2019 Compliance and Enforcement Policy

Speakers: 
Mr Rod Sims, Chair
Conference: 
Committee for Economic Development Australia (CEDA)
26 February 2019

In his annual CEDA address, Chair Rod Sims launched the ACCC's 2019 Compliance and Enforcement Policy. This year, the ACCC will focus on enforcement of competition and consumer law priorities; product safety; new and continuing market studies; with a particular attention on advocacy.

Transcript: 

Check against delivery

I would like to thank CEDA for again hosting this now annual event, where the ACCC outlines its priorities for the year.

With nearly 20 years in each of the public and private sectors prior to joining the ACCC, I’ve observed a lot and learned a few things.

I remember seeing some newly privatised entities increasing efficiency and consumer outcomes significantly. Private sector management and the innovation it can bring can achieve amazing things.

Back in 1995, however, when I had been in the private sector for about a year, I remember a former public sector colleague I had worked with for many years asking me what advice I would offer then Prime Minister Keating next time we ran into each other. Without thinking, I answered “double the size of the ACCC”.

I could already see that while the profit motive could be a force for great good, there was also a strong bias among some, and I emphasise some, to mislead consumers, mistreat suppliers and find many ways to reduce competition in order to maximise profits.

Capitalism can work well and deliver large benefits for the community if the profit motive works within markets characterised by strong competition, low-entry barriers, well-informed consumers and appropriately regulated monopolies. It will often work badly without these things.

Indeed, given current low levels of trust in our market economy it is in everyone’s interest that the ACCC is effective in its purpose of ‘making markets work’. I believe it is in the long-term interest of not only consumers, but all businesses, that we succeed.

I am today going to list our priorities under five headings.

  1. Our competition enforcement approach and objectives
  2. Our consumer law enforcement priorities
  3. Our key product safety focus
  4. The ACCC’s current market studies
  5. Our current advocacy focus.

1. Our competition enforcement approach and objectives

We aim to have two to three criminal cartel investigations come to conclusion and prosecutions commence each year. With increased budget support from the Government announced at the end of last year, in 2019 we expect at least three significant cartel investigations to be referred to the Commonwealth Director of Public Prosecutions (CDPP) for a decision on whether to prosecute.

As these criminal cartel prosecutions are progressed, we are confident they will work as a strong deterrent to egregious and damaging collusive conduct.

Increased budget support is also helping us to experiment with different approaches to our competition investigations. Investigation teams are exploring the benefits that may be gained from our ‘SLC project’. SLC stands for substantially lessening of competition.

The project includes focussing in the early stages of an investigation on, in the words of the doyen of Australian competition law and economics, Professor Maureen Brunt, who sadly passed away on 30 January, “what is going on here?”.

With this focus, investigations teams are reaching a deep understanding of the nature and extent of the conduct of concern. We don’t move to in-depth market analysis and definition until that critical first step is accomplished.

In our SLC Unit we have specialist competition investigators who are working to reduce the time of investigations and achieving outcomes in a much more commercially relevant timeframe than has been possible in the past. They are aiming to take two or three cases to court this year. This is in addition to a number of other competition investigations and cases which will be undertaken by other ACCC enforcement teams.

Our particular focus will be conduct that may contravene the new misuse of market power and concerted practices provisions. I am confident that we will bring proceedings under these provisions this year.

In commenting on regulators, the Final Report of the Financial Services Royal Commission focussed on issues that were of primary concern to ASIC and APRA. However, an underlying theme of the Royal Commission final report was that competition is not vigorous among the major banks or in some parts of the financial sector.

We have had a unit that has been focussing on market studies in the financial sector for over a year. We have now established a Financial Services Competition Branch, which includes a permanent competition investigation team that complements the market studies team. This has also been enabled by the MYEFO Budget allocation we received.

We are expecting that team to complete a number of in-depth investigations potentially resulting in court proceedings, as well as providing support for the CDPP prosecution of ANZ, Citigroup, Deutsche Bank and six senior officers.

The commercial construction sector will also continue to be a focus area. We have a dedicated Commercial Construction Unit looking at both competition and consumer issues in this sector.

The work of the Commercial Construction Unit includes supporting the current CDPP prosecution of the CFMMEU, and we anticipate bringing further proceedings this year against other parties. This sector faces many anti-competitive and unfair practices: more than most other sectors.

2. Our consumer law enforcement priorities

In 2018, the ACCC had a number of important consumer protection cases conclude, such as:

  • misrepresentation of consumer guarantees, including penalty outcomes in the Apple and Ford cases of $9 and $10 million respectively;
  • third party billing misconduct involving Telstra and Optus, resulting in $10m in penalties awarded against each; and
  • the culmination of the Rick Otton “We Buy Houses” case, which resulted in the imposition of a record $18 million penalties under the Australian Consumer Law (ACL), including a $6m penalty imposed on Mr Otton.

In 2018, the Commonwealth Parliament passed a law increasing the maximum penalties for contraventions of the Australian Consumer Law, bringing these penalties into line with the maximum penalties for anti-competitive conduct. This is something that the ACCC has strongly advocated for over a number of years.

What this means is that the maximum penalty for each contravention will move from up to $1.1 million to now be the greater of $10 million, or 3 times the benefit from the conduct or, where the benefit cannot be calculated, 10% of annual Australian sales turnover.

This will mean that consumer law penalties should increase significantly; I believe Parliament intended that in particular cases there should be penalties of over $100 million for breaches of consumer law to improve deterrence.

We are now announcing our enforcement and compliance priorities for this year. The key new consumer enforcement priorities for 2019 are:

  • competition and consumer issues arising from customer loyalty schemes. While these schemes are a ubiquitous part of a modern marketplace, questions arise about whether consumers are properly informed and receive the benefits touted by many of these programs, and about the impact of customer loyalty on competing firms and, in particular, new entrants;
  • consumer guarantee rights in the context of the large retailers and manufacturers that supply high value consumer goods, including whitegoods and electrical goods. The ACCC remains concerned that many such retailers and manufacturers are not complying with the consumer guarantee laws;
  • advertising practices on social media platforms, and “subscription traps”. As markets change and evolve, it is important that the ACCC closely examine practices in newer or changing markets. Social media platforms are extremely important for younger consumers. The ACCC continues to receive complaints about new advertising practices on platforms, which have a detrimental impact on consumers, particularly young people.
  • Complexity and opacity of pricing in the energy and telecommunications sectors. Despite the recommendations in our Retail Electricity Pricing Inquiry report, we continue to see complex and opaque pricing practices in the energy sector, which in our view are only in place to confuse and mislead consumers. There are similar issues in the telecommunications sector, which will also be a focus for our work this year.

In addition, our work on a number of existing consumer enforcement priorities will continue. Many of our concerns still exist in these areas, and so our job is not over.

Last year there was significant focus on the franchising sector, with a joint parliamentary committee conducting an inquiry. From our perspective, there are a number of investigations that we have underway to address serious allegations of misconduct in this sector.

While we have had some recent success in the courts in the Ultra Tune and Geowash cases, there are many franchisees who approach the ACCC raising concerns about franchisors failing to comply with the Franchising Code, as well as other misconduct by franchisors.

We will also be continuing our focus on the business-to-business unfair contract term laws, particularly in the agricultural sector, but also in many others. Unfair contract terms can cause great harm to small businesses and farmers.

Last year the Government released the ACCC’s Preliminary Report on Digital Platforms. The preliminary report identified a number of potential enforcement issues which are under investigation, and we expect to take some cases this year in these areas.

New car retailing has been a priority for the ACCC for several years. This work has culminated in a number of significant outcomes. While it will not be a formal priority in 2019, we have a number of important continuing investigations that we hope will improve this sector’s respect for the consumer guarantee provisions of the ACL.

3. Our key product safety focus

In relation to product safety, the ACCC will be releasing separate Product Safety Priorities at the Consumer Congress next month. From an enforcement and compliance perspective, two important product safety priorities stand out for the coming year. These are ensuring the effectiveness of the compulsory recall of vehicles with Takata airbags, and improving the safety of quad bikes.

4. The ACCC’s current market studies

Competition policy involves both the enforcement of effective laws, and also lowering barriers to competition and promoting well-functioning markets. For the ACCC to do the first but not the second through advocacy of the benefits of particular competition policies is to see its work half done, and to not properly leverage the findings and insights we gain from our enforcement and broader work.

A clear example of this is in electricity retailing. We have successfully taken cases against many electricity retailers yet consumers were still being confused and many particularly low income people were paying silly prices.

Our Retail Electricity Pricing Inquiry made a number of recommendations that the Government announced on Saturday will be implemented from July 1. These will achieve great outcomes for consumers that no amount of enforcement action could have achieved.

This year will be pivotal in a number of areas.

  • Our Northern Australia Insurance Inquiry will be wrestling with the issue of whether some form of assistance may be appropriate to reduce rapidly rising insurance premiums in Northern Australia;
  • Our financial services work will initially focus on foreign exchange fees, and why they seem to remain stubbornly high. There will also be further studies and investigations this year that go to the heart of competition in banking;
  • Our focus on agriculture continues with a study into the wine grape production sector;
  • Our work on electricity affordability will continue to be fundamental. This is a vital issue for consumers, industry and the Australian economy; yet it remains poorly understood;
  • Gas prices have risen quickly to levels that will cause more industries to close and not return to Australia. This is a tricky issue as the LNG projects coincided with effective moratoria on gas exportation and development in Victoria, NSW and Tasmania. This market must be more transparent, but it needs more supply;
  • By mid-year we will complete our Digital Platforms Inquiry. We have much work to do to settle our final recommendations.

A key focus this year will be advancing our work on the Consumer Data Right (CDR). This is not a market study, but is an important new right for consumers to freely access their data in a way that will enable them to readily compare products and services and choose those that best meet their needs.

Starting with banks, and moving through other sectors such as energy and telecommunications, consumers will have the right to direct their supplier (eg their bank) to pass their data to a third party who can assist them in making choices of suppliers or provide other services to assist the consumer to engage with the market (for example, budgeting services).

The ACCC is busy writing the rules for the CDR system, which will determine how suppliers like banks must operate under the scheme. We are also building an address book and accreditation process to facilitate the sharing of data, with safeguards to address security and privacy.

With pilots and generic data sharing expected to be underway from July this year and consumer data to be shared no later than February 2020, this will be a busy work program. But we are enthusiastic about the capacity for these reforms to transform over time the way in which consumers can take advantage of their data in the same way businesses have been over recent years.

5. Our continued focus on advocacy

Advocacy has been a vital part of recent ACCC activity. The changes to section 46 of the Competition and Consumer Act which prohibits misuse of market power, the introduction of a prohibition against concerted practices and the coming into effect in November last year of significantly higher maximum penalties for breaches for consumer law by large companies, are just some of the legislative reforms the ACCC has advocated.

We have many advocacy priorities for 2019; some new, most continuing.

First, we have already been advocating for reforms to the current unfair contract laws. At present, it is only when a term is declared to be unfair by the Court that it becomes void and unenforceable. The inclusion of unfair contract terms in contracts is not prohibited and the ACCC is not able to seek penalties for this conduct.

This provides a number of challenges for an economy wide enforcement agency. Businesses have low incentives to change their behaviour absent sanctions, knowing that if questioned, they can quickly agree to change their contracts and move on. In effect the ACCC becomes the compliance department for these businesses, which is what we never want to be.

The point here is that compliance with the law must be the responsibility of all firms; the ACCC’s role is both in general education and in enforcement action to encourage this compliance.

The ACCC has argued that now is the time to prohibit unfair contract terms and impose penalties for their inclusion in standard form contracts. The guidance given by the ACCC since introduction of these laws in 2011 and recent ACCC court action should enable all businesses to avoid including unfair contract terms in their standard form contracts.

Second, we will continue to advocate that the sale of unsafe goods should be prohibited. We are advocating a workable approach that requires companies to take all reasonable steps to protect consumers by not supplying unsafe products in Australia.

This means that companies buying from unknown wholesalers or overseas aggregators require some due diligence. It is reasonable to expect manufacturers and importers higher up in the supply chain to take more responsibility for the safety of the goods they supply than small businesses which may ultimately sell those goods to consumers.

Third, the ACCC will also continue the debate the adequacy of the laws against companies engaging in ‘harsh and unfair conduct’ towards consumers. The ACCC recently lost a case against Medibank, where the Full Federal Court found that Medibank’s conduct was not unconscionable in breach of the ACL. Justice Beach stated: “…Medibank acted harshly (against its own consumers). And I am also prepared to conclude that it acted unfairly. But this is not enough to establish statutory unconscionability.”

At present, the law addresses misleading conduct, unconscionable conduct and, in part, unfair contract terms. But we are increasingly concerned that harmful conduct may fall between the gaps of these provisions.

We raised this issue in our preliminary report in the Digital Platforms Inquiry given the examples arising in that area that might support such reforms. The Federal and State Ministers responsible for consumer law have recently discussed whether, as in the USA, Australia needs a law against “unfair” behaviour by companies.

The ACCC will remain a strong participant in this key debate throughout the year.

Fourth, we have much more advocacy to do in relation to recommendations from past market studies. This includes improving the existing wheat port code, working towards new codes to improve the bargaining position of dairy farmers and ensuring that vehicle manufacturers give access to information to independent vehicle repairers.

Fifth, we will continue our advocacy in relation to privatisation. When monopolies are privatised to maximise price, by either weak or no regulation or by anti-competitive arrangements, the economy suffers terribly for years to come.

So does the cause of those who promote the benefits of privatisation.

Sixth, we have consistently argued that our major airports need to face some type of constraint. We were disappointed that the Productivity Commission, in its draft report on airport regulation, rejected our pragmatic proposal for resolving disputes between airports and airlines.

Seventh, we are heavily involved in road reform. Reforming the way that roads are regulated and funded will not only help ensure that funds flow to the projects of most need, but also ensure that road funding does not dry up as we progressively move to more fuel efficient and electric vehicles.

Finally, late last year in a speech I said the ACCC used a consumer welfare, and sometimes a total welfare standard, to guide its work. I also argued against using competition law to achieve a range of broader objectives.

While a consumer or total welfare standard guides our theories of harm, we must have regard to the evidence required to establish that conduct is likely to have the effect of substantially lessening competition. There is little point using these standards if the evidentiary burden makes them irrelevant.

We are increasingly concerned that the bar for establishing a likely substantial lessening of competition is being raised to a height that is failing to protect competition and ultimately consumers.

For example, there often seems to be too much weight placed on the capacity of market forces to overcome problems caused by a lack of competition in concentrated markets. There seems to be undue optimism that new entry will rapidly occur if firms attempt to exercise market power or that a small number of large players will compete rather than simply accommodate each other so that all can make abnormal profits.

Further, at times considerable weight is given to the naturally self interested testimony of business executives about their intent and the impact of the transaction or conduct at issue, while at the same time there is little if any weight given to the ACCC’s competition concerns and evidence regarding the likely future state of competition in the relevant markets.

These outcomes trump clear commercial logic, which tells us that if a company can increase prices, surely it will.

The law prohibits mergers and agreements likely to substantially lessening competition. These prohibitions are there to protect the competitive process in our markets. It is important that they can be effectively enforced.

We must in particular remember that when we oppose a proposed merger under Section 50, there is no question of a penalty for breaching the law. Instead, what is at stake is the level of concentration, and so the health, of the Australian economy.

There seems, if anything, a current bias to excessive consolidation; to fewer firms in each sector. As a community we need to question whether this is the outcome we want.

The ACCC’s policy advocacy and court arguments will therefore increasingly focus on protecting the competitive process, and educating the community accordingly. We will seek to counter potentially naïve views about commercial behaviour and how companies respond to the circumstances they find themselves in.

Many in the corporate community will oppose this push. I anticipate that arguments such as the need for national champions, the need to encourage investment, and how consumers and employees benefit from large companies will be made. All such arguments contradict the benefit of competition.

The ACCC will continue to argue that, overwhelmingly, company behaviour will most benefit consumers and the community if it occurs within a framework of those companies facing strong competition from a sufficient number of competitors.

We must, and will, highlight that most companies want less, not more, competition. Low levels of competition allows profits above what they would be in a competitive market; which company does not want that?

Conclusion

With all of the above to occupy us, 2019 will be a busy, exciting but important year.

It will also be another year where the ACCC does its best to make markets work in the long term interest of consumers, and Australians generally.

Thank you.

Tags

Audience