a policy to paper won’t be sufficient to tick the box from a compliance perspective, company personnel need to know what is expected of them and a clear written commitment to compliance is the cornerstone to this. Alongside this, staff need supporting with clear, highly relevant guidelines, setting out what they should and should not do to ensure compliance.
5. Train your staff
All organisations delegate day to day decision making. It won’t always be the case that a company’s legal or compliance teams would be aware of all arrangements and conduct capable of breaching the conduct rules. Nor is it always obvious what practices infringe the law. To reduce the risk staff enter into prohibited arrangements, they need to understand how the prohibitions apply to the business. Tailored, targeted, relevant training is critical. Training should go beyond black letter law, should be practical and companies should seek to test their people’s understanding of how the rules apply to them.
There is never a better time than now to prepare for implementation of the Ordinance.