Introduction
Good morning and thank you for the opportunity to provide an insight into how the Commerce Commission Enforcement branch works. You will have no doubt heard Sue Begg's address yesterday which gave an update on our activities over the past year. Sue touched on how our approach has been changing, and today I'd like to talk more about that - and what it means for our interaction with stakeholders.
I'll start by explaining some internal changes I've made, which have allowed the branch to begin working in new ways. I would then like to briefly explain how our portfolio of work is changing, and in response, how the Commission is tailoring its approach, both to suit the environment and the needs of businesses and those who advise them. I'll also touch on changes to the Leniency Policy, and finally how best to interact with the Commission in the context of a Commission investigation. Through all of this I hope to demonstrate that as an organisation we are behaving with more openness. We have been listening and we will continue to do so. And I hope there will be opportunity for discussion at the end of my talk.
The changing shape of our organisation
Last year the Commission was reorganised to focus the business along clear lines of delineation between our enforcement and regulatory responsibilities. These changes were made to enable us to work more smartly and responsively to the changing external environment, and to give us the ability to address market issues with a more global mindset.
An understanding of our new structure will help you understand not just whom to contact, but how the structure reflects our current focus.
I have brought together the investigation teams of our Commerce Act, Fair Trading and Credit Contracts and Consumer Finance Act teams under one investigations manager Ritchie Hutton). We have a new General Counsel of Enforcement, Mary-Anne Borrowdale, and an Acting Chief Economist Steen Videbeck. They head up dedicated legal and economic resource within the branch.
And there are two important new units. We have formed an Advocacy and Development team, which as the name indicates, is working to pre-empt breaches of the Acts we enforce through education and behaviour change. I will talk more about this shortly.
The second new unit is an Intelligence unit, within the Advocacy and Development team which will help us to better understand markets and the issues that arise. This unit will focus on drawing together the vast array of information we have access to, both domestically and internationally, to get ahead of the trends, and identify areas we need to focus on, whether it be through advocacy or through investigations and possible enforcement actions. Our current state is reactive to complaints laid with us, and the filing of leniency applications. These new units will help us move more towards proactive enforcement, orientating our resource to where it will be most effective.
So how does this help us to work better?
From a resourcing perspective we have much more fluidity in terms of how we assign work, meaning we can prioritise our efforts where they will have best effect. So, for example, as we've seen a downturn in merger activity, we've been able to shift resource to focus to Fair Trading Act cases, development of analytical frameworks as well as into our outreach and advocacy work. As this trend reverses, as seems to be our present case, we have the expertise and resource we need to meet the demands of our non discretionary work load.
Having one enforcement branch also means we have a much bigger pool of expertise and experience across both consumer and competition activities, and can draw on the various strengths that exist within the branch on a case by case basis. We want it to be easier for stakeholders to work with the Commission and that means making sure our processes and decision making are streamlined, efficient, consistent.
In addition, it allows us to better frame up some of our consumer law investigations and activities in the context of competitive markets, and vice versa. The Rugby World Cup is a good example. We currently have a project which is leveraging off the looming RWC 2011 to educate consumers and traders about their rights and obligations under Commerce and Fair Trading and Credit Contracts and Consumer Finance: a good instance of how we are investing in informed consumers driving competitive markets.
Our changing portfolio of work
As the global marketplace has been impacted by the recession, so too has the nature of work coming before us over the last few years.
While our workload in the consumer and regulatory spaces has not let up, our adjudication and enforcement work under the Commerce Act has seen some significant ebbs and flows in recent times.
From a substantial decline in merger applications as we entered into recession, we are now starting to see a gradual pick up again. We currently have 2 merger clearances on our books, and have completed 7 to halfway point this financial year. At current trends we might expect to complete 15 by financial year end.
In recent years we have also had very few applications for authorisation under the Commerce Act, and despite being advised to expect several in the last year, none of these in fact materialised. We have just received our first merger authorisation application since 2002.
Sue spoke yesterday about the potential impact of 0867 on our portfolio of unilateral cases and it does seem likely to me that we may be constrained that is, we will be cautious before putting resource into a case we believe cannot win or that has no other precedent or other value. I understand there was discussion around this on Day 1.
Finally, despite a suspicion that the recessionary conditions might have led to more instances of collusive behaviour, we have experienced a dearth of s30 cartel leniency applications. Perhaps sadly, we don't suppose that the lack of leniency applications is a reflection of a competitive nirvana, nor solely the result of our watchdog teeth. It is much more likely that collusive conduct is alive and well, it's just that businesses don't necessarily know that what they're doing is wrong or don't recognise the harm they are doing to competitors.
We have evidence of this lack of understanding, following research we commissioned last year into the non-residential construction industry. The results showed little understanding of what cartel behaviour is within the industry and low levels of awareness of competition law.
"The oil barons come to mind. Also Mafia...the mob. It happens in places where the social fabric is corrupt."
...is what one survey participant said.
And yet it is happening right here. All of the construction businesses surveyed spoke quite openly about the practice of cover pricing - where competitors talk to each other to come up with a believable but not genuine bid for a job. [Brief discussion about how the guarantee of anonymity, and promise that we wouldn't prosecute on basis of answers enabled a free and frank discussion from the respondents] In subsequent industry association outreach in other sectors, we have been hearing a similar, and concerning, apparent lack of knowledge of Commerce Act issues. We do intend to continue with this type of advocacy, where we build knowledge of a sector and the specific competition concerns in it, seeking to educate and take enforcement action to change behaviour.
Our changing approach
This brings me back to our changing approach. We are becoming increasingly focused on working to improve compliance and market outcomes by educating, encouraging and enabling businesses to comply with competition and consumer laws. It's the old adage about being less of an ambulance at the bottom of the cliff, and more orientated to detecting and deterring anti-competitive behaviour up front.
The ideal outcome of this advocacy approach is that in future we have less enforcement to undertake, but we must also expect that the increased awareness created by advocacy may actually result in more reporting of behaviour that potentially breaches competition and consumer laws. Either way, you can see that advocacy creates a cycle that ultimately delivers improved competitive markets for the benefit of New Zealanders.
Part of the outreach and advocacy work involves developing resources and guidelines to improve awareness and understanding of the legislation we enforce, the processes we follow, and ultimately the benefits to be gained from competitive markets.
But of equal (if not more) importance is how we engage with New Zealand businesses, and all our various stakeholders, and ultimately influence their behaviour.
Those involved in the regulatory space may have noticed we have been taking a much more consultative approach in our work, including holding more conferences and workshops and encouraging interested parties to present their views in order to inform our decision making.
In the Enforcement branch, as part of our outreach work we have also been working closely with industry groups, to determine the most effective and appropriate ways to communicate and improve compliance.
One tool we have developed and made available to businesses is a Fair Trading Act DVD. This is intended to provide businesses with an informative and easy to follow way of training staff about exactly what the Act is all about. It's an accessible resource, purposefully a little light hearted and with a broad appeal. It is available free from the Commission as a DVD, or can be viewed on our YouTube channel.
We have also combined our greater emphasis on education and outreach to industry with our more traditional enforcement role with great effect in the Fair Trading area. In particular we have focussed on those areas currently targeted by the Fair Trading team: telecommunications, financial products and services, sustainability claims and more recently issues around the Rugby World Cup. We have issued clear guidelines to industry (eg the advertising of bundled telecommunications products) and have committed to actively enforcing them so that those companies who comply with them are not disadvantaged by any competitors who do not.
In these sectors there have been a number of indications that this more flexible and rounded approach by the Commission has secured real improvements in compliance in key areas.
CCCF Act
An example of our new approach in action in the area of the Credit Contracts and Consumer Finance Act, relates to credit card late payment fees. In May last year rather than litigating we sent banks a compliance advice letter about the level of credit card late payment fees. As some banks had already reduced their fees we wanted to allow market led changes to benefit consumers. The evidence suggested that some banks were over-recovering on these fees so in essence we drew a 'line in the sand' by saying that any late payment fees over $15 would likely trigger our enforcement criteria for further investigation. We also, via a media release and subsequent media coverage, encouraged consumers to be aware of the issue, and this may have had some bearing on what happened next. Over the next few months we saw all of the banks that were still charging above that threshold reduce their late payment fees.
Listening to business
Last year we invited and received valuable stakeholder feedback which provided insight into what our key stakeholders are thinking and what they think of us - and pertinently, how we can improve. We will repeat this stakeholder survey on an annual basis to ensure we continue to understand our stakeholders' perspectives, and adapt our approach as appropriate.
Perceptions of the Commission and our work were also garnered in a survey of members of the public and businesses early last year. The results have informed much of our outreach programme, as well as provided a benchmark for improvement. This research identified that while we have a high recognition factor, many people don't understand our role. Alarmingly, only 58 percent of businesses understood that the Commerce Act applies to them, and of those 58 percent only 23 percent gave staff training in how to comply with the Act. Again, this research will be repeated to ensure our strategies are working, and to ensure we identify early new areas we need to address.
Influencing and promoting compliance is important. However we are an enforcement agency. There will always be businesses that operate outside the law - whether intentionally or unintentionally. Our focus remains on detecting potential breaches of the law and dealing appropriately with the misconduct.
Obviously, investigating potential breaches of the law is not an area that endears us to some members of the business community. And while this is a necessary part of our role, it is also important that we listen to and understand the needs of those businesses who are or have been the subject of Commission investigations.
Above all, our philosophy today is about playing the ball and not the player. This means recognising the impact a Commerce Commission investigation can have on a business and acting responsibly, with integrity, and with clear objectives in mind.
By way of example, we took the opportunity to hold discussion with some competition lawyers last year, to talk about our use of section 98 powers under the Commerce Act. Broadly, we are open to discussion on wording of some requests to ensure that we get to the information we need. Over-reach in terms of document supply is an inefficient outcome for us, and takes up business resource. Sometimes it will help our investigators to understand more about a company structure, a document storage mechanism, and even preferences for how documents are supplied, and they can do that by engaging with businesses and their advisors up front.
This is indicative of our willingness to listen to parties where we can and reach an appropriate approach, within the bounds of statutory constraint and orientated to achieving the best investigative outcome.
This takes me to some changes in the last year to our leniency policy.
Following the introduction of the leniency policy in 2004 we received applications from many companies that were undertaking collusive activity on an international basis and which affected a market and consumers in New Zealand, incentivised to 'blow the whistle' because of the offer of immunity.
We revised our leniency policy in 2010 and consulted widely on the changes.
The principle change is around the eligibility to apply for conditional immunity. We introduced a marker system for conditional immunity applications and we have also made the option of conditional immunity available even once an investigation is underway. The former effectively grants an applicant first place in the queue for immunity. We believe that through this process we are holding the door open to allow a person or business to stop damaging competitive markets. We are also ensuring that a party can report conduct to us as soon as possible but with a clear expectation as to the information that we require from them.
The change that enables leniency applicants to apply during the life of an investigation is subject of course to the overriding condition that it is only available to the first party that meets the criteria, and in investigations when we don't yet have enough evidence to initiate proceedings.
The key reasons for the revisions to the policy were to encourage parties to apply to us in a timely manner, through the availability of the marker system, and to provide parties with the greatest incentive to self report cartel behaviour, through the availability of conditional immunity even once an investigation is underway.
We have published our "Cartel Leniency Policy and Process Guidelines" as well as a range of "Frequently Asked Questions" on our website.
Communication during an investigation
Finally, we also understand the importance of open and regular communication with a business that is under investigation. A business being investigated by the Commission obviously wants to know what is required of them and the process and timings involved, and we have been told that this is not something we've always done well in the past.
But businesses too have a role to play in keeping communications channels open. Our advice? Talk to us sooner rather than later, let us know about any relevant issues you're facing, ask for clarity if required. We'll be upfront, and we want you to do the same.
Enforcement options
When we suspect a breach, we must make a decision as to how that breach is dealt with. Ultimately that decision must be made in the wider context of our role, tailoring our response to achieve the biggest wins - and by that I mean for New Zealand consumers and the wider economy. With around 12,000 complaints made to the Commission annually we can not investigate and take enforcement action on every one.
We have a wide range of enforcement options available to us, and we know from experience that highly effective outcomes can be achieved without heading down the litigation path every time. Take, for example, our settlement with ANZ/ING which achieved a record $45 million in compensation for consumers without reaching court.
With those cases we do take to litigation, the door is not shut. We are available to meet with defendants who wish to discuss options for an early resolution in many cases, where we assess that if it will better achieve the best possible outcome in the interests of competition and consumers.
Conclusion
To close, I want to reinforce that we are committed to engaging more with businesses - both in terms of the value we are now placing on a more proactive, education and advocacy role, and in terms of the relationships and interactions we have with New Zealand business and their advisors in the context of our decisions and interventions.
For the Commission to do its job well we need to understand the wider environment in which New Zealand businesses and specific industries are operating. Our effectiveness rests in our ability to understand and influence how markets operate, using an informed and flexible approach to reach for the enforcement outcome that will best meet our purpose.
You can expect to be hearing much more from the Commission in the future. Our purpose is to achieve the best possible outcomes in competitive and regulated markets for the long-term benefit of New Zealanders. How we go about achieving those outcomes is changing, for the better, for New Zealanders.
Thank you.
