First Decision on the Exclusion of Competition Rules

The Competition Commission has recently published its first decision on the exclusion of the competition rules under the Competition Ordinance. The Commission found that the Code of Banking Practice is not excluded from the prohibition against anticompetitive arrangements as it is not legally required under Hong Kong law.

The decision is obviously of particular note for the financial services sector. However, it is of wider significance to businesses in illustrating how the local competition authority narrowly interprets and applies the Competition Ordinance’s statutory exclusions. Specifically, arrangements that are merely encouraged by government entities are still likely to fall within the ambit of the competition rules. Mere oversight or encouragement by the Government is insufficient.

The Decision Sought Under the Application

In December 2017, 14 financial institutions applied to the Commission to obtain clarity as to the exclusion of the Code of Banking Practice (“Code”) from the First Conduct Rule (the provision of the Competition Ordinance (“CO”) dealing with anti-competitive arrangements). Under the CO, the “legal requirement” exclusion provides that the First Conduct Rule is not applicable if the arrangement is made for the purpose of complying with a legal requirement.

The Code is non-statutory and voluntary. It is published jointly by the Hong Kong Association of Banks (“HKAB”) and the DTC Association. The current Code has been drafted in cooperation with and is fully endorsed by the Hong Kong Monetary Authority (“HKMA”).

The Code contains a range of provisions requiring banks to adopt common approaches to certain retail services. Shortly before the CO entered into force in December 2015, a number of provisions of the Code were “suspended” by the HKAB due to uncertainty on the Code’s compliance with the CO.

Commission’s Reasons for Refusing the Application

The Commission concluded the Code was not a legal requirement imposed “by” or “under” the Banking Ordinance.

The Commission had already outlined in its Guideline on the First Conduct Rule that the “legal requirement” exclusion should only apply in a very narrow set of circumstances, i.e. where businesses are “compelled” to act in a particular way “under” law. However, it gave further detail in its decision with the following general principles of wider applicability:

  • Express language in the relevant industry code and/or legislation will be crucial in determining the applicability of the exclusion.
  • If non-compliance with the industry code merely raises “doubt” as to whether a regulated body had fulfilled its legal obligations, the industry code may not constitute a legal requirement for purposes of the exclusion.
  • In the absence of a direct legislative basis, mere government endorsement is insufficient.
  • A mere “expectation of compliance” does not amount to legal requirement. Even if the Government closely monitors the compliance of an industry code and has an expectation that compliance with such code is mandatory, that alone would unlikely be sufficient.

Wider Lessons for Hong Kong Businesses and Trade Associations

The Commission has no current intention to investigate whether the Code may contravene the Ordinance. Its potential consumer protection interests were seen to be particularly relevant in the Commission’s assessment. The drafting process of the Code heavily involved public bodies and the intention of the Code was to promote good practices by setting minimum standards.

The Commission’s decision should be taken as a strong warning for careful scrutiny of any industry codes. Any previous expectation that arrangements may be excluded from the Ordinance based on the “legal requirement” exclusion should be reviewed based on the principles set out in the decision.


Linklaters (Hong Kong), Antitrust Partner

Linklaters (Hong Kong), Associate