|October 3, 2013|
Previously published on October 2013
Today marks the legal establishment of the UK’s new competition authority, the Competition and Markets Authority (CMA). Although it will be another six months before the CMA formally takes over the powers of the existing competition authorities (the Office of Fair Trading (OFT) and Competition Commission (CC)), the creation of the CMA marks the start of the final stage of a long process to reform the UK competition landscape that began in 2010. Notwithstanding the fact that the CMA will lack formal powers until next April, the next six months are likely to see a gradual transfer of influence and resources away from the legacy authorities, in favour of the CMA.The CMA has been brought into being by the Enterprise and Regulatory Reform Act 2013 (ERRA). As noted in our May client advisory, the ERRA introduced a number of substantive and procedural changes to the UK competition regime, most of which will come into effect on 1 April 2014. In summary, the key changes coming into effect on that date are:
the replacement of the OFT and CC by the CMA (which itself necessitates significant changes to substantive UK competition law and procedures, given the long-standing dual agency structure);
a widening of the criminal cartel offence, to make it easier for the CMA to bring prosecutions;
revision of the antitrust regime, including a new power to interview individuals, new civil penalties for non-compliance with information requests and lowering of the threshold for the granting of interim measures;
revision of the merger review regime, including enhanced information gathering powers, a more prescriptive merger filing process, expanded powers to prevent the consummation of a merger, the introduction of statutory timetables for first phase merger reviews and changes to the procedure for negotiating remedies;
changes to the market investigations regime, to widen the circumstances in which the Government can initiate an investigation and to enable the CMA to investigate common issues across markets; and
changes to the way in which sectoral regulators enforce competition law, to ensure better coordination and potentially lead to enforcement activity by the CMA in regulated sectors.
Taken together, these measures are designed to enable more effective competition law enforcement, as part of the Government’s wider economic growth agenda, and are consistent with the more interventionist tone of the current Secretary of State for Business, compared with his recent predecessors and indeed the rest of the Cabinet.
Independently of the ERRA, the UK Government is also in the process of introducing significant changes to the private competition law damages actions regime, to make it easier for those harmed by anticompetitive conduct to bring claims before the courts. It has also recently consulted on possible changes to the procedure for regulatory appeals decisions, which could make it harder for affected parties to challenge the decisions of competition authorities. This series of measures constitutes the most significant change to the UK competition regime in over ten years.
The CMA will not become fully operational until 1 April 2014. Until then, the OFT and CC will continue to perform the competition functions that will be transferred to the CMA. Most of the OFT’s consumer-facing functions have already been transferred to other bodies, including local Trading Standards departments, Citizens Advice (a charity that provides free advice on a wide range of issues) and the new Financial Conduct Authority. The Government’s intention is that the CMA will bring about significant benefits to business and consumers, including greater coherence, flexibility, speed and transparency in the operation of the competition regime.
The process of creating the CMA started even before the ERRA received Royal Assent, with its Chairman-designate (Lord David Currie) and Chief Executive-designate (Alex Chisholm), being appointed in 2012 and early 2013 respectively. The formation of the CMA Board was completed in September 2013, with the announcement by the Secretary of State of three executive director appointments. Interestingly, of these three, two are currently at the OFT and one is currently at the communications regulator, Ofcom. The remaining two appointments to the CMA’s senior management team, which were also confirmed in September, were to the posts of General Counsel (joining the CMA from energy regulator Ofgem) and Director of Economics (the sole appointment from private practice, who joins from an economics consultancy firm). In addition to the Executive Directors and Chairman, the CMA Board will have five Non-Executive Directors (which include a former Director General for Competition at the European Commission and a former Chair of the US FTC) and two ‘panel member’ Non-Executive Directors (who have a specific role with respect to second phase investigations and decisions), both of whom join the CMA from the CC.
These appointments have been well-received, and the depth of expertise and experience of the CMA Board should give the CMA a good start from day one. However, it remains to be seen how the institutional changes will affect staff currently working at other levels of the OFT and CC and there have already been some high-level departures of staff. It will be critical to the success of the CMA, particularly in its early months, that it retains as many of the legacy agencies’ best and most experienced lawyers, economists and case handlers as possible.
The wide-ranging nature of the current reforms has necessitated the creation of new guidance documents outlining the CMA’s approach to the exercise of its functions, as well as the revision of a number of existing CC and OFT guidance documents. The Government’s ‘CMA Transition Team’ has led a consultation on the key documents during the summer. Due to the volume, this exercise was separated into two tranches, commencing in July and September respectively.
While it is beyond the scope of this client advisory to summarise all of the changes reflected in the new guidance documents, it is worth noting the following developments.
Cartel offence prosecution guidance
As we have previously reported, the ERRA has made a significant change to the criminal cartel offence by removing the requirement of personal dishonesty as an essential element of the offence, and instead introducing a number of exceptions and defences. In September, draft guidance was published for consultation outlining the CMA’s proposed approach to exercising its powers to prosecute individuals.
Disappointingly, the draft guidance does not flesh out the scope of the offence itself, on the grounds that these are set by statute and are for the courts to interpret. The only real additional guidance added by the draft guidance is a confirmation of the fact that the CMA will pursue a prosecution only if it is in the public interest, together with an outline of the factors that it will take into account when assessing the public interest consideration. The document also confirms that, before proceeding with a prosecution, the CMA (in common with other public prosecutors) will consider the seriousness of the offence committed, the level of culpability of the suspect, the impact on the community and whether prosecution is an appropriate response.
As a result, the key issue raised by commentators when the change to legislation was proposed remain valid, namely that businesses will face greater uncertainty as to whether arrangements which until now have not constituted criminal offences may now come under scrutiny. The safest course of action for a business that is in any doubt as to the legality of its business arrangements is to seek legal advice, particularly since the mere seeking of legal advice (irrespective of whether it is followed) constitutes a defence to the criminal cartel offence.
The mergers guidance reflects the changes to the merger control regime introduced by the ERRA, including two major procedural changes. Firstly, all first phase merger reviews will be subject to a statutory 40 working day time limit. Secondly, all notifications must be made by way of a prescribed Merger Notice, a draft of which was also published for consultation (in contrast, most parties currently notify mergers to the OFT by submitting an informal submission). The combination of these changes is likely to have a significant impact on merging parties, by extending pre-notification discussions and by increasing the amount of information that must be provided up front.
As noted above, the ERRA introduced a number of measures to harmonise and strengthen the powers of the CMA to gather information, including a new power to impose administrative penalties for failures to comply with formal requests for information. The draft administrative penalties guidance seeks to explain the factors that the CMA will take into account when deciding whether to impose an administrative penalty for non-compliance, and the level at which it will set the fine.
An immediate concern, which is not assuaged by the draft guidance, is that the CMA could adopt an overly liberal approach to the imposition of financial penalties. Information requests can be very broad, particularly in antitrust investigations, and a business may not be able to answer certain questions because it is impossible to locate and provide information in the manner requested. In addition, antitrust and merger investigations often may lead to information requests being sent to a large number of third parties, who may have little interest in the outcome and (in the case of merger investigations) are currently under no obligation to respond to information requests. Unless used sparingly, the CMA’s new power to impose administrative penalties is likely significantly to increase the general administrative burden on parties and third parties.
Taken together, these reforms represent a major step-change for the UK competition enforcement regime. While it is not yet clear whether they will help to spur economic growth (the Government’s stated intention behind these changes), it is clear that at least in the short term they are likely to increase uncertainty. In the longer term, it seems likely that they will increase the regulatory burden on at least some businesses. It is clear that the remainder of 2013 and 2014 is set to be a period of transition, not only for those working in the competition authorities, but also for business and their advisers, as they familiarise themselves with the myriad changes taking place.