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This briefing looks at the establishment of the new UK competition regulator, the Competition and Markets Authority (CMA), and the associated changes to the UK competition regime. The CMA took up its powers on 1 April 2014.
The CMA hopes to have more resources to pursue competition cases than its predecessors. Companies would be well advised therefore to review their competition compliance programmes to ensure they are working effectively.
The UK government decided to review the UK competition regime in 2011. It was concerned that there was unnecessary duplication between the existing competition regulators (the Office of Fair Trading (OFT) and the Competition Commission) and that competition cases were taking too long to be completed.
It was also concerned about the duration of market investigations and the ability of the competition regulators to deal effectively with completed mergers.
The government issued a consultation seeking views in March 2011. It issued its response to the consultation a year later. The government’s decisions in that response were embodied in the competition provisions of the Enterprise and Regulatory Reform Act 2013, which came into force on 1 April 2014.
The centrepiece of the reforms is the abolition of the OFT and the Competition Commission and the transfer of their functions to a new regulator, the CMA.
One of the perceived drawbacks with the old regime was that the skills and expertise of the Competition Commission were not always being fully utilised, because its workload was dependent on matters being referred to it by other bodies (principally the OFT).
The government hopes, therefore, that the CMA will have more resources to pursue a larger number of cases and conclude them more quickly.
For mergers and market investigations, the CMA retains the two phase approach from the previous regime, with Phase I decisions the responsibility of the CMA Board and Phase II decisions taken by independent panels of experts (equivalent to former Competition Commission members).
The CMA has a new senior leadership team (David Currie, ex Ofcom chairman, and Alex Chisolm, ex Commissioner of Ireland’s communications regulator, ComReg). However, the vast majority of the CMA’s staff have transferred from the OFT and the Competition Commission.
It will be interesting to see therefore the extent to which the CMA is able to establish its own identity, rather than simply resembling its predecessors.
The CMA has taken over the OFT's function of enforcing the prohibitions on anti-competitive agreements and abuse of a dominant position set out in the Competition Act 1998.
The government considered making changes to the model for enforcing these prohibitions. However, in the end it adopted the model used by the OFT, as the OFT had made a number of revisions to its procedures in the last few years of its life.
These revisions included having separate decision makers at the provisional decision (statement of objections) and final decision stages, as well as the establishment of a Procedural Adjudicator to deal with procedural issues during cases.
One significant new power for the CMA is that it can require individuals to answer questions. It is expected that compulsory interviews will therefore become a common feature of the CMA’s investigations.
The test for the CMA to grant interim measures while a case is being investigated has also been lowered. Now the measures must be necessary to prevent significant damage, rather than serious irreparable harm.
One of the government’s key concerns was that the sectoral regulators (ie those responsible for regulated sectors such as Ofgem and Ofwat) were not making use of their concurrent powers to apply the Competition Act.
Sectoral regulators are therefore now required to consider using their Competition Act powers before using sector-specific powers.
There is also a duty on the CMA and sectoral regulators to cooperate and they have formed a new UK Competition Network as a forum to facilitate this.
In addition, there are new backstop powers, with the CMA able to take cases from the sectoral regulators and an ultimate power for the government to be able to remove a sectoral regulator’s Competition Act powers.
As a result of these changes, we can expect more competition cases in the regulated sectors.
One of the most significant changes is the removal of the dishonesty element from the criminal cartel offence. The need to show that individuals had acted dishonestly was regarded by the government as a major impediment to the successful prosecution of the cartel offence.
Concerns have been expressed that the scope of the offence is now so wide that it may criminalise legitimate conduct.
In order to try to address these concerns, the government has introduced a number of exclusions and exceptions to the offence, including where details of the arrangement are notified to customers or published before implementation.
It seems inevitable that this change will result in more prosecutions under the cartel offence.
The CMA has a new power to investigate practices across markets and the Secretary of State has broader powers to intervene in market investigation cases on public interest grounds.
There are also new statutory deadlines for investigations with Phase I decisions to be taken within 12 months and Phase II decisions to be taken within 18 months, plus 6 months for remedies.
There are new statutory time limits for merger reviews: these include a 40 working day time limit for Phase I decisions, a time limited process for parties to offer undertakings post the Phase I decision and a 12 week period post the Phase II decision for remedies to be implemented.
The CMA also has strengthened powers to adopt interim measures during the course of its investigations, which apply to both completed and non-completed mergers.
These measures can prevent further integration and can also unwind integration that has already occurred.
Parties that decide to complete mergers without notifying the CMA will need to bear these strengthened powers in mind, as they could lead to the acquired business being held separate for a considerable amount of time.
The expectations of the CMA are clear – more enforcement and quicker throughput of cases.
In practice, it is likely to be difficult for the CMA to live up to these expectations in its early life, particularly as it will largely be working through cases inherited from its predecessors. That could mean same as it ever was – at least for a while.
However, once the CMA starts to set its own workload, it will wish to be seen to be pursuing more cases – and to be living up to its billing as super regulator.
That means companies should ensure they are ready – and take the opportunity to review the effectiveness of their competition law compliance programmes.
This article was written by Michael Powner
For more information please contact Michael on +44 (0)20 7203 5216 or email@example.com.