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Banks in Hong Kong may have to review how they structure their syndicated loans, after new competition legislation took effect this week.

More than three years after being passed by the governing Legislative Council, the Competition Ordinance will now be enforced by the Competition Commission, with the warning that there will be no exceptions made for anti-competitive behaviour. Hong Kong previously only had competition law governing telecommunications.

Analysts have been deciphering what the new rules mean for those involved in the lending markets, and are warning that it could lead to a sea change in how structurers generally do business.

“Some within the banking industry in Hong Kong have been surprised by the potential impact of the new competition rules on their day-to-day activities, in particular in areas such as loan syndication where there has previously been significant contact and information sharing between competitors,” Carolyn Bigg, managing associate at law firm Simmons & Simmons tells GTR.

Bankers are warned to accept a “new normal” with authorities determined to stamp out the exchange of confidential information that could distort the pricing of loans and syndicates. The process of setting up the syndicate and the terms of the syndicate will come under close scrutiny for price fixing or bid rigging, both of which constitute serious anti-competitive conduct, Bigg says.

The commission is also set to target industry groups and trade associations which could be classed as “cartels”. This means that the discussion of pricing and other such information at industry events could be ruled as anti-competitive.

In 2008, three former Dunlop managers were jailed in the UK for alleged price fixing, after discussing pricing at an industry event. Bryan Allison, former managing director of Dunlop Oil and Marine who spent three years in prison, has since said: “I was just going to a meeting to shake a few hands.  It was almost a social occasion where you just said hello to your rivals in the industry.  I didn’t give it any real thought … Staggering stupidity with the benefit of hindsight.”

The Competition Commission has already received 500 complaints and inquiries from companies seeking exemptions. However, chairwoman Anna Wu Hung-Yuk promised to clamp down on those behaving anti-competitively, whether or not they have placed an inquiry.

The new legislation could cause some problems for companies that liaise and interact with their peers along the supply chain, warns Clara Ingen-Housz, a partner at Linklaters.

She says: “By the very nature of the breaches you can see the businesses at risk. Business that as a matter of course engage with their competitors or have business partners that are at the same level of the supply chain are often sharing information – a lot of market intelligence is required – they are at risk.”