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Exchange rate manipulation and Competition Ordinance [China Daily: Hong Kong Edition]
[July 20, 2014]

Exchange rate manipulation and Competition Ordinance [China Daily: Hong Kong Edition]

(China Daily: Hong Kong Edition Via Acquire Media NewsEdge) The Hong Kong Monetary Authority (HKMA) recently announced an investigation into a number of banks in Hong Kong regarding a possible manipulation in the currency exchange markets. The allegation is that traders at some of the world's largest banks may have conspired to manipulate exchange rates in global currency markets.

Other regulators are looking at the same issue abroad. The European Commission, the Swiss Competition Authority, the United Kingdom Financial Conduct Authority and even the Commerce Commission of New Zealand are reported to be looking into the allegations. In the United States, plaintiffs' lawyers have started class actions against several banks.

In the last year, investigations into possible market manipulations in the banking sector have made the headlines. In December 2013, the European Commission imposed fines amounting to approximately HK$18 billion on eight international financial institutions. The allegation was that these institutions colluded to fix the price of interest rate derivatives, including the LIBOR and EURIBOR. The whistle blowers received immunity from the regulators. When issuing its decision, the EU commissioner in charge of competition policy declared that "what is shocking about the LIBOR and EURIBOR scandals is not only the manipulation of benchmarks, which is being tackled by financial regulators worldwide, but also the collusion between banks supposed to be competing with each other. Today's decision sends a clear message that the commission is determined to fight and sanction these cartels in the financial sector. Healthy competition and transparency are crucial for financial markets to work properly, at the service of the real economy rather than the interest of a few".

These global investigations into alleged collusion serve as a useful reminder for the inception of the Hong Kong Competition Ordinance. Indeed, in many jurisdictions investigations into possible collusion are based on competition laws. As a result it is possible to impose heavy fines. In Hong Kong, given that the Competition Ordinance is not yet in force, the HKMA's investigation is based on current financial regulations.

The Competition Ordinance was adopted in June 2012 and is expected to come into force sometime in 2015. The ordinance was adopted despite fierce opposition after many years of discussion. The purpose of the ordinance is to prohibit conduct that limits or restricts competition in Hong Kong.

Possible inter-bank collusion to fix or manipulate exchange rates would fall under Section 6 of the new Competition Ordinance. This provision prohibits agreements to prevent or distort competition in Hong Kong (the so-called "first conduct rule"). The prohibition applies regardless of where the agreement was entered into, as long as it has "effect" in Hong Kong. This provision does not require the existence of a formal agreement. It is sufficient that there is a consensus of will between the parties, regardless of the form it may take. The simple exchange of information may in and of itself, under certain circumstances, constitute an anti-competitive agreement.

The HK Competition Commission will implement the ordinance. It will have the power to launch an investigation of its own volition or upon receiving a complaint. It will have broad powers to investigate any type of infringement, including obtaining documents, interviewing employees, entering and searching premises or (with a court warrant) taking possession of relevant documents and computers. It is as yet unclear how the financial regulators and Competition Commission intend to cooperate on conduct that could potentially fall under both the financial regulations and the ordinance.

According to the Competition Ordinance agreements or collusion among competitors are considered to be serious anti-competitive conduct. Therefore, the Competition Commission will have the power to apply for the courts to impose sanctions upon banks who infringe the rules. These sanctions include financial penalties (up to 10 percent of the Hong Kong turnover for each year in which there have been infringements, up to a maximum of three years).

Whistle-blowers reporting collusion to the Competition Commission will benefit from more lenient treatment. In exchange for cooperation in a particular investigation, the whistle-blower will receive immunity from possible fines. This is what happened with the European Commission's investigations of LIBOR and EURIBOR. Some of the banks who escaped penalties did so because they were among the first whistle blowers.

The inception of the Competition Ordinance will bring profound change to business practice in the city. Hong Kong is one of the last developed economies without a competition law. Most multinationals have been subject to similar laws around the world which should make it relatively simple for them to adapt to the new legislation. Less internationalized companies will perhaps require more preparation in educating their employees on the new requirements of the Competition Ordinance in order to ensure their conduct remains compliant.

The author is a partner of antitrust and competition law at Jones Day, a law firm.

(HK Edition 07/09/2014 page9) (c) 2014 China Daily Information Company. All Rights Reserved. Provided by SyndiGate Media Inc. (

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