The Government has confirmed that the Commerce Commission will be conducting a comprehensive review of competition within the banking sector for personal banking services. The expressed aim of the review is to ensure “the market is working well for New Zealanders”.
What does a “market study” involve?
The Commission has powers under the Commerce Act 1986 to conduct in-depth studies into the factors affecting competition for particular goods or services, to find out how well competition is working and whether it could be improved. There have been three market studies undertaken by the Commission to date since it was empowered to conduct these reviews: a study into competition for retail fuel (2018), the retail grocery market (2020) and residential building supplies (2021).
What will the market study focus on?
The terms of reference for the banking industry review confirm the matters to be considered by the Commission may include (but are not restricted to):
- The structure of the industry and the nature of competition.
- The conditions for entry by potential competitors and the conditions for expansion.
- Any barriers to consumers comparing bank offers or switching banks, including the extent to which products or services may be tied or bundled.
- Any impediments to new or innovative banking products or services.
- Comparative indicators of bank financial performance (including profitability).
By analysing these factors, the Commission aims to determine any necessary actions to ensure competition works in favour of bank customers.
The Commission has also more specifically indicated that potential areas of focus for the study include “current accounts, deposit accounts, and overdraft account services, personal loans, and mortgage and credit card lending” but that “there will be less of a focus on financial services such as KiwiSaver, wealth management, insurance, and foreign exchange”.
Timeline and process
The Minister for Commerce and Consumer Affairs has requested the Commission publish a preliminary issues paper by the end of August 2023 (ahead of the October election) before releasing its full findings by 20 August 2024. A more detailed summary of the general process for market studies is set out below:
|
Terms of Reference |
Available in the New Zealand Gazette |
|
Statement of process |
Available on the Commission's website |
|
Preliminary issues paper |
Due by end of August 2023 |
|
Submissions on issues paper |
Due date TBA |
| Commission information gathering/analysis | July 2023 - February 2024 |
|
Draft report |
March 2024 |
|
Submissions on draft report |
Due date TBA |
|
Consultation conference (if held) |
April - August 2024 |
|
Final submissions |
Due date TBA |
|
Final report |
20 August 2024 |
In addition to receiving submissions, the Commission will conduct its own inquiries into the sector which will involve seeking information from industry participants. Importantly, participants should be aware that the Commission has the power to subsequently open an investigation if potential breaches of the Commerce Act are brought to light during a market study.
What is the likely outcome of this review?
There is no requirement on the Commission to find issues in a sector when conducting a market study. It is open to the Commission to conclude a sector has a “clean bill of health” or make non-binding recommendations as to what the Commission thinks would enhance competition in the area under review. Whilst any recommendations are technically non-binding, they can lead to significant regulatory upheaval (for example, following the market study into the retail grocery sector the government adopted some of the Commission’s recommendations through the Grocery Industry Competition Bill – including the establishment of a regulatory regime for the wholesale supply of groceries).
Our multi-disciplinary competition team have deep experience in relation to competition market studies, having advised on two of the three market studies conducted by the Commerce Commission to date, and market studies in overseas markets including telecommunications and broadcasting, grocery and private healthcare. Our team has significant expertise in banking markets both in New Zealand and Australia; we have acted for banking clients in various regulatory processes including competition investigations, merger approvals and other regulatory matters. We will continue to monitor the market study as it progresses and may provide further insight and guidance as the review unfolds.
For any specific inquiries or to discuss how this review may impact your business, please reach out to our dedicated team of lawyers who specialise in competition and banking law.
This article was co-authored by Jovana Nedeljkov, a Senior Solicitor in our Competition team.
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