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Tuesday, March 26, 2019 11:25 AM / KPMG Nigeria
Background
The Act repealed the Consumer Protection Council Act, dissolving the
Consumer Protection Council, and established the Federal Competition and
Consumer Protection Commission (‘FCCPC’) in its stead. Unlike the defunct CPC,
the FCCPC’s oversight extends beyond just consumer protection issues, and
covers all entities in Nigeria - whether they are engaged in commercial
activities as bodies corporate, or as government agencies and bodies.
This Act is
poised to introduce ground breaking changes into the Nigerian regulatory regime
and the highlights include:
1.
Establishment
of the Federal Competition and Consumer Protection Tribunal
The Act
provides for the establishment of a Competition and Consumer Protection
Tribunal (“Tribunal”). The Tribunal is expected to adjudicate over matters
which arise from the operation of the Act. Interestingly, the Tribunal is also
empowered to hear appeals from, or review any decision from the exercise of the
powers of any sector specific regulatory authority in a regulated industry in
respect of competition and consumer protection matters. The Tribunal can impose
administrative penalties for breaches of the Act, and oversee forced
divestments, partial or total, of investors from companies. Appeals against the
Tribunal’s decisions lie directly to the Court of Appeal, although its
decisions are to be enforced after registration at the Registry of the Federal
High Court (FHC). It is not clear why a process for registration of its
decisions should be necessary at all since that suggests that there might have
to be recourse to an extant or new protocol at the FHC for this purpose.
Procedurally, that would set the FHC up to serve as a review panel for
decisions of the FCCP Tribunal.
2.
Voidance of
restrictive agreements
The Act prohibits and voids restrictive agreements between business
entities. The description of restrictive arrangements which are likely to
prevent, restrict or distort trade is very wide-ranging, and includes prohibition
of minimum resale prices (even for patented goods), direct or indirect price
fixing, collusive tendering, withholding supply of goods and services from a
dealer, exclusionary contractual provisions, etc. However, some of the
prohibited arrangements may be approved by the Commission, if the Commission is
satisfied that they are fair and do not eliminate competition.
3.
Price
regulations
The Act enables the President to declare price regulations for the
purpose of regulating and facilitating competition, by an order published in
the Federal Gazette. Such regulations are required to be for a stipulated
period and narrowly designed. The Act directs that suppliers of regulated
products are required to keep their accounting records for their supply for
three years.
4.
Prohibition
of abuse of dominant position
The Act
prohibits the abuse of a dominant position in any industry by any business
undertaking. The acts of abuse of dominance specified in the Act are
unreasonably lessening competition and impeding the transfer or dissemination
of technology. The penalty for a recalcitrant abuser is prescribed as not less
than 10% of the previous year’s turnover upon conviction by a court. It is
interesting that the Act states “court”, and not the FCCP Tribunal. In any event,
such penalty may be suspended once the Commission is satisfied that the abuse
would cease.
5.
Prohibition
of monopolies
The Commission’s powers extend to investigation of monopolies. Where any
monopoly is found to exist, the Tribunal’s remedial efforts may include
prohibition of an acquisition transaction, business break-up, forced
publication of price lists, etc. Also, the Commission’s oversight over
monopolies is not restricted to those arising in Nigeria, if the undertaking is
of Nigerian origin.
6.
Regulation
of mergers
The power to approve mergers is now granted to the Commission, instead
of the Securities and Exchange Commission (“SEC”). As hitherto applicable, the
participants to a small merger do not need to notify the Commission, unless the
Commission specifically requests that they do so within six months of deal
close. The Act also prescribes rules for large mergers as the only other type
of mergers. The definition of mergers under the Act is all-encompassing, and
includes acquisitions. Consequently, although the Act did not independently
define ‘acquisitions’, it seems to have extended the term ‘merger’ to include
‘acquisitions’.
Disappointingly,
the Act does not go far enough to cover the current gap in the Investments and
Securities Act (ISA) and SEC Rules around de-mergers, spin-offs,
deconsolidations, etc. Consequently, there are still no provisions governing
such transactions. Mergers under the Act are still regulated, using the size
designation thresholds. However, the Commission has yet to issue guidelines to
delimit the threshold. We envisage that the threshold under the ISA will be
modified.
7.
Oversight of
regulated industries
The Act gives the Commission oversight powers in every sector, including
presently regulated industries. The Act provides that in the event of any
conflict, the Commission would share concurrent oversight with the industry
specific regulator. The Act mandates the industry regulators to negotiate
agreements with the Commission on how the powers of competition and consumer
protection would be exercised within their industries.
8.
Offences and
stiff penalties
The Act stipulates offences and stiff penalties against competition such
as price-fixing, conspiracy, bid-rigging, obstruction of investigation or
inquiry, offences against records, giving of false or misleading information,
etc.
Matters
Arising
The enactment of the
FCCP Act is a step in the right direction. If properly executed, it has the
potential to unleash the entrepreneurial potential of Nigeria’s youthful
population by reining in monopolistic tendencies, market distortions, and
creating a level playing field required for medium and small scale enterprises
to thrive. However, the Commission The Act prohibits the abuse of a dominant
position in any industry by any business undertaking. must be run
professionally and must ensure a level playing field between businesses of
Nigerian and non-Nigerian origins. In addition to this, the potential
challenges highlighted below, may be worth further consideration:
A. Regulation of mergers and acquisitions
i. One interesting introduction is that the Act now
brings all indirect transfers of shares and assets which lead to change of
control of a Nigerian business under the Commission’s regulatory oversight. The
FCCPC’s ability to effectively monitor indirect transfers and transfer of
beneficial ownership of Nigerian undertakings at the foreign holding company
level is doubtful.
Currently,
there is no procedure to ascertain or compile in a register, the beneficial
ownership of foreign portfolio investors of Nigeria private companies.
Therefore, the introduction of the rule on registration of indirect transfers
would be an unnecessary clog to transactions that are ordinarily seamless from
a Nigerian perspective. In view of the urgent need to stimulate the growth and
sustained recovery of the Nigerian economy, the introduction of this step may
be counter-productive
ii. The repeal of the
sections of the Investment and Securities Act on Mergers, thereby stripping the
SEC of its regulatory oversight in favour of a new, untested agency is
concerning. The repeal also implies that the SEC Rules in relation to mergers,
acquisitions and external restructuring may be automatically set aside. The skill-set
required to oversee such transactions and draw up such specialized rules, is
relatively rare in this clime, and it would be interesting to observe how the
newly set-up Commission would bridge the skills gap.
iii. Under the existing
regime, the merger process stipulates that a number of court orders should be
obtained from the Federal High Court in a regulatory oversight capacity. In
reality, due to the dearth of mergers and acquisitions (‘M&A’) expertise on
the FHC bench, the FHC does not independently evaluate the commercial effect of
the prayers sought, and typically grants the order once the SEC does not
object. With the introduction of the FCCP Tribunal with its M&A expertise,
one would have expected the FCCP Tribunal to take over the FHC’s regulatory
oversight role, if need be.
iv. The FCCP Act does not
stipulate a sunset period for SEC’s oversight of the M&A process, or a
transitory period for the new Commission to take over the SEC’s powers in that
regard. On the surface, this seems to suggest that there is a lacuna which
threatens the validity of on-going M&A transactions, until the Commission
is set up and fully operational.
v. The Act stipulates that
the FCCP Commission’s oversight over mergers extends to joint ventures (‘JVs’).
This stipulation is unnecessary, at best, and may be potentially disrupting to
business arrangements, particularly but not limited to business arrangements in
the oil and gas industry where disposal of mining rights in a JV may now
require FCCPC approval in addition to the already tough process in place for
obtaining ministerial approval. Where the JV vehicle is incorporated, the
vehicle would be construed as an affiliate or subsidiary of the partners, not a
merger arrangement.
Therefore,
the Act’s oversight is only in relation to unincorporated JVs (‘UJVs’). UJVs
are a practical solution to effective business cooperation, and the financial
records of such unincorporated JVs are fully captured in the books of the
partners. Thus, the statutory obligation to seek approval for UJVs which
qualify as large mergers would be a clog to business and a disincentive to
investment.
vi. Also, the extension of
the timeframe for approval by the FCCPC in relation to the timeframes
established by SEC is troubling, as this automatically protracts the timeframe
for completion of deals. Indeed, the provisions of the Act in respect to
mergers is an abrupt deviation from what had been the norm and may prove to be
a pyrrhic victory on market regulation.
B. The designation of the Commission as a co-regulator with all sector
regulators, in relation to competition and consumer protection
i. The ambit of these powers need to be clearly defined
to ensure that conflicting and a multiplicity of regulatory compliance
obligations are not created by this provision. Also, the provisions of this Act
which dictates its superiority in the event of any conflict with other existing
Acts, save the Constitution, may be contestable and impracticable, particularly
with respect to highly regulated industries, such as financial services and
telecommunications, having specialized skills and industry-specific
legislation.
ii. The Commission is
empowered to arrange for the conduct of tests on products, and seal up any
premises where sub-standard products are produced. Ordinarily, one would have
expected such tests and retributive administrative action to remain within the
remit of the National Office for Food and Drug Administration (‘NAFDAC’) or the
Standards Organisation of Nigeria (‘SON’). The Commission seems to have been
imbued with powers in many wide-ranging directions, and one may only hope that
it would not end up as a jack of all trades which, sadly, fails to master any.
iii. The Commission is also
statutorily empowered to define rules for the regulation of professional bodies
as it designates, from time to time. This provision is unduly overarching, as
it effectively makes the Commission the determinant of expertise in any profession
it chooses to regulate. It also overreaches self-regulatory professional
associations, such as the Nigeria Bar Association (NBA), Institute of Chartered
Accountants of Nigeria (ICAN), Chartered Institute of Taxation of Nigeria
(CITN), Chartered Institute of Bankers of Nigeria (CIBN) etc. This is also
simply impractical as the concentration of expertise in any field is expected
to be in the professional associations, and not the FCCPC. Therefore, the FCCPC
is unlikely to be adequately equipped to function in this capacity.
C. Powers of the Tribunal to review the
decisions of industry-specific regulators with regards to competition and
consumer protection
i. This power may impede the effectiveness of the
sanctions of regulators, such as the Central Bank of Nigeria, Nigerian
Communications Commission, National Broadcasting Commission etc.
ii. This provision is likely unconstitutional, as it
impliedly enthrones the Tribunal as a super-court of sorts, even in areas
specifically reserved for the Federal High Court.
iii. Also, these provisions essentially constitute the
FCCPC as a sort of super-regulator with capacity and power to regulate all and
every industry in Nigeria without the oversight, checks and balances currently
imposed on sector regulators. The risk of abuse of power in this regard should
have to be carefully weighted and safeguards put in place to limit the ability
of the FCCPC to set regulatory direction in industries contrary to that which
is being pushed by the sector regulator.
D. Price regulations
The
possibility of re-introduction of price regulations into the Nigerian polity,
albeit for competition and consumer protection purposes, in the face of the
current challenges in price regulated sectors, is concerning. Whilst it may be
somewhat comforting that the Act specifies that such regulations, where
introduced, should be for a limited timeframe, the practice can greatly
discourage investment and economic growth.
E. Prescription of a 3-year timeframe for recordkeeping of regulated
goods and services
The
Companies and Allied Matters Act (‘CAMA’) and other pieces of legislation
typically direct ...the provisions of this Act which dictates its superiority
in the event of any conflict with other existing Acts, save the Constitution,
may be contestable and impracticable, particularly with respect to highly
regulated industries... companies to keep their records for a period of six
years. It is therefore surprising that the Act prescribes only a period of
three years at a time when companies may take advantage of cost effective
electronic storage solutions, such as cloud services.
F. Inadequate provisions for consumer protection in e-commerce
The United
Nations Conference on Trade and Industry (‘UNCTAD’) issued the United Nations
Guidelines for Consumer Protection, a set of best practice principles for
consumer protection systems. The UN Guidelines may be distilled into 11
legitimate needs that all consumer protection laws are expected to satisfy.
Although the Act conforms in part to the spirit of the UN Guidelines, it does
not embody them in totality. A striking example of such a gap in the Act is
that it does not adequately address electronic commerce, as prescribed in the
UN Guidelines.
Conclusion
Overall, it
is important to fix the gaps in the current FCCP Act and, in the interim,
decipher ways to harmoniously implement same alongside existing legislation.
However, periodic amendments and reviews of the FCCP Act are imperative to
ensure its effectiveness in preserving a competitive business landscape and
consumers’ rights, in view of the constantly rapidly evolving market place.
Also, to achieve its mandate set out under the Act, the Commission would
require extensive man hours, with an adequate geographical spread across the
Federation. Thus, the Commission should ensure that it maintains the
significant manpower and technology needed to satisfy its mandate effectively
across the Federation.
Download Here - Federal Competition and Consumer Protection Act
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