SYDNEY: 19 December 2013 - The two major regulatory reviews in Australia in 2014 create a risk for financial services providers. That risk is the one of being regulated twice.

 

Australia currently has a bright line between financial services regulation and competitition law. The approach to providing regulatory certainty in competition is to give the Australian Competition and Consumer Commission responsibility for all aspects of competition law. This contrasts with the approach in Europe, including the UK, where the norm is to have a competition authority and sector regulators. The competition authority deals with the three pillars of competition law - the cartel prohibition, the abuse prohibition and merger control. It is then left to the sector regulators to deal with potentially anti-competitive conduct in each regulated sector. The competition authority and the sector regulator interact when the sector regulator believes that one of the three pillars has been breached.

 

It is in the context of the separate regulator framework that the UK's Financial Conduct Authority (FCA) wrote to the Chancellor of the Exchequer requesting the competition law powers contained in Part 1 of the Competition Act 1998 UK and Part 4 of the Enterprise Act 2002 UK. This was agreed and, since September 2013, the FCA's website has described what it means by competition using the Competition Commission's 2003 language. It has also commenced market studies into cash savings and SME banking, which will be run in accordance with its own guidelines.

 

The UK is also going through a transition of competition authority from the Competition Commission to the Competition & Markets Authority (CMA). The CMA will also take on the responsibilities of the Office for Fair Trade. As part of this change, the CMA has announced a UK "competition network" consisting of the CMA, the Civil Aviation Authority, The FCA, Ofcom, Ofgem, Ofwat, Office of Rail Regulation and the Utility Regulator for Northern Ireland. The intention is to ensure that competition is promoted and to allow the level of coordination that might prevent delayed outcomes. An example of this is as Ofcom's three-year review of Sky’s position in relation to the acquisition and distribution of movies resulting in a referral to the Competition Commission. In turn, the Competition Commission took the statutory two years that it was permitted to decide that Sky's position did not adversely affect competition in the pay-TV retail market.

 

The two concurrent reviews being conducted in Australia commence in the early part of 2014. The first, chaired by David Murray, will examine the regulation of the financial sector. The second is a root and branch review of competition policy in Australia. It is almost inevitable that there will be calls for the corporate regulator ASIC and the prudential regulator APRA to be given an obligation to promote competition. However, such calls would reflect a misunderstanding of the operation of competition law in Australia. There are appropriate calls for change to the structure of competition law regulation. Stephen King and Graeme Samuel have convincing arguments as to why the consumer and competition elements of regulation should be split in Australia at the same time as their merger in the UK. 

 

However, the success of a broad approach to competition law regulation where the ACCC is the competition law regulator and explicitly the sector competition regulator in the telecommunications sector (through Parts XIB and XIC of the Competition and Consumer Act 2010) and the energy sector (as the Australian Energy Regulator) has worked well. In the Australian context, it is reasonable to require that financial regulators do nothing to inhibit competition. It is a very different step to require that they promote competition.

 

Although the Convergence Review suggested that a new media regulator might have sector specific competition regulatory oversight of content in the media sector, this view did not extend to other sectro specific competition powers. There has not been a major call for a change from the status quo in the telecommunicatons and media sectors. The structural changes in telecommunications have been driven by the ACCC working with industry, rather than a demand for transfer of competition powers to the sector regulator, the ACMA.

 

A change in the way that competition is promoted in Australia could have the effect of increasing gross domestic product by having a similar effect to that of the Hilmer Review. However, the synergies available from aggregating state responsibilities were taken up as a result of that review and there is no similar potential source of efficiency gains. Moving to the sector regulator/competition authority model runs a substantial risk of regulatory duplication. In this context, calls for the financial sector regulators to have promotion of competition obligations need to be regarded with care. Red tape reduction campaigns can have the unintended consequence of more interventionist regulation by sector regulators. If we leave competition law regulation to the ACCC, and sector regulation to ASIC and APRA, this risk can be avoided.