Remarks by John Pecman, Commissioner of Competition

The Competition Bureau, the Competition Act and the Payments Sector

Written Remarks prepared for the 2014 Canadian Payments Association’s Payment Panorama

Charlottetown, Prince Edward Island

June 26, 2014

(Check against delivery)


On this page

  1. Introduction
  2. Overview of the Bureau
  3. Vision for the Bureau
  4. 2014-2015 Annual Plan
  5. Realignment
  6. Transparency Bulletin
  7. Advocacy
  8. The payments sector
  9. Corporate compliance
  10. Conclusion

1. Introduction

It was a pleasure to provide the keynote address at the Canadian Payments Association’s Payments Panorama (the "Conference"), one of the premiere payment conferences in Canada. I appreciated the opportunity to address an industry that is such an important part of the backbone of the Canadian economy. An industry that is in touch with millions of Canadians, each and every day, through cash machine withdrawals; the use of debit cards, credit cards and cheques; and the use of many other payment methods. An industry that is essential to the efficient functioning of the Canadian economy.

As you know, I kept the keynote address relatively brief in order to allow for a more fulsome Q&A session at the end, with the promise that written remarks would be published shortly afterwards. These written remarks repeat and, in many cases, elaborate on the remarks provided during the keynote address. In particular, these written remarks provide an overview of and discuss my vision for the Competition Bureau (the "Bureau"); address various initiatives related to realignment, transparency and advocacy; discuss the payments sector, including some of the enforcement work that we have undertaken at the Bureau and certain issues and developments; and highlight the importance of complying with the laws that we enforce.

2. Overview of the Bureau

The Competition Act (the "Act")Footnote 1 is a federal law governing most business conduct in Canada, including conduct in the payments sector. It includes criminal and civil provisions aimed at preventing a wide range of anti‑competitive practices in the marketplace. The key provisions relate to ensuring truth in advertising, investigating cartels, preventing abuse of market power and reviewing mergers. The purpose of the Act is to maintain and encourage competition in Canada in order to, among other things, promote the efficiency and adaptability of the Canadian economy and provide consumers with competitive prices and product choices.Footnote 2

The Bureau is an independent law enforcement agency responsible for the administration and enforcement of the Act and certain other statutes.Footnote 3 In carrying out its mandate, the Bureau strives to ensure that Canadian consumers and businesses prosper in a competitive and innovative marketplace.

We recently launched a video describing the Bureau and its role in the Canadian economy. I am really excited about this video, which succinctly describes the importance of what we do in an easy to understand way. I encourage you to have a look at the video.Footnote 4

3. Vision for the Bureau

I have been speaking consistently about openness and transparency and how critical these are to the future success of the Bureau. The fact is, if you look at governments, public sector institutions, publicly-funded organizations and private sector companies, they are all moving toward a culture of greater openness. It is what the public expects from these organizations – particularly those that operate with public funds. I believe that it is incumbent on the Bureau to heed this and to itself create a culture of greater openness.

What does this mean for the Bureau? Quite simply, it means increased dialogue with parties under investigation and more transparency in the work we do, while preserving our discretion and other enforcement interests; more competition advocacy; and more developed, diversified and coordinated relationships with our partners and stakeholders.

To that end, we are working to establish a more open culture and to collaborate more closely with our external partners with a view to increasing our effectiveness in delivering on our mandate. As the old saying goes, "we can accomplish infinitely more together than we ever will alone".

We are also placing a renewed emphasis on ensuring that we use all of the tools available to us to promote maximum compliance with the Act and the other legislation we enforce, including enforcement, advocacy and outreach. Naturally, the circumstances will dictate which tool we use in a particular case.

As part of this renewed emphasis on using all of our tools, we are currently updating and rebranding our Conformity Continuum,Footnote 5 which describes the various tools available to promote compliance and examples of situations where these tools might be used.

It is fair to say that understanding what to expect from the Bureau and having increased opportunities for open dialogue with the Bureau will be important for industries like yours, which is seeing rapid technological advances and is in a state of constant evolution.

4. 2014-2015 Annual Plan

As part of communicating my vision for the Bureau, we recently released our 2014-2015 Annual Plan, entitled "Promoting Compliance for the Benefit of Canadian Consumers".Footnote 6 This forward-looking plan sets out four priorities, which we will pursue over the coming year as we continue our efforts to ensure that Canadians benefit from a competitive and innovative marketplace:

  • Apply effective and integrated enforcement and administration of the Competition Act and labelling statutes — Consistent with what I said earlier, this includes utilizing our full toolkit to ensure maximum compliance with the legislation we oversee as economically as possible; adopting collaborative approaches to enforcement with other law enforcement or government agencies to better leverage our mutual resources; and continuing to consider the priorities of Canadians in focusing our enforcement efforts. We will also advance operational improvements through enforcement policies and procedures, such as making greater use of evidence-handling software to assist with document review.
  • Increase competition promotion efforts to advance a culture of compliance and competition advocacy — This includes increasing our competition promotion efforts through our advocacy, stakeholder outreach and communication functions. We will also complete market studies; broaden awareness of, and support for, competition principles; increase the competition-related advice we offer to other government departments; continue to meet with our stakeholders to address key matters; continue to diversify and strengthen partnerships with key regulators; and enhance our participation in multilateral fora, roundtables and workshops. In addition, as part of our ongoing Action Plan on Transparency,Footnote 7 we will continue to consult on important issues and provide guidance on investigations and stakeholder communications through the release of our Information Bulletins, position statements and other guidance documents.
  • Align with and deliver on Government of Canada priorities — This includes supporting the Government’s intention to address unjustified cross-border price discrimination; continuing our advocacy efforts on telecommunications and wireless issues by intervening or making submissions before the Canadian Radio-television and Telecommunications Commission (the "CRTC"); and implementing and enforcing CASL in collaboration with the Privacy Commissioner of Canada and the CRTC.
  • Increase organizational synergies through our people, planning and systems — This includes better integrating our business processes and better utilizing our deep, diverse skill sets to ensure fair, healthy competition in Canada as efficiently and effectively as possible.

We are also in the process of developing a three-year annual plan, which we hope to have ready for consultation later this year. This plan will inform future annual plans.

5. Realignment

As discussed in more detail during my remarks at the 2014 Competition Law Spring Forum,Footnote 8 the Bureau has begun the process of what I like to call "realignment". This includes plans to restructure the Bureau to leverage its current resources and enhance collaboration, with the goal of increasing its impact in the economy. While there are many elements to realignment, the most visible change will involve combining our existing eight branches into four branches. The current thinking is as follows:

  • The Fair Business Practices Branch and the Criminal Matters Branch will be combined into a single branch.
  • The Mergers Branch and the Civil Matters Branch will be combined into a single branch.
  • The Economic Policy and Enforcement Branch ("EP&E"), the Legislative and International Affairs Branch and the Public Affairs Branch will be combined into a single branch. This branch would be responsible for our advocacy efforts, inter-governmental affairs and corporate compliance, as well as economic and international support and external communications.
  • The Compliance and Operations Branch would continue to operate as a separate branch. This branch would be responsible for, among other things, managing human resources, overseeing the Bureau’s electronic evidence and conversion unit, and managing the Bureau’s Information Centre.

Realignment will not decrease the size of the Bureau or impact the nature of the work it does. Rather, realignment is about building a stronger, more flexible and more adaptive agency. It is focused on ensuring that the Bureau is responding to current realities and prepared for continued success in the future.

6. Transparency Bulletin

As noted above, my vision for the Bureau includes increased dialogue with parties under investigation and more transparency in the work we do. Consistent with this aspect of my vision, the Bureau has made a firm commitment to promote the development of a more efficient and responsive agency, while providing Canadians with more opportunities to learn about the Bureau’s work. The first step came last May when we announced our Action Plan on Transparency.Footnote 9 Following this, we held a public consultation on a draft version of the Information Bulletin on Communication during Inquiries (the "Transparency Bulletin").Footnote 10

I am very pleased to report that, following review of this input, we published the final version of the Transparency Bulletin on our website on June 26, 2014.Footnote 11 The Transparency Bulletin is aimed at increasing transparency and promoting compliance with the Act. It summarizes how and when the Bureau generally communicates during an inquiry with parties under investigation, industry participants, complainants and the general public. It is intended to be a resource for parties in their dealings with the Bureau, and to provide them with a clear picture of the process that the Bureau generally follows during investigations. It also supports the Bureau’s broader goal of applying Canada’s competition laws in a transparent and predictable manner.

I am very proud of this initiative, which was championed by Jeanne Pratt of the Criminal Matters Branch. I encourage all of you to have a look at the Transparency Bulletin, which is available on our website.

7. Advocacy

Another step we have taken over the last year is to incrementally increase the use of advocacy. It is our belief that we have a well-defined role to play in advocating for competitive markets, both through regulatory interventions and enhanced collaboration and communication with stakeholders.

Our advocacy work is being led by Martine Dagenais and the officers in EP&E. And let me tell you, they have been busy. We have provided a number of submissions to the CRTC, including on the Wireless Code of ConductFootnote 12 and in respect of its wholesale mobile wireless servicesFootnote 13 and wireless roaming rateFootnote 14 reviews. We also provided a submission to the City of Toronto in response to its review of the taxicab industry, a process aimed at evaluating the City’s regulatory regime for taxicab services.Footnote 15

Finally, we have undertaken a review of the restrictions on advertising among pharmacists, dentists and veterinarians. The products and services these professionals provide are critical to the welfare of Canadians. We believe that the Bureau has a responsibility to promote competition in these areas to ensure that consumers benefit from lower prices and higher levels of choice and quality.

You may also be aware that last year we conducted a public consultation asking Canadians to identify sectors of the economy in which the Bureau could play a targeted role in advocating for increased competitionFootnote 16. We are extremely pleased with the feedback that we received from Canadians, including a validation that we are focusing our advocacy efforts in the areas that matter most to Canadians.

While this consultation is now concluded, we continue to have our eyes and ears open for sectors in which we can advocate for increased competition, and this includes the payments sector. If you have recommendations, I would strongly encourage you to reach out to Martine’s team.

8. The payments sector

I would now like to discuss some of the recent work that we have done in the payments sector, as well as certain issues and developments relating to interchange fees and mobile payments.

(a) Significant Bureau activity in the sector

There is a need to recognize and address competition issues within the payments sector – something the Bureau has not been afraid to do – to encourage and foster greater competition within an evolving industry that directly serves millions of Canadians. In fact, we have had two high profile matters within the last two years that directly impacted the payments industry.

As you may recall, in 1996, following an investigation into alleged abuse of dominance, we entered into a consent agreement with the major Canadian financial institutions that controlled the Interac Association.Footnote 17 The consent agreement required the Interac Association to operate Interac on a not-for-profit basis and revise its membership criteria.

In 2010, Interac approached the Bureau to request certain amendments to the consent agreement. At the time, we were of the view that there was not enough evidence to demonstrate that the changes were warranted.

In 2013, Interac once again approached the Bureau requesting amendments to the consent agreement. It is fair to say that much had changed in three years. In particular, following an extensive analysis of the rapidly evolving payments industry and discussions with Interac and other market participants, we concluded that there had been material changes in circumstances and that these changes warranted the requested variation to the consent agreement.

The changes to the consent agreement will allow Interac to restructure from an unincorporated association to a corporation with an independent board and operate under a cost-recovery model, which will provide it with the flexibility needed to remain a viable low-cost payment option for merchants in an increasingly competitive marketplace.Footnote 18 The amended agreement supports a dynamic and competitive payments industry, which benefits Canadian consumers and businesses.

The second case I will touch on is our credit cards case, which I know most of you will be familiar with. While the end result was not what we, at the Bureau, had hoped for, the Competition Tribunal (the "Tribunal") affirmed the value in bringing the case forward – noting that the case was one that should have been brought.Footnote 19 The Tribunal also found that the conduct of the two credit card companies was having an adverse effect on competition and recommended that regulation might provide a more appropriate solution.

Following a thorough review of the Tribunal’s decision, we decided that we would not appeal, but would instead focus our efforts on identifying other ways to address competition issues in credit card services.Footnote 20 This includes working with the federal government and other stakeholders to advocate for changes in this sector. In that vein, as you may know, Finance Canada is presently looking at refreshing its Code of Conduct for the Credit and Debit Card Industry in Canada.Footnote 21

All this to say, the Bureau has an established history within the payments sector – we have pursued anti‑competitive conduct in the past and we will not hesitate to pursue such conduct in the future if and when issues arise.

(b) Interchange fees

As discussed in more detail in the materials filed with the Tribunal in the credit cards case referred to above, Canadian merchants pay significant fees for each credit card transaction processed on a credit card network.Footnote 22 These fees reflect a number of components, including network fees, interchange fees and service fees. By far the most significant component of these fees is the interchange fee, which, in Canada, typically represents at least 80% of the total card acceptance fee.

Merchants typically pass some or all of the costs of accepting credit cards onto their customers in the form of higher retail prices for goods and services. These costs are borne by all customers, including those that use other lower-cost methods of payment, such as cash and debit cards.

In addition to the Bureau, numerous antitrust agencies around the world have looked at interchange fees and the rules put in place by credit card networks that limit or prevent competition in respect of such fees, including agencies in Australia, New Zealand, the United States and Europe. In many cases, regulatory solutions or settlements have been reached.

For example, the Australian Competition and Consumer Commission (the "ACCC") concluded in March 2000 that the collective setting of interchange fees by the credit card networks was in breach of the price-fixing provisions in the Australian Trade Practices Act 1974. The ACCC advised the credit card networks that they should seek an approval of their interchange fee arrangements or cease collectively setting such fees. Following extended discussions, the ACCC determined that the authorization process was "unlikely to meet its concerns about competition and efficiency". As a result, in March 2001, the ACCC requested that the Reserve Bank of Australia consider addressing the issue of interchange fees, which it did, resulting in a significant reduction to the then-prevailing level of interchange fees.

Similarly, the New Zealand Commerce Commission began an investigation into interchange fees and surcharging in 2003 and commenced litigation in November 2006. The parties reached a settlement in 2009, pursuant to which Visa and MasterCard agreed not to enforce any rule which prohibits or prevents surcharging by merchants in respect of New Zealand-acquired transactions.Footnote 23 However, the terms of the settlement also permitted Visa and MasterCard to implement and enforce rules that limit the amount of surcharges to those reasonably related to the costs of acceptance and that require surcharges to be clearly disclosed by the merchant.

In addition to consideration by antitrust agencies, the credit card companies’ rules have been subject to significant class action proceedings before the courts in both the United States and Canada.

(c) Mobile payments

Canada has a highly developed payments infrastructure. The roots of this system date back to the 1960s, when general purpose credit cards were first issued in Canada. The system has evolved considerably since then to include other forms of payment, such as debit cards, online payment and, more recently, mobile payment platforms. It is fair to say that the Canadian payments system is one in transformation, as the industry moves toward these new forms of payment.

Mobile payment platforms are experiencing rapid growth across the globe and we are seeing increasing demand from consumers for these forms of payment. Mobile payments connect supply and demand like nothing else – they are rapid, low cost and international in scope. They allow for unbundling and choice in an unprecedented way.

It is safe to say that a "financial revolution" is underway around the world, through the use of mobile devices to make payments and conduct financial transactions. There are several implications of this, including significant regulatory and competition policy issues that could arise, particularly in developed economies such as Canada’s, with evolved banking and financial systems.

Not surprisingly, there are a number of jurisdictions, including the United States and the United Kingdom, that are looking at the competition issues that arise from the introduction of mobile payment platforms. For example, in the United States, two sets of competitors have formed joint ventures in the mobile payments sector. While these are not yet operational, in a 2012 submission to the OECD, the United States recognized the potential for these ventures to raise anti‑competitive issues.

We recognize that the global nature of these payment platforms will require us to work closely with our international counterparts and will require increasing convergence around how we deal with competition issues that may arise in the mobile payments sector – ensuring continued application of national laws and international conventions.

I know that many of you that attended the Conference are already well down the road in terms of looking at mobile payments. My message to you is simple – as you think about transitioning to new forms of payment, you must keep the Act in mind. This is important, particularly since we are keeping an eye on this emerging area and would have serious concerns if, for example, a dominant model emerged that engaged in discriminatory conduct similar to that in the Interac case.

9. Corporate compliance

I believe that the best way for you to minimize the risks of issues arising under the Act is put in place a credible and effective corporate compliance program. There are a wide variety of resources on the Bureau’s website to support businesses in developing such programs, including a bulletin on Corporate Compliance Programs, which includes template compliance programs.Footnote 24

In order to further support businesses, we recently produced a video on corporate compliance.Footnote 25 I believe that this video illustrates the importance of complying with the Act in an innovative and easy to understand way. This video is available on our website and I encourage you to share it with your colleagues who were unable to attend the Conference.

Now, I mentioned earlier that the Bureau is working toward an approach that sees us using all of the tools in our toolbox to promote maximum compliance with the legislation we enforce. That being said, it goes without saying that vigorous enforcement in appropriate cases is crucial to promoting compliance with the Act. Enforcement is, after all, the Bureau’s bread and butter. But other tools, such as advocacy, outreach, suasion and publications, are also important in promoting compliance. And so, when we talk about using all of the tools in our belt, that is what I am referring to.

10. Conclusion

I would like to thank you for having me at the Conference. Your industry provides essential services to millions of Canadians every day and ensures the efficient functioning of the Canadian economy. It is imperative that you operate in compliance with the Act, as this will promote the efficiency and adaptability of the Canadian economy and ensure that consumers are provided with competitive prices and product choices.

As the payments sector continues its rapid evolution, I look forward to continuing the dialogue between the Bureau and your industry as we work toward our mutual goals of increasing competition and consumer choice.

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