Regulatory recommendation file on the participation of business groups in different areas of the economy

I. General

On September 12, 2023, the National Corporation of Consumers and Users of Chile ("Conadecus") requested the Court for the Defense of Free Competition ("TDLC") to initiate a regulatory recommendation file ("ERN") to propose to the President of the Republic to submit a draft "Law for the Reduction of Aggregate Economic Concentration" (the "Request"), whose main objective would be to limit the market power of significant business groups.

Last September 27, the TDLC agreed to process the Request on the 4 aspects requested by Conadecus in its presentation, which will be described below.

In order to receive background information and opinions regarding the proposal, the TDLC sent an official communication to the National Economic Prosecutor's Office, the Financial Market Commission, the Central Bank of Chile, and the Ministries of Finance and Economy, Development and Tourism. However, any interested party may express its opinion on the matter.

II. Conadecus' Request

In support of the proposal, Conadecus argues that in Chile there would be excessive economic concentration, with a small number of business groups controlling a large part of the economy's financial and non-financial assets, which would significantly affect competition and welfare, increasing oligopolistic coordination and barriers to entry, among other consequences, such as allegedly less access to the financial market.

In turn, it bases its assertions mainly on the "Law for the Promotion of Competition and Reduction of Concentration", enacted in the State of Israel in 2013, as well as on the Report "Improving the Competitiveness of the Chilean Financial Sector", by economist Luigi Zingales, commissioned by the Ministry of Finance (July 2023).

In view of this diagnosis, it requests that the bill address the following aspects:

(i) Reduction of the pyramidal holding structures of "significant business groups" to two layers.

Although the Request is not clear on what it means by "layers", it proposes that the pyramidal structures of the groups be reduced to two, within a period of time to be determined by the Law.

(ii) Prohibition of the majority shareholders of a "company of relevant size" from owning a "significant financial institution", according to the limits determined by law.

A separation is proposed between the financial companies of the groups and those involved in the "real economic activity" or productive activity. Thus, for example, it is pointed out that the majority shareholders of a productive company could not at the same time be owners of a major financial entity or that the latter could not own more than 10% of a relevant real entity. At this point, evidence is cited on the supposed positive effects that this separation would have had in Israel, as a result of the Law referred to above, as well as the existence in the United States of legislation aimed at separating banking from commerce.

(iii) Obligation of the State to take into account the levels of economic concentration and dominance of business groups in a certain industry when assigning concessions and rights in that economic sector.

Thus, economic concentration would operate in each industry as a limit to the concessions or rights that the State may grant.

(iv) Creation of a "Public Registry of Concentration" of significant business groups, important financial entities and companies of relevant size in the economic activity of each real sector.

This is so that the objectives of the Law can be audited.

III. Next steps

The TDLC gave a period of 30 business days for the institutions officiated to provide background information regarding the 〖"Request"〗^3. Any other person, company or institution that has a legitimate interest in providing background information may do so within the same term.

Once all the opinions have been received, the TDLC will summon a public hearing so that all those who have provided background information may express their opinion, through the sponsorship of a qualified attorney.

After that, the TDLC will issue a decision on the Request. The Court may accept it, in whole or in part, reject it or make recommendations to the Executive other than those in the Request. If the TDLC makes any recommendation, the Executive is not obliged to adopt it, but it must express its opinion on it.

Regarding the possible processing time of the process, it should be noted that in the last 4 RNAs that have been processed until reaching a final resolution, the processing time at the TDLC has ranged from 10 months to approximately one and a half years.

That Newsletter was prepared byo by the team team of Litigation and Free Competition team of Bofill Mir Abogados for general informational purposes and should not be considered legal advice.

If you have any questions or comments regarding this information, please contact our team:

Tomás Pérez               Manfred Zink                  Jacinta Rodríguez

tperez@bofillmir.cl           mzink@bofillmir.cl            jrodriguez@bofillmir.cl