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Hong Kong – Insurers Getting Ready For The New Competition Ordinance.

16 October, 2014

 


Hong Kong insurers have not had to worry about prohibitions on cartels or abuse of power. However, on 14 June 2012, nearly four years after China’s first Anti-Monopoly Law, the new Competition Ordinancewas passed by Hong Kong’s legislature. This made Hong Kong the last developed economy to adopt a cross-sector competition law according to the newly established Competition Commission. The legislation is expected to come into effect next year.

 
The legislation contains two so-called “conduct rules”:

 

  • a prohibition of anti-competitive agreements, concerted practices and decisions; and
  • a prohibition against abusing market power.

 
While the scope of the two conduct rules is similar to Articles 101 (prohibition on cartels) and 102 (abuse of a dominant position) of the Treaty on the Functioning of the European Union, the devil will be in the detail.

 
The Competition Commission is expected to release draft guidelines within the coming few weeks. The guidelines will set out the Commission’s interpretation of the two conduct rules and how it intends to apply them. Insurers should take the opportunity to comment on the draft in the following consultation period.
Many insurers are already gearing up for implementation by:

 

  • conducting training and creating staff awareness of unacceptable behaviour;
  • establishing best practices and procedures for legitimate contacts with competitors (such as clearly pre-agreeing the scope of any discussions and maintaining minutes of meetings); and
  • providing channels for staff to report possible violations.

 
The Competition Commission is expected to focus its enforcement actions on so-called “horizontal restraints” such as market sharing and price fixing.These are seen as posing the largest threat to consumers and smaller competitors. However, the guidelines will shed light on the implications for vertical restraints on trade between a company and its suppliers and distributors.

 
In addition to identifying any prohibited form of cooperation with peers, the insurers will need to review their existing distribution agreements with brokers, tied agents and bancassurance partners to ensure that they are compliant with the first conduct rule. The rule will apply to existing agreements as well as new agreements at the time the provisions of the Ordinance come into force.

 

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For further information, please contact:

 

Robert Ogilvy Watson, Partner, Ashurst
robert.ogilvywatson@ashurst.com

 

Angus Ross, Partner, Ashurst
angus.ross@ashurst.com

 

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