ICAP fined for violating competition Act

The Competition Commission of Pakistan (CCP) has issued an order in the matter of prohibition imposed by the Institute of Chartered Accountants of Pakistan (ICAP) on the training of non-ICAP accountancy students by their approved training organizations.

In its order, the Commission has declared ICAP’s prohibition to be in contravention of Section 4 of the Competition Act, 2010 (the ‘Act’) and, hence to be without any legal force, fined ICAP PKR 25 Million for the violation, and restrained ICAP from issuing similar directives to its members in the future. As per the order, the relevant course of action for affectees would be to pursue compensation from courts of competent jurisdictions.

This order has been issued by a three member bench of CCP comprising Ms. Rahat Kaunain Hassan, Chairperson, Mr. Abdul Ghaffar, Member (Cartels & Trade Abuses) and Dr. Joseph Wilson, Member (Mergers and Acquisitions & International Affairs).

Earlier, CCP had issued a Show Cause Notice to ICAP for the prima facie violation of Section 4 of the Act. This section prohibits, inter alia, decision taken by association of undertakings that have the object or effect of preventing, restricting or reducing competition in the relevant market. The show cause notice had alleged that ICAP’s Directive dated 4 July 2012 (the ‘July Directive’), which prohibited ICAP’s members and their accountancy firms from offering training opportunities to non-ICAP accountancy students, amounted to an anti-competitive decision of an association of undertakings in relation to the market for the professional training of accountancy students.

The Bench has held that the when ICAP issued the July Directive, it acted as an association of undertakings and that the July Directive was in violation of Section 4 of the Act. The Bench observed that the July Directive forecloses, shuts out, and precludes not only a large but the most valuable segment – the public practice accountancy firms – of the relevant market for the non-ICAP students. The order stated that it is important to recognize that training through a public practice accounting firms was a valuable form of training for accountancy students and while there were other avenues such as in-house training at commercial concerns in public or private sector, accountancy firms offered a greater exposure and experience to students on a broader range of subjects which was not substitutable to any training or experience offered by other approved employers.

The Bench further observed that the ICAP Directive also acted as an entry barrier for the ancillary market of accountancy services that is crucial to the business environment and the economy as a whole. CCP observed such a prohibition, issued by ICAP to protect its own economic interests, would stunt the growth in the accountancy services sector and reduce choices available in the market. The bench observed that ICAP ought not to discourage, discriminate or otherwise unequally treat growing number of a human resource essential for a vibrant economy. As a natural corollary of competition in the market, the increase in the number of such professionals in the past has provided and should continue to provide, the businesses and other consumers not only with a greater choice but also improved quality and reduced costs for accountancy services.

The Bench further observed that while it appreciated that ICAP could regulate its own students and the quality of training imparted by its approved accountancy firms, it could not prohibit these firm, most of which are also approved employers of other accountancy bodies, from training non-ICAP students. The order observed that all over the world, accountancy firms acted as approved employers of multiple accountancy bodies and ICAP should act in sync with the industry practice rather than creating hegemony for itself. The bench further observed that they find merit in ICAEW submissions that ICAP’s directive appeared to place protectionism above both the professional and national interests and that these are better served by strengthening the profession in Pakistan through maintaining an open environment to encourage continual investment and improvement. The accountancy market in Pakistan would be strengthened not by protectionism but by allowing free competition 

It would be pertinent to mention here that CCP has imposed the penalties and remedies under the Act keeping in mind the importance of the accountancy profession for the economy and the necessity of discouraging such practices by professional bodies.