Part 3: Significant progress at adjudicative level 1. First judicial challenge to the Commission’s application of Undertaking Leniency Policy Background The Hong Kong Competition Commission’s (the “Commission”) Leniency Policy for Undertakings Engaged in Cartel Conduct (“Undertaking Leniency Policy”) exempts the first undertaking from proceedings before the Hong Kong Competition Tribunal (the “Tribunal) for self-reporting its involvement in a cartel or providing substantial assistance to the Commission’s investigation. A marker system determines the queue based on the date and time the Commission is contacted.11 2024 marked the first challenge brought by an undertaking in a prosecuted cartel activity about the Commission’s application of this policy. In November 2023, the Commission brought Midland Realty International Limited (“Midland Realty”), Hong Kong Property Services (Agency) Limited (“HK Property”), their parent company Midland Holdings Limited (collectively, “Midland”), and five senior management members before the Tribunal for allegedly violating the First Conduct Rule (“FCR”) of the Competition Ordinance (“Ordinance”). The Commission claims that Midland and its competitor Centaline Property Agency Limited and Ricacorp Properties Limited (collectively, “Centaline”) colluded to fix a minimum net commission rate – the commission paid by developers to agencies, minus rebates offered to end customers – for residential property sales in Hong Kong, with an effect of restricting the maximum rebates that agents from Midland and Centaline could offer to home buyers.22 The Commission clarified that Centaline was exempt from potential penalties under its Undertaking Leniency Policy, as it was the first to provide substantial assistance in the investigation and subsequent enforcement action. On 18 March 2024, Midland filed judicial review proceedings challenging the Commission’s application of the Undertaking Leniency Policy. Midland claimed it had applied for a leniency marker on 13 March 2023 – earlier than Centaline’s application on 4 May 2023 – but was informed that no marker was available.33 Midland argued it was “first in line” and should have been given an opportunity to assist the Commission, potentially securing immunity from enforcement actions.44 Review Undertaking Leniency Policy on “availability of leniency marker” The first step in obtaining leniency is to secure a leniency “marker”, which gives the holder eligibility for leniency in relation to cartel conduct. A leniency marker may be unavailable if: Another undertaking has already secured the marker for the same cartel conduct The applicant is a ringleader The applicant is not the first cartel member to disclose its participation in a cartel that the Commission has not yet assessed or investigated (Type 1 Leniency); or cannot, in the Commission’s view, provide substantial assistance in an on-going investigation (Type 2 Leniency); or The Commission’s preliminary assessment determines that the conduct is not cartel conduct. The Tribunal’s eventual decision on the judicial review initiated by Midland is expected to clarify how companies can seek leniency under the Commission’s policy, offering important guidance for businesses seeking leniency in cartel investigations. The substantive trial against Midland has been delayed until August 2025, pending the outcome of its judicial review. 2. Important lessons on cooperation discount determination: insights from recent cartel cases The Commission’s Cooperation and Settlement Policy for Undertakings Engaged in Cartel (“Cooperation Policy”)55 offers businesses involved in cartels an opportunity to reduce penalties when they cannot qualify for full leniency. This policy establishes three tiers of cooperation discounts: Table 1: Recommended Discounts under Cooperation Policy View the table in actual size Two recently concluded cases provide important insights on the applicability of cooperation discounts in the Cooperation Policy: Case 1: The D-Biz cartel In June 2024, the Tribunal made a significant ruling against respondents for cartel conduct in a government-subsidised IT tender, followed by a judgment made on 30 July 2024.66 Background The case originated from the COVID-19 era’s Distance Business Programme (“D-Biz”) government subsidy programme. The investigation began in June 2020 when the Hong Kong Productivity Council referred suspicious procurement complaints to the Commission. After analysing application data and gathering evidence, the Commission identified unusual bidding patterns suggesting price-fixing, market-sharing, bid-rigging and information sharing in violation of the FCR of the Ordinance.77 In March 2023, the Commission initiated proceedings to the Tribunal targeting multiple respondents, including Multisoft Limited and its parent company MTT Group Holdings Limited (collectively, “Multisoft”), BP Enterprise Company Limited and Noble Nursing Home Company Limited (together, “BP/Noble”), KWEK Studio Limited (“KWEK”), and individuals including a sole proprietor and her business trading as Yat Ying Hong (“Yat Ying”), a representative of Yat Ying and BP/Noble, and a director and shareholder of KWEK.88 Four respondents settled, while the remaining two were found liable in absentia for failing to respond to the Commission’s proceedings.99 How cooperation discounts were applied1010 Table 2: Discount Application in Multisoft Case Please click on the superscript number 1111 for details of the corresponding remark in the table. View the table in actual size Case 2: The cleaning service cartel On 20 January 2025, the Tribunal issued orders against respondents in another significant case involving cleaning services, with a judgment made on 14 February 2025.1212 Background On 14 December 2021, the Commission initiated proceedings against five respondents: two companies – Hong Kong Commercial Cleaning Services Limited (“HKC”) and Man Shun Hong Kong & Kln Cleaning Company Limited (“MS”) – and three directly involved individuals (two directors from HKC (holding 22% and 78% of HKC’s shares, respectively), and one director from MS (holding 30% of MS’s shares).1313 The case involved the exchange of commercially sensitive information between the two companies from May 2016 to August 2018. This exchange related to 17 tenders submitted to the Hong Kong Housing Authority for cleaning services at public housing estates and other buildings, resulting in price-fixing that violated the FCR. In January 2024, MS and its director admitted liability, followed by HKC and its two directors in December 2024.1414 How discounts were applied Table 3: Discount Application in HKC Case View the table in actual size Key takeaways Leveraging the Cooperation Policy: When leniency is not available, companies should consider cooperating with the Commission as early as possible to secure higher discounts. By conforming to the first undertaking – to express interest in cooperation before the Commission has secured substantial evidence and before the initiation of proceedings – it is possible to benefit from a Band 1 discount. Financial circumstances matter: Companies facing financial challenges should provide solid evidence to support a request for additional discount based on financial viability. Respond promptly to Commission’s proceedings: Failing to respond to the Commission’s proceedings can lead to default judgments under Rule 76 of the CTR, likely resulting in maximum penalties without any discounts. Cooperation from individuals is encouraged: While the four-step approach and Cooperation Policy do not apply to individuals, cooperation from individuals may still obtain discounts at the Commission’s discretion. Dual role of directors impacts fines: If a director is also a shareholder and the company is fined, the director’s guarantee to cover the penalty may result in a lower personal fine. Director disqualification risk: Directors involved in misconduct are highly likely to face a disqualification order. 3. First criminal conviction in competition realm In a landmark development for Hong Kong’s competition law regime, the Commission secured its first criminal prosecution and conviction of an individual for obstructing an investigation in February 2025.1515 This significant case originated from the above-mentioned cleaning cartel case – where during the 2021 raid, an employee attempted to delete electronic evidence from company computers. The case was brought for plea before West Kowloon Magistrates’ Court on 29 August 2024 and the individual was jailed for two months, sending a clear message about the serious consequences of interfering with regulatory investigations.1616 Commission’s investigative authority The Commission wields substantial powers when investigating potential Ordinance violations. Obstructing these investigations can lead to serious criminal offenses: Table 4: Investigative Powers and Associated Offences Commission’s Investigative Power Offences and Penalties Obtaining documents and information from the relevant person1717 (Section 41) Requiring persons to attend before the Commission to answer questions relevant to the investigation (Section 42) Mandating a person to verify information through statutory statements (Section 43) Executing court-issued investigation warrants (Section 50) Failure to comply: On conviction on indictment: A fine of up to HK$200,000 (c. US$27,777) and imprisonment for up to one year. On summary conviction: A fine of HK$50,000 (c. US$6,944) (level 5) and imprisonment for up to six months. Other Offences Related to Investigation Obstruction Penalties Destroying, falsifying or concealing documents (Section 53) Obstructing a search (Section 54) Providing false or misleading information (Section 55) On conviction on indictment: A fine of up to HK$1 million (c. US$138,888) and imprisonment for up to two years. On summary conviction: A fine of HK$100,000 (c. US$13,888) (level 6) and imprisonment for up to six months.   The Ordinance does not limit its offences solely to individuals. However, imprisonment penalties typically apply to individuals directly responsible for violations. Global context and lessons This case echoes a global trend of strict enforcement against investigation obstruction: Mainland China: In a 2019 investigation in Shandong Province, three affiliated pharmaceutical companies faced scrutiny for suspected abuse of market dominance. Employees from two of these companies not only lied about lost evidence and deleted computer documents but also organised resistance and violently obstructed the competition authority investigation.1818 As a result, the companies involved in obstruction received severe penalties: fines of 10% (the statutory maximum) and 9% of their previous year’s turnover, respectively. The third company, which did not obstruct the investigation, still received a 7% fine. The significant difference in penalties suggests that the obstruction aggravated the punishment for the offending companies. For the obstruction itself, the companies each faced an additional fine of RMB 1 million (c. US$138,888), while individual employees received separate penalties ranging from RMB 20,000 (c. US$2,777) to RMB 100,000 (c. US$13,888).1919 EU: Another recent example involved International Flavors & Fragrances Inc. and its affiliate (collectively, “IFF”) obstruction of European Commission (EC) raids in relation to a suspected cartel. During the inspection, an IFF employee intentionally deleted WhatsApp messages containing commercially sensitive information exchanged with a competitor after noticing the inspection. However, upon EC’s discovery, IFF quickly acknowledged the misconduct, cooperated with EC to recover the deleted data, and accepted liability for the infringement. Due to IFF’s proactive cooperation, EC imposed a materially reduced fine by 50% of EUR 15.9 million (c. US$17.1 million), representing 0.15% of IFF’s total turnover, despite the initial severity of the obstruction.2020 Key takeaways Severe consequences: Authorities across jurisdictions are demonstrating zero tolerance for obstruction, with penalties including imprisonment, substantial corporate fines and individual liability. Cooperation is key: When facing an investigation, full cooperation with authorities is the prudent approach. Attempts to conceal or destroy evidence invariably worsen outcomes. Mitigation strategy: If compliance failures have occurred, prompt admission, active cooperation with authorities and implementation of corrective measures may significantly reduce penalties, as demonstrated in the EU case. Training is important: Companies should ensure all employees understand competition law requirements and proper conduct during regulatory investigations to prevent costly missteps. 4. Going forward Looking ahead, it is anticipated that enhanced cooperation between Hong Kong and Mainland China – particularly within the Greater Bay Area – is likely to intensify, alongside increased regulatory focus on small and medium-sized enterprises. It is also expected the Commission will broaden its scope to include cross-border businesses operating internationally or in both the Mainland and Hong Kong More ongoing cartel cases are expected to be resolved, and scrutiny and investigations will persist in traditional sectors and likely expand into emerging sectors such as digital platforms, artificial intelligence and other innovative industries, potentially revealing new forms of collusion. Additionally, cases under the Second Conduct Rule are anticipated to surface. The Commission is also expected to closely track global antitrust enforcement trends and assess any related cases that may be of relevance to Hong Kong. We strongly recommend that companies operating in Hong Kong proactively monitor developments in competition law and implement robust compliance programmes. Adhering to the Ordinance, as well as the Commission’s policies, enforcement practices and guidelines, will be critical to avoiding potential violations.

Indexed Universal Life (“IUL”) products are a unique type of life insurance product linked to the performance of a financial index or indices selected by the customer, such as a stock market index. In a recent joint circular (“Circular”) issued by the Insurance Authority (IA) and the Hong Kong Monetary Authority (HKMA), the regulators have now clarified the regulatory framework for IUL products – in particular, some relaxation where they are sold to professional investors (“PIs”), as defined under the Securities and Futures Ordinance Cap. 571 (“SFO”). The Circular can be accessed here. What is an IUL product? IUL products are a type of insurance product with a cash value component as well as a death benefit. The cash value component of IUL products is linked to the performance of a financial index or indices, such as a stock market index. The IUL product may therefore earn interest depending on the performance of the financial index or indices selected, and its cash value may fluctuate. The insurer will usually offer a floor rate and a cap rate on the interest. How do the insurance regulations apply to IUL products? IUL products are classified as Class C (linked long term) business under the Insurance Ordinance Cap. 41, i.e. an investment-linked assurance scheme (ILAS). ILAS products are strictly regulated and must comply with various guidelines issued by the IA – including GL15 (Guideline on Underwriting Class C Business) and GL26 (Guideline on Sale of Investment-Linked Assurance Scheme). Most of the regulations applicable to ILAS products will continue to apply to IUL products but certain provisions may not be strictly relevant or need to be amended given the nature of IUL products. Since they have features of universal life insurance products, certain provisions of GL16 (Guideline on Underwriting Long Term Insurance Business (Other Than Class C Business) apply, even if this guideline does not generally apply to ILAS products. The Annex to the Circular (“Annex”) sets out the specific requirements for IUL products, which can be accessed here. These include: Fair treatment of customers: Ensuring design, fees and charges meet the “fair treatment of customers” principle. This principle may not be met if the IUL product is linked to an index only recognised or constructed by the insurer, or if fees and charges are embedded in the index. Minimum death benefit not applicable: For ILAS products, there is a minimum requirement for death benefit to be 105% of account value. This is not applicable to IUL products. Adequate and clear information: Insurers must provide adequate and clear product information, including (where relevant) information on policy loan facility and collateral assignment, and non-guaranteed benefits. How performance is determined: At the point of sale, insurers should highlight account(s) available to the policy holder, transfer options and mechanisms for determining crediting rate based on performance of underlying indices, as well as how the components (such as floor, cap, participating rate) are determined. . Remuneration: In addition to the requirements on remuneration in GL15, insurers should prorate the commission for regular payment IUL products in a way that aligns with the interests of the policy holders. Post-sale controls: The requirements on post-sale controls do not apply except for vulnerable customers. IA’s green light process: There is no requirement to follow the IA’s green light process for ILAS, including submitting product documents to IA (except the above-mentioned requirement in Remuneration). PI exemption Where an IUL product is sold to a PI: A financial needs analysis (“FNA”) and a risk profile questionnaire (“RPQ”) is not required. The insurer must have controls and processes to ascertain whether a customer satisfies the definition of PI before introducing the product to the customer and take steps to ascertain the investment knowledge and experience of a PI customer who is an individual. Insurance intermediaries will need to ensure that the IUL product meets the customer’s needs and objectives and there are no concerns about affordability. For any change in policy owner, the insurer must ascertain that the new owner satisfies the definition of PI in the SFO, and the IUL product is suitable for the new owner. The requirement to perform FNA and RPQ for top-up investment is not applicable but the customer must continue to be qualified as a PI. A Key Facts Statement is not required. Other requirements on disclosure of information still apply. An Important Facts Statement (“IFS”) is still required. A template IFS with Applicant’s Declarations is set out in the Appendix to the Annex. A copy can be accessed here. Where the insurance intermediary does conduct FNA – namely, for a non-PI customer – the IUL product should not be introduced if the customer does not wish to link his/her policy benefit to a market index, or if the customer has no experience or knowledge in investment. Insurers and insurance intermediaries must not opt out of FNA or RPQ for vulnerable customers. Takeaway Given the complexity of IUL products, the Circular is useful in clarifying how the insurance regulations and IA guidelines apply to IUL products – and in particular, enabling a more streamlined process when dealing with PIs. This gives clarity and efficiency to insurers, insurance intermediaries and customers. It is a welcome step in driving the demand for IUL products in Hong Kong, as well as promoting Hong Kong as an insurance hub and wealth management centre.

Part 2: Key developments in competition enforcement 1. Alert in public tendering: risk of co-occurrence of corruption and cartels Case overview: joint operation by the Commission and ICAC In 2024, the Hong Kong Competition Commission (the “Commission”) and Independent Commission Against Corruption (ICAC) conducted two joint operations targeting a syndicate suspected of corruption and bid-rigging in public tenders.11 They revealed misconduct involving multiple properties across Hong Kong Island, Kowloon and the New Territories. The initial operation in April uncovered a syndicate engaged in manipulating tenders, artificially inflating contract values, and securing renovation projects through systematic bribery. Building on this, an operation in August exposed an even more extensive network of misconduct, revealing coordinated pricing strategies, organised bid-rigging schemes, and systematic bribery targeting members of Incorporated Owners. In the public tendering process, bribery and bid-rigging can operate in tandem, particularly for lucrative, high-value projects. The two joint operations revealed this pattern, involving individual contracts totaling around HK$440 million (c. US$33.37 million), bribe payments reaching HK$1 million (c. US$128,000) in the first action, and renovation projects totaling nearly HK$1 billion (c. US$128m) in the second action. In these scenarios, bribes facilitated the bid-rigging schemes and also made the illegal cartels more difficult to detect. A global concern The Hong Kong investigations represent a local manifestation of a worldwide issue: public procurement systems are vulnerable to the twin threats of corruption and collusive practices. Table 1: Highlights from Global Institutions World Bank Handbook The 2013 Fraud and Corruption Awareness Handbook highlights the construction sector and industries with limited qualified bidders as particularly susceptible to collusion and corruption, and illustrates numerous instances where companies pay kickbacks to secure contracts across various sectors, including pharmaceuticals and education.22 European Commission (EC) The EC’s 2021 Notice on Tools to Fight Collusion in Public Procurement underscores that when combined with corruption, collusive practices become harder to detect.33   Recent international cases A 2023 case from California illustrates this risk clearly. A former contract manager at the California Department of Transportation (Caltrans) was implicated in a four-year conspiracy to manipulate the competitive bidding process. The scheme ensured that companies controlled by the manager’s co-conspirators submitted winning bids and secured lucrative contracts. The manager pleaded guilty to accepting nearly US$1 million in bribes while working for Caltrans. Both the manager and his co-conspirators were convicted for violation of both the Sherman Act (US antitrust law) and the Foreign Corrupt Practices Act.44   Figure 1: Brief Illustration of the Caltrans Case   Notably, the intersection of bribery and bid-rigging often involves multinational companies vying for government or state-owned enterprise contracts. These companies may collude with local bidding agents to rig bids to secure contracts.55 In Malaysia, media reports alleged that a group of international pharmaceutical companies colluded with local tendering agents controlling the national medicine supply system.66 They allegedly took turns securing contracts through bid-rigging schemes, disguising bribes as commission payments. These funds reportedly flowed through the agents to politicians or former government leaders linked to the agents. The total value of the tenders was around US$827 million, with the top three tendering agents receiving about US$626 million (75.69% of the total awards). Red flags and recommendations Projects affected by collusion and corruption exhibit certain warning signs, inter alia: Winning bid prices significantly higher than cost estimates, industry averages or comparative bidders; Unexplained bid withdrawals or companies intentionally submitting non-competitive bids; Pattern of bidders taking turns winning contracts; Unusual similarities between competing bids; Unexplained or undisclosed payments to officials or agents. These illegal practices occur more frequently in tendering projects involving high-value contracts and where there are only a few bidders. Given the high risk, it is recommended that companies remain vigilant when participating in public tendering. To mitigate these risks, the following measures are recommended: Implement robust compliance systems that address both competition and anti-corruption requirements Train staff to recognise the severity of violation and signs of bid-rigging and corruption Maintain detailed procurement records to facilitate detection Conduct regular reviews of tendering practices and bidding patterns Create secure channels for reporting suspected misconduct 2. Car aftersales market under the Commission’s spotlight Commission’s enforcement actions intensify Recent action regarding BYD On 3 October 2024, the Commission announced that EV motor vehicle manufacturer BYD had amended its warranty policy to address potential anti-competitive issues.77 BYD’s old warranty terms can be interpreted as mandating car owners to use only BYD-authorised repairs and maintenance (“R&M”) services. This restriction can risk violating the First Conduct Rule (“FCR”) of the Competition Ordinance (“Ordinance”), or potentially the Second Conduct Rule if BYD was deemed to have substantial market power. BYD’s amendment clarifies that car owners can use non-authorised service providers, including for traction battery services, without voiding their warranty. The Commission deemed this change sufficient to address the competitive concerns. 2022 enforcement in the car aftersales market This is not the Commission’s first intervention in the car aftersales market. In October 2022, following an investigation launched in March of that year, seven car distributors made commitments to remove similar warranty restrictions affecting 17 major car brands. The Commission had determined these practices could harm competition by: Deterring car owners from using independent service providers Reducing competition in the aftersales market Limiting consumer choice Driving up prices for R&M services In that case, the Commission formally accepted commitments from these distributors under Section 60 of the Ordinance.88 Potential trend toward flexible enforcement Compared to the 2022 formal commitments process, the 2024 BYD case demonstrates a more flexible enforcement approach, which likely enhances regulatory efficiency while still effectively deterring anti-competitive conduct. This approach parallels the “Three Letters and One Notice” system of the China State Administration for Market Regulation (SAMR) introduced in December 2023.99 This system provides a graduated enforcement framework with four components: Reminder and urging letter Letter of notification of interview Notice of case initiation Administrative penalty letter or recommendation letter In 2024, the Administration for Market Regulation at all levels in Mainland China issued 2,615 such documents, with 91.2% being reminder and interview notification letters. These primarily targeted monopolistic practices, abuse of administrative power, and inadequate implementation of fair competition systems.1010 This suggests a trend where competition authorities may increasingly use soft enforcement by initially warning companies to address potential issues before escalation to formal investigations. Competition crosshairs: regulatory risks in aftersales market Restrictions in aftersales terms have long attracted antitrust scrutiny globally since they are a way to tie market power in the primary market to after-sales services in the secondary market. Such practices may constitute illegal vertical restraint or abuse of market power, limiting market competition and infringing antitrust rules. Mainland China: The 2020 Antitrust Guidelines for the Automotive Sector addressed these concerns, with SAMR highlighting that requiring car owners to use only authorised R&M providers and original parts for ALL R&M services could constitute unreasonable vertical restraint in car aftersales services.1111 EU: The Motor Vehicle Block Exemption (“MVBE”) provides specific guidance on monitoring vertical restrictions in the automotive sector.1212 While warranty restrictions limiting access to independent R&M providers are not directly listed as a “hardcore” violation, they could still be deemed anti-competitive if they directly undermine independent service providers’ ability to access customers. US: Recent antitrust policing over restrictions to aftersales market extends beyond the automotive sector. A notable case is the on-going Deere litigation, where farmers have brought a class action to challenge tractor producer Deere & Co’s restrictions on seeking independent repair for tractors.1313 The case centres on Deere’s practices that limit farmers’ access to its diagnostic and calibration tool (Service ADVISOR), which functions fully only for Deere’s authorised dealers and repair facilities. This prevents farmers and independent repair shops from performing “restricted” repairs that require access to underlying software and coding, resulting in forcing farmers to depend on Deere’s authorised network for repairs. These practices are alleged to limit competition from independent repair providers, reduce consumer choice, drive up service costs and maintain Deere’s monopoly over the primary large tractor and combine market as well as the secondary repair market, potentially violating Section 2 of the Sherman Act and other competition rules. The aftersales market often receives less attention from the companies than the primary market, but restrictions which limit competition or reduce consumer choice in such secondary markets could attract antitrust enforcement and lead to significant consequences. Businesses – especially those producing complex and durable equipment1414, even without substantial market power in the primary market1515 – should carefully review their aftersales terms or policies. In Part 3, we will explore key updates on adjudicated cases in Hong Kong from 2024 to Q1 2025. We’ll review these cases and highlight valuable lessons, for example, how companies can strategically benefit from the Commission’s cooperation policies. Before diving into Part 3, let’s consider these important questions: What are the potential benefits of cooperating with the Commission in its action? How to leverage timing to cooperate and settle with the Commission? How can companies seek greater penalty reductions? Does a contravention of competition rules always lead to criminal conviction?