Client Update: Price signalling laws now in force
12 June 2012
In brief: With important implications for the banking sector, the Federal Government's new price signalling laws, which prevent the disclosure of pricing and other information to competitors, have come into effect. The Australian Competition and Consumer Commission has issued guidelines to assist banks in navigating the new laws. Partner David Brewster (view CV) and Senior Associate Verity Quinn (view CV) report.
The new price signalling laws came into effect on 6 June 2012. The Competition and Consumer Act 2010 (Cth) now contains two civil prohibitions in relation to the disclosure of information by banks:
- a private disclosure prohibition, which prohibits outright the private disclosure of pricing information between competitors, unless the disclosure is in the ordinary course of business; and
- a general disclosure prohibition, which prohibits any disclosure, private or public, of information regarding:
- prices for goods or services to be acquired or supplied by the corporation;
- the capacity of the corporation to acquire or supply goods or services; or
- any aspect of the corporation's commercial strategy,
where it is made for the purpose of substantially lessening competition in a market. Importantly, it is irrelevant if the information is current or historic, is otherwise in the public domain, or is not commercially sensitive.
A number of exceptions apply to both prohibitions, including disclosures that are authorised by law, disclosures that are made under a company's continuous disclosure obligations, and disclosures that have been approved by the Australian Competition and Consumer Commission (the ACCC). Additional exceptions apply only to the private prohibition, including disclosures between competitors who are in a supplier/customer relationship, disclosures made in connection with a proposed or existing joint venture, and disclosures made in connection with joint loans and corporate workouts.
The laws initially apply to the banking sector in relation to the taking of money on deposit and making advances of money or loans. The Government has not yet indicated if it is likely to extend the laws to other industries, although it has been speculated that the retail petroleum industry is the most likely area of future focus.
A breach of the prohibitions may result in civil penalties for companies of up to the greater of $10 million, or three times the total benefits obtained by the contravention, or 10 per cent of the company's annual turnover, whichever is greater. For individuals, the maximum penalty for each contravention is $500,000.
For further information on the new laws, see our Client Update: Prohibiting price signalling, Client Update: Price signalling laws introduced, Focus: Navigating the proposed price signalling legislation and Client Update: Price signalling prohibitions one step closer to becoming law.
The ACCC has issued guidelines on the new laws, to assist banks in identifying conduct likely to be of most concern to the regulator. Of most interest are the guidelines' treatment of the 'ordinary course of business' carve-out to the private prohibition, and the elaboration of the type of statements about future pricing strategy that will attract regulatory scrutiny.
Ordinary course of business carve-out
The 'ordinary course of business' carve-out to the private prohibition is intended to prevent legitimate day-to-day interactions between competitors from being captured by the new laws.
Unfortunately, the concept is vague, and the guidelines offer little clarity on what conduct will fall within its terms. They state that conduct is likely to fall within the carve-out if it would be 'entirely unremarkable to an objective bystander'. Given the complexities of modern-day banking transactions, and the myriad legitimate circumstances in which banks need to communicate privately with each other on issues of significant commercial complexity, it is not clear that an 'objective bystander' test offers much assistance in ascertaining the scope of the carve-out.
The guidelines also provide examples of disclosures that would not fall within the carve-out, including where pricing information is exchanged using code words to avoid detection, or where current and future pricing is provided to a competitor. The ACCC's examples suggest a key enforcement focus will be any covert disclosures of prospective pricing information.
Statements about future pricing strategy
The ACCC has previously made it clear that public statements about future pricing intentions by financial institutions are of concern. The guidelines suggest that a key focus of the ACCC in enforcing the general prohibition will be on disclosures of future pricing intentions where the company making a disclosure remains uncommitted to the action, and so could be said to be 'testing' how its competitors might respond. Announcement of future pricing strategy that has been committed to internally appears much less likely to raise concerns (although companies would potentially still need to demonstrate to the ACCC that there was such a firm commitment, so internal documentation around the purpose of statements will be important).
The guidelines also state that statements that genuinely describe market reality are unlikely to raise concerns under the general prohibition, so banks will still be free to comment on economic conditions.
The new price signalling laws will have significant implications for the banking sector. They potentially apply to a very large number of normal commercial transactions and dealings between banks, and also to any public communication by a bank to the market, shareholders and customers. Even where financial institutions have a legitimate business purpose in making a disclosure, or consider that the disclosure is being made in the ordinary course of business, they will need to ensure that they are able to demonstrate this if the ACCC seeks to investigate their disclosures.
Although the ACCC guidelines provide some welcome guidance on the intended scope of the new laws, uncertainties remain in relation to the many more complex scenarios than those contemplated by the guidelines.
Please contact us if you require advice, including training, in relation to the price signalling reforms and how they may affect your business.
- David BrewsterPartner,
Ph: +61 3 9613 8707
- Fiona CrosbiePartner,
Ph: +61 2 9230 4383
- Carolyn OddiePartner,
Ph: +61 2 9230 4203
- Jacqueline DownesPartner,
Ph: +61 2 9230 4850
- Kon StelliosPartner,
Ph: +61 2 9230 4897
- Ted HillPartner,
Ph: +61 3 9613 8588