The Central Bank of Malaysia (“BNM”) and the Malaysia Competition Commission (“MyCC”) touched each other’s raw nerves recently over the price fixing allegation against the general insurers. The proposed price fixing decision by MyCC was brought to light when Allianz General Insurance Co. made a public announcement in the public stock exchange. Unlike its previous practice, the MyCC did not issue a press release to inform the public on the proposed decision issued to PIAM and the 22 general insurers. It merely issued a press release confirming the proposed decision picked up by the media from the said announcement. On the same day, BNM issued a press release expressing its view that the proposed decision of MyCC who is tasked to protect interests of consumer is “most unfortunate” as it will severely impact consumers' interest.
Highest financial penalty proposed by MyCC
Based on the press release issued by the MyCC, the proposed decision was issued on 22 February 2017 against the General Insurance Association of Malaysia (“PIAM”) and its 22 members for being parties to an anti-competitive agreement to fix parts trade discount at 25% for six vehicle makes namely Proton, Perodua, Nissan, Toyota, Honda and Naza and 15% for the Proton Saga BLM model, as well as labour hourly rate of RM30.00 per hour for PIAM Approved Repairers Scheme workshops. The proposed decision against PIAM and its 22 members came from the MyCC’s investigation of a deal between the PIAM and the Federation of Automobile Workshop Owners’ Association of Malaysia (“FAWOAM”) regarding discounts of certain auto parts and hourly labour rates for auto repair shops under the PIAM Approved Repairers Scheme. In the same proposed decision, the MyCC proposed to impose various remedies including financial penalties against the 22 general insurers. Although it was not mentioned in MyCC’s press release, it was reported that the 22 members of the PIAM were fined a total of MYR213.45 million (US$48.1 million). That would be the highest financial penalty proposed by the MyCC since its inception in 2011. In the previous high profile market sharing case against Malaysia Airline System Berhad and AirAsia Berhad, MyCC proposed financial penalty in the sum of RM10 million against each party. The financial penalty together with the infringement decision of MyCC were subsequently set aside by the Competition Appeal Tribunal in February 2016.
Accord on competition matters turns sour?
Back in 2014, BNM and MyCC have signed a memorandum of understanding (“MoU”) formalising their intent to collaborate and cooperate in areas of common regulatory objectives. This is because parties acknowledge that there might be overlapping duties between BNM and MyCC in ensuring competition in financial market works well. Under section 124 of the Financial Services Act 2013, financial service providers (“FSPs”) are prohibited from engaging in certain business conducts as set out in Schedule 7, which includes “colluding with any other person to fix or control the features or terms of any financial service or product to the detriment of any financial consumer, except for any tariff or premium rates or policy terms which have been approved by the Bank.” BNM issued a Guidelines on Prohibited Business Conduct relating to this prohibited business conduct in consultation with the MyCC. The Guidelines said BNM will take into consideration the net benefits of certain arrangements to the financial consumers in determining a particular collusive practices by the FSPs. The MoU details the investigation and enforcement actions applicable to the common regulatory areas. Both parties will notify each other when any infringement is detected and will endeavour to reach a prompt mutual agreement on the course of action. The principles of competition and the implications on financial stability will be taken into account in deciding on the appropriate course of action. The MoU will therefore govern how both the regulators manage and enforce the competition provisions. It is therefore interesting to note BNM has publicly endorsed that public benefits are served by the arrangement that was mutually agreed between PIAM and the FAWOAM but on the other hand, MyCC deemed the agreement as anti-competitive.
The proposed decision will not be made available in the public domain. After receiving the proposed decision, the alleged infringer will be given a period of 30 days to submit a written representation on the proposed decision. In addition to written representation, the alleged infringer is entitled to make an oral representation before the MyCC before a final decision is issued. Section 4(2)(a) of the Competition Act 2010 deemed price fixing agreement between 2 competitors to significantly preventing, restricting or distorting competition in any market for goods or services. It should be noted that the burden of proof lies on the MyCC. If MyCC fails to discharge its burden of proof, the infringement will not stand. In short, the proposed decision merely represents MyCC’s provisional finding and it is not conclusive on the guilt of the general insurers until and unless a final infringement decision is issued. Going forward, it will be interesting to observe how the 2 regulators will reconcile their differences on the consumer interests’ issue.