Introduction

In December 2017, the Competition Commission (“Commission”) received an application for a decision concerning the Code of Banking Practice (the “Code”) from a number of institutions authorised under the Banking Ordinance (Cap.155).

Later in January this year, the Commission issued a notice to invite interested parties to submit their views on the application of the Code in Hong Kong and other related issues. This newsletter will analyse the potential arguments involved in this matter.

The Application

The applicants seek a decision from the Commission confirming that the first conduct rule (the “First Conduct Rule”) under Competition Ordinance (Cap. 619) (the “Ordinance”) does not apply to the giving effect of the Code by the applicants by virtue of the exclusion in section 2 (Compliance with legal requirements) of Schedule 1 to the Ordinance.

The First Conduct Rule

The First Conduct Rule under the Ordinance prohibits businesses from making or giving effect to an agreement, engaging in a concerted practice, or making or giving effect to a decision of an association, if the object or effect is to harm competition in Hong Kong.

The First Conduct Rule applies not only to agreements and arrangements involving businesses which compete with one another but also applies to any agreement or arrangement between parties who are not competitors if the agreement or arrangement has the object or effect of harming competition in Hong Kong.

Conduct which is in principle subject to the First Conduct Rule may be excluded or exempt from its application by virtue of the general exclusions or exemptions provided for in the Ordinance. For instance, the First Conduct Rule does not apply to an agreement which enhances overall economic efficiency.

The Code

The Code is jointly issued by the Hong Kong Association of Banks (“HKAB”) and the DTC Association (“DTCA”) and is endorsed by the Hong Kong Monetary Authority (“HKMA”). It is intended to promote good banking practices by setting out the minimum standards which institutions should follow in their dealings with customers and to promote a stronger culture of treating customers fairly which will ensure customers’ interests are taken into account by institutions in their business dealings with customers. The latest revision of the Code was introduced on 6 February 2015 to align the Code with the international practices issued by the G20 nations.

Despite the non-statutory status of the Code, HKAB and DTCA expect their respective members to comply with the Code and HKMA expects all institutions, including licenced banks, restricted licence banks and deposit taking companies, to comply with the Code and monitor compliance of the Code as part of its regular supervision.

Does the Code harm competition?

The Code provides comprehensive guidelines on the provision of multiple banking services such as current accounts, savings and other deposit accounts, loans and overdrafts, card services, electronic banking services and stored value card services.

The General Principles under section 2 of the Code provide various safeguards for banking customers, for instance, equitable and fair treatment of customers, disclosure and transparency, financial education and awareness, responsible business conduct of institutions and authorised agents, protection of customer assets against fraud and misuse, protection of consumer data and privacy.

In particular, section 2.8 of the Code specifically provides that institutions should allow customers to search, compare and, where appropriate, switch between products and institutions easily and at reasonable and disclosed costs, which should have the effect of encouraging competition among the institutions.

Although the Code is expected to be complied by all institutions, which may invite speculation that doing so may constitute a “concerted practice”, it seems quite unlikely that the giving effect of a set of voluntary market practice rules which encourage good banking practices and allow open competition constitutes a breach of the First Conduct Rule. Yet, whether the Code actually harms competition in Hong Kong is a matter to be decided by the Commission. The applicants have made a sensible action to proactively seek clarification on the matter and prevent any unexpected sanctions under the Ordinance.

Pending decision of the Commission

The Commission shall review the submissions in respect of the Code after the deadline for submissions passed on 15 February 2018.

According to section 12 of the Ordinance, if the Commission makes a decision that the Code is excluded or exempt from the application of the First Conduct Rule, then each undertaking specified in the decision is immune from any action under the Ordinance with regard to the Code. A decision by the Commission may include conditions or limitations subject to which it is to have effect.

If a condition or limitation subject to which a decision has effect is not complied with, the immunity provided by section 12 of the Ordinance will cease to apply in respect of that undertaking with effect from the date on which the non-compliance begins.

For enquiries, please contact our Litigation & Dispute Resolution Department:

E: competition@onc.hk

T: (852) 2810 1212

W: www.onc.hk

F: (852) 2804 6311

19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong

Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.