The Competition Appeal Board (CAB) has dismissed an appeal of IPP Financial Advisers and ordered the firm to pay the financial penalty of S$239,851 (US$176,438) imposed by the Competition Commission of Singapore (CCS) together with interest and costs of the appeal.
CCS imposed the penalty in March 2016, after finding that IPP, together with nine other financial advisers, had violated the Competition Act by engaging in an anti-competitive agreement to pressure their competitor, iFAST Financial, to withdraw its offer of a 50% commission rebate on competing life insurance products on the Fundsupermart.com website. Further, CCS noted that the Fundsupermart offer was particularly attractive to customers because the general industry practice of financial advisers was not to provide commission rebates to policyholders.
The launch of iFAST’s Fundsupermart offer disrupted the financial advisory industry in the distribution of life insurance products in Singapore. The leveraging of iFAST’s established online platform to reach out to its wide client base was innovative and efficient, allowing iFAST to save on distribution costs. These cost savings could then be passed on to consumers through a significant commission rebate. However, a few days of the launch, iFAST withdrew the Fundsupermart offer due to collective pressure from the group.
In its appeal against the CCS decision, IPP cited various grounds seeking a substantial reduction in the financial penalty. However, after hearing the evidence of IPP’s witnesses and the arguments of IPP and CCS, the CAB affirmed CCS’s decision and dismissed all of IPP’s grounds of appeal. IPP was further ordered to pay CCS’s legal costs.
In its decision dated 29 June 2017, the CAB found that the object of IPP's “infringing conduct was clearly to prevent the entry of a new competitor into the market for individual life insurance products in Singapore, and to prevent the competitor from providing a cheaper alternative product that would affect its own business. This is injurious to competition by its very nature as it would result in the prevention, restriction or distortion of competition in the relevant market.”
The CAB noted that the result of the infringing conduct is that “the market never returned to the state of competition that would have existed had the Fundsupermart offer not been withdrawn.”
The IPP and the nine other parties had used iFAST to handle unit trust transactions for their clients. This commercial relationship with iFAST contributed significantly to iFAST’s revenues and placed them in a position to exert pressure on iFAST.
The CAB dismissed IPP’s arguments that it should only be penalised based on the turnover derived from its conduct, i.e., new policies entered into in FY 2014 and that the starting percentage imposed by CCS was too high. The CAB agreed with CCS that relevant turnover is the entire turnover derived from the relevant product and geographic markets affected by the infringement, i.e., turnover from all the policies in force in FY2014, and held that the starting percentage imposed by CCS is neither excessive nor unjustified in light of the nature of IPP’s conduct.
For the purposes of calculating the appropriate level of financial penalties in this case, CCS had been of the view that the relevant product market is the distribution of the insurers’ relevant individual life insurance products by financial advisers as well as the other distribution channels used by the insurers for selling their relevant individual life insurance products in Singapore.
The CAB also dismissed IPP’s argument that the financial penalty should be reduced to reflect a minimal infringement period of one month as the agreement took place over a short span of two days. The CAB had regard to the objective of the conduct and agreed with CCS that the short duration of the infringement should not be credited to IPP, otherwise CAB would be rewarding IPP for the fast and effective implementation of the agreement.
Lastly, the CAB also held that IPP failed to demonstrate that it operates in a high turnover, low margin industry and that there was no uncertainty that IPP’s conduct was in breach of the Act.
On 18 July 2017, IPP paid the outstanding financial penalty of $239,851 together with interest as ordered by the CAB. The other nine financial advisers had paid the financial penalty imposed on them within two months of the date of their receipt of the CCS decision in 2016. The total penalty imposed on all 10 in the group was S$909,302.
CCS’s Chief Executive, Mr Toh Han Li, said: “The disruptive entry of a new competitor with an innovative offering would inevitably cause displeasure and outcry among the existing market players. However, market players need to decide their own individual competitive response. In this case, colluding to collectively pressure a competitor into withdrawing its innovative offering prevents consumers from enjoying significant benefits such as greater choice, greater convenience, more competitive prices, and prevented the market from becoming more competitive. CCS will take the necessary enforcement measures to allow new entrants to fairly compete with the existing market players on a level playing field, such that the market becomes more efficient, innovative and responsive to consumer’s needs.”