Partners Marc Kemp and Kon Stellios and Lawyer Theodore Souris
In its submission to the Financial System Inquiry, the Australian Securities and Investments Commission has proposed the addition of a statutory objective to enable ASIC to consider the impact of its decision making on competition when exercising its statutory powers and functions. This paper explores some of the potential implications if this proposal were to be accepted. It also considers ASIC's proposal within the broader context of the Harper review of competition policy currently underway, which may review ASIC's powers, functions and objects as part of its review of the institutional framework for competition regulation.
In its submission to the Inquiry, ASIC notes that it does not have a specific statutory entitlement to consider the competition effects of its decisions. Currently, the Australian Securities and Investments Commission Act 2001 (Cth) provides that ASIC must act in the interests of commercial certainty, efficiency and development of the economy, and promote the confident and informed participation of consumers and investors in the financial system.
ASIC considers that a competition objective would not take precedence over its other objectives, but would allow it to consider the long-term effects of its regulatory decisions on competition. In particular, ASIC submits that a competition objective would enable ASIC to select the most 'competition-friendly' option from the range of options available to achieve its other regulatory objectives. ASIC submits that this would not involve the granting of competition enforcement powers and that it would continue to refer matters involving anti-competitive conduct to the ACCC for investigation.
The potential implications of a competition objective are not immediately obvious. On one view, it may have potentially significant implications. For example, would ASIC need to have regard to the possible effects on competition when considering an application for relief from the financial services provisions of the Corporations Act 2001 (Cth) by a bidder in connection with the privatisation of an essential asset, such as a electricity generator (particularly given the ACCC chairman's recent statements about the anti-competitive risks of privatisations)? Would the relief application itself need to address this issue? At first sight this might seem an implausible example, but it is not immediately clear why it should not be the logical end-point of the objective.
Might guidance be found in similar regulatory examples? As ASIC notes, both the Australian Prudential Regulation Authority (APRA) and the UK's Financial Conduct Authority (FCA) have statutory competition objectives.
APRA is required to balance the objectives of financial safety and efficiency, competition, contestability and competitive neutrality in making decisions which promote financial system stability.1 However, little guidance can be gained by considering APRA's conduct insofar as the competition objective is concerned: if anything, APRA's conduct suggests that the competition objective has not had any effect on how it exercises its functions. In the context of transfers of insurance businesses, for example, the impact of transfers on competition is seldom (if ever) referred to. This may be because APRA separately consults with the ACCC under their 30 November 1999 Memorandum of Understanding (which requires them to do so when either organisation is considering a proposal for an acquisition of assets or companies involving regulated financial institutions), and leaves it to the ACCC to intervene if necessary. It may be that ASIC's actual day-to-day conduct would be similarly unaffected.
The example of the FCA may provide greater guidance. The FCA considers that its competition objective – one of its three operational objectives – is to ensure that its regulations, and associated processes, do not restrict competition by creating any unnecessary barriers to entry, expansion or exit in the financial services industry. Very similar to what ASIC is proposing, the FCA considers that its competition objective enables it to 'normally choose the most pro-competitive measure open to [it] provided that is compatible with [its] duties as a whole'.2 In addition, the FCA will collaborate with European Union and UK competition authorities in connection with competition issues that may affect the markets it regulates.
Assuming this is consistent with what ASIC is proposing, then a competition objective would not have far reaching implications of the kind contemplated in our example. If ASIC uses the competition objective to limit the creation of regulatory barriers (consistent with its recent moves to reduce red tape), this would reduce the risk of uncertainty and regulatory overlap with the ACCC.
But is that all the FCA proposes to do in light of its competition objective?
On 3 April 2014, the FCA announced its intention to undertake a review into the UK credit card market, among other things, to evaluate whether the competition that exists in the sector on the surface is reflected more deeply in the value offered by credit card products, whether lenders price risk correctly to all borrowers and whether the return on assets implies a contestable and effective competitive market. The FCA stated that these were all questions it has a statutory responsibility to consider as part of its competition objective.
Does this mean that we could see ASIC undertake similar reviews in Australia? Perhaps not, for the following reason.
In addition to its operational objective to promote effective competition in the interests of consumers, the FCA also has competition powers to be exercised concurrently with the UK Competition and Markets Authority. These enforcement powers include the ability to conduct investigations of any alleged infringements of the UK Competition Act 1998 and to impose appropriate penalties, including fines of up to 10 per cent of group turnover. It may be that the availability of these powers, coupled with the competition objective, has prompted the FCA's decision to undertake its market study. As ASIC is not asking for similar enforcement powers it may be content to leave such reviews to the ACCC, particularly given its budgetary constraints.
That said, it will be interesting to see if broader competition powers for ASIC may be considered as part of the Harper review of competition policy. The Issues Paper issued by the Harper review has called for submissions on businesses' experiences in dealing with Federal regulatory agencies, including ASIC. A question asked in the Terms of Reference and the Issues Paper is whether the structure and powers of the competition institutions are appropriate, in the light of the changing economy and the desire to reduce the regulatory burden on businesses. In a recent interview,3 Professor Harper identified as a broad area of focus the performance of institutions including the ACCC, ASIC and APRA. Professor Harper indicated that the Panel will consider whether those institutions can be reformed, with a view to presenting an institutional structure to government. It is therefore likely that the question of whether ASIC should have a competition objective, or even a broader competition enforcement role, will be considered by the Harper Review as part of the development of this institutional structure.
- Australian Prudential Regulation Authority Act 1998 (Cth) s8(2).
- The FCA's approach to advancing its objectives, July 2013.
- 'Three key areas to help firms compete', The Australian, 10 June 2014.