1. The HKCSI supports competition and an open and fair competitive environment for business. We recognise that competition is important, not for its own sake but as a means to upgrade quality and productivity, attract quality investment, and hence enhance competitiveness of the territory.

2. The HKCSI believes that self-regulation is an effective means of promoting competition. We believe that most business sectors, given the right conditions and encouragement, can regulate their own affairs and take account of ethical, legal and moral standards. The Coalition has promulgated two codes of ethics on management consultancy and executive search respectively.

3. The purpose of these guidelines is to encourage member organisations of the HKCSI, and the private sector in general, to adopt pro-competitive measures so as to preserve and enhance free competition. These guidelines set out the “benchmark” for codes of practice to be developed.

Different levels of self-regulation

4. Self regulatory measures, through codes of practice, can be an effective means of enhancing competition and protecting consumers. They can provide a positive guide for ethical businesses on agreed best practices that provide safeguards to consumers as well as ensure a competitive marketplace.

5. To take account of the different requirements of different industries, we suggest that there are two different levels to consider in designing codes of practices. Level One refers to cases where a general code of ethics will usually suffice. Level Two applies to others with more sophisticated requirements including the application of sanctions through an effective enforcement mechanism.

6. The decision as to what level should be adopted in developing a code will depend on a number of factors, as follows.

1. First, the nature of business of different industry associations would need to be taken into account. For some associations, the ultimate customers would be domestic consumers whereas for others, the clients may be businesses which are relatively well-informed and who have much stronger bargaining power vis-a-vis the producer. The needs of consumer protection in these two cases may be quite different.
2. Secondly, the extent to which there is a public interest element to the product or service should also be considered. In a modern service economy, the natural development of the market will give rise to an ever growing variety of services. For the majority of industries, the best means of ensuring competition would be the market itself together with a well-informed public. Here the emphasis of self-regulation should be towards good practices and consumer education. There may, however, be other industries which have a wider degree of public interest and would hence require a “higher level” of self-regulation, including through the application of suitable sanctions.
3. The third factor to consider is the current level of liberalisation and competition of the industry. Mature and liberalised industries where competition is effectively ensured by the market will have less need for a higher level of code of practice.
4. Finally, for industries already under legislative regulation for the promotion of competition, the added value of an additional code of practice may be much less.

Level One Code: Encouraging good practices

8. A Level One code deals with general principles to promote competition and good practice. Its primary purpose is promotional and educational.

9. Preparation of the code.

Acceptance of codes by stakeholders is essential in their development. Industry practitioners should therefore be fully involved in the drafting of the code. Consultation with appropriate user and consumer groups and related regulatory or government agencies will also be a prerequisite.

10. Content of the code

To be effective, a code needs to have rules that address common complaints and concerns about practices specific to the industry, that complement existing industry legislation, and that set general standards of behavior.

• The code should offer specific and worthwhile benefits beyond those that might be expected as a result of legal requirements.
• Without being unduly prescriptive or stringent, the code should require high standards within the particular business sector reflecting the legitimate expectations of reasonable consumers.
• The code should normally include measures directed at the elimination or alleviation of consumer concerns and undesirable trade practices arising within the particular business sector.
• Compliance with the code should be mandatory on members of the association.

11. Standard terms and conditions

Where an association has prepared standard terms and conditions for the use of members they should ensure that terms and conditions:

a) are reasonably fair between the parties

b) are not likely to mislead those who use them

c) are available in the languages of their customers (i.e. Chinese and/or English)

d) are written in plain language, and

e) do not unnecessarily exclude variations to meet special circumstances.

12. Promoting competition

With regard to promoting competition, the code should require that members refrain from restrictive practices that impair economic efficiency or free trade, such as price-fixing, bid-rigging, market allocation, sales and production quotas, joint boycotts, unfair or discriminatory standards, predatory behavior in selling below cost, tie-in sales and setting retail price minimums, where applicable.

13. Publicity

Copies of the code should be freely available to customers, to members and to others with a legitimate interest. In addition, the code should also be publicised so that members of the public are adequately aware of it. Internally, staff of complying organizations should be required to have access to a copy of the code and be aware of the code’s requirements. The necessity for training in the meaning and application of ethics and the importance of reinforcing the expected behaviour could also be built in as part of the code.

Level Two Code: Enforcement

14. Building upon the contents of Level One codes, a Level Two code should also contain provisions to deal with effective enforcement of the code. This implies that the relevant associations should have the resources and disciplinary sanctions available to deal effectively with cases of non-compliance.

15. Compliance

For some industries, commercially significant sanctions may be necessary to achieve compliance by participants. They would also be important to engender consumer confidence in the self-regulatory scheme. Accordingly, the associations should endeavour to achieve the following.

• Compliance with the code and procedures for handling of complaints should be developed within the industry. It should be mandatory on members of the association.
• The code or the constitution of the association should establish procedures for handling of complaints of non-compliance by members with the code. The procedure should include time limits for dealing with these complaints.
• An objective assessment of any breach of the code and a channel for appeal should be available in the case of non-compliance.
• The code should also set out the penalties for non-compliance, including dismissal as the ultimate penalty.
• Rehabilitation of offenders should also be dealt with.

• If feasible, and where appropriate, the association could consider the creation of a “fidelity or insurance scheme” to safeguard the pecuniary interests of association members’ customers.

16. Complaints handling

The code should have a mechanism to allow for complaints by both consumers and members to be considered and acted upon, for breaches of code provisions.

• The code could include, for example, a requirement that members have in place procedures for dealing with direct approaches from consumers and a specific time limit for responding to complaints.
• In addition, there may be a need to make available effective conciliation services, as well as a low-cost, independent scheme of redress as an alternative to action in the courts.
• The scheme should be binding in that members of the associations should not be able to refuse to allow a complaint to go before the scheme if a customer so chooses and in that the member must accept a judgement made under the scheme. Any such scheme should be able to take into account possible breaches of the code where relevant to the complaint.

17. Allegedly anti-competitive practices

If the nature of the industry is such that there are practices that may be regarded as anti-competitive, industry practitioners should be required to make the practices subject to scrutiny, thereby enabling both consumers and competitors to gauge whether the practices limit market accessibility or contestability, whether they impair economic efficiency or free trade.

18. Monitoring and publicity