Ofcom, the UK telecoms regulator has adopted new guidelines setting out how it proposes to determine penalties that it may impose for violations of sector specific regulation, including the Communications Act. In summary, the new guidelines:
- Give Ofcom greater flexibility to (i) impose higher fines for serious violations and for larger companies and (ii) reduce fines for those companies that take concrete compliance steps.
- Bring Ofcom penalty guidelines more in alignment with how it imposes penalties for EU/UK competition law violations.
- Apply to both ongoing and future investigations.
All companies subject to Ofcom regulation in the UK are potentially exposed to a higher level of financial risk in the event of an investigation by Ofcom for alleged violations of their regulatory requirements. Companies should therefore take immediate steps to assess and reduce such potential exposure based on the factors contained in the new guidelines, summarised below.
Ofcom has powers to punish regulated telecommunications providers that violate their relevant regulatory requirements, including their authorization conditions. When determining the level of penalties, Ofcom must comply with certain statutory limits and must ensure that the penalties are appropriate and proportionate to the matter in respect of which they are imposed.
Ofcom also is required to publish the guidelines it proposes to follow in setting the amount of penalties. The previous version of such guidelines was adopted in 2011. Given the increasing number of enforcement cases and complaints over the years, Ofcom became concerned that relatively low fines was contributing to ongoing noncompliance and lack of deterrence. Therefore, in September 2015, Ofcom launched a consultation aimed at revising the 2011 guidelines, which resulted in the adoption of the new guidelines.
How Ofcom will determine penalty amounts
The new guidelines have confirmed all of the changes proposed by Ofcom in its consultation document. The central objective of the new guidelines is to impose penalties that reflect the seriousness of the infringement and that will act as an effective incentive to comply. In doing so, Ofcom will have regard to the following factors:
- The seriousness and duration of the violation
- The degree of harm suffered by customers or competitors.
- Any gain made as a result of the violation.
- Whether appropriate steps have been taken to prevent the violation.
- The extent to which the violation occurred deliberately or recklessly, such as whether senior management knew, or ought to have known, about the offending conduct.
- Whether the violation continued, or steps were taken to end it, once it was uncovered.
- Any steps taken for remedying the consequences of the violation.
The extent to which the company has cooperated with Ofcom during the investigation.
Although Ofcom will consider all of these circumstances to determine the appropriate and proportionate amount of any penalty, the new guidelines state that Ofcom will adjust the penalty to take into account "the size and turnover" of the company under investigation; that is, Ofcom may impose a larger penalty on a larger company.
Additional guidance from EU/UK competition law
The new guidelines fail to clarify the way in which Ofcom will apply the above factors when calculating a penalty for sector specific regulation violations. However, Ofcom explicitly notes that those factors are "similar" to those it takes into account when setting a penalty under EU/UK competition law. Ofcom may use the same approach when calculating penalties for violations of sector specific regulation and competition law.
Implications for businesses
The new guidelines are expected to result into higher fines for noncompliance with Ofcom regulatory requirements. At the same time, technologies are converging, regulations are fast-changing, and the lines between regulated and unregulated activities are increasingly blurred. The combination of these two factors – higher penalties and uncertainty as to the applicable regulatory requirements – creates increased enforcement risk for all regulated companies (particularly in the telecoms sector) caught in an Ofcom regulatory investigation. Therefore, appropriate concrete compliance steps should be taken to try to reduce any such risk exposure.
Ofcom's new guidelines, announced on December 3, 2015, can be found here.