The UK has well-established domestic antitrust and merger control regimes, enforced by the Competition and Markets Authority (CMA). Currently, however, where a deal meets EU merger control thresholds, the CMA (in most cases) loses its jurisdiction to apply the UK merger control rules. The same is true where the European Commission (Commission) is investigating potentially anti-competitive conduct which impacts trade between EU Member States. Following a hard Brexit this would change: the CMA will have the ability to review transactions and behaviour alongside the Commission. In short, there will be parallel regimes.

In this article we explore what a "hard Brexit", ie the UK leaving the EU on 29 March 2019 without a deal, means for merger control and antitrust rules and enforcement, and how this is likely to impact business. We cover the possible effect on antitrust policy more generally, as well as the creation of parallel regimes for merger control, antitrust and cartel enforcement, and state aid.

What guidance do we have?

In preparation for a hard Brexit, the UK Government has published two statutory instruments (SIs) covering merger control/antitrust and state aid. These are intended to take effect immediately on exit. The merger control/antitrust SI separates the UK and EU antitrust and merger control systems, and makes changes to UK rules with the aim of ensuring that the legislation can function on a standalone basis after 29 March 2019. The state aid SI creates a new UK state aid regime.

Alongside the SIs, the Government and the CMA have published various guidance documents. Most recently, on 28 January 2019 the CMA launched a consultation on Draft guidance on the effect of the UK's `no deal' exit from the European Union on the functions of the CMA.

Will UK antitrust policy be affected?

At the moment, the UK's antitrust and merger control regimes very closely mirror the EU system. So far, the UK Government has been clear that in the event of a hard Brexit it does not intend that this will change. It has stated that the amendments to the UK rules envisaged by the SIs "do not represent a policy change to the operation of competition law in the UK". They are instead aimed at ensuring the legislation continues to make sense after the UK's exit from the EU, for example by removing references to EU law and to the Commission.

In the short term, therefore, it seems unlikely that we will see any major shift in antitrust policy. However, as under a hard Brexit there would be no agreement with the EU on any future harmonisation between EU and UK antitrust/merger control regimes, the UK will ultimately be free to chart its own course. We have already heard hints from officials at the CMA that amendments to the merger control regime, for example, may be on the cards at some point down the line. Decisional practice in antitrust cases, too, may diverge while following a hard Brexit the CMA and UK courts must interpret the UK rules consistently with pre-Brexit EU antitrust law/Commission decisions, they will be able to depart from these principles where they consider it `appropriate' to do so, in line with certain specified factors.

Merger control: increased burden and uncertainty?

Currently, where a deal meets the UK merger control thresholds, the CMA can review it for its impact on competition in the UK. However, if a transaction falls within the scope of the EU merger rules, the Commission has jurisdiction and the CMA will with some limited exceptions lose its ability to look at its impact on competition (but may still review on limited public interest grounds including national security). This is known as the `one-stop-shop' principle. After a hard Brexit the one-stop-shop principle will fall away, and the EU merger rules will no longer apply in the UK. Merging parties whose deals meet the thresholds in both the EU and the UK would be subject to both regimes. This means that a transaction could be looked at by both the Commission and the CMA. For the CMA, this means additional workload. It has predicted that post-Brexit it will receive 30-50 additional filings each year. When compared to the 62 deals that the CMA reviewed in FY17/18, this is a significant increase. For merging parties, having to consider an additional merger filing will likely increase their administrative burden. It may also give rise to greater uncertainty: there will be another review process to take into account, and this gives rise to the risk that the CMA and the Commission may reach different outcomes in relation to the same deal. This risk may be low the CMA has stated that it "will endeavour to coordinate merger reviews relating to the same or related cases with the...Commission" but it cannot be ruled out, in particular where the relevant markets are national or regional/local. Having said all this, any firms who have been involved in cross-border deals will be used to dealing with multiple merger control regimes at the same time and the complexities that this brings.

What about merger reviews which are ongoing on 29 March?

Where the Commission has issued a decision on a merger before 29 March, the CMA will have no jurisdiction over that merger unless the decision is annulled following an appeal. For cases where the Commission's review is ongoing at that date, the situation is more complex. The CMA will have the ability to investigate a merger and its effects in the UK, if the UK merger control thresholds are met.1 As the UK merger regime is voluntary, merging parties finding themselves in this situation will be under no obligation to notify their deal to the CMA after 29 March. However, not notifying carries a risk (one which the CMA is clear to point out in its draft guidance) that the CMA could subsequently investigate and either prohibit the deal or require remedies to resolve any antitrust concerns it identifies. We already know that the CMA is `shadowing' mergers that have been notified to the Commission, to track their progress as the end of March approaches. It is therefore unlikely that any mergers expected to have a significant impact on competition in the UK will fall under the CMA's radar. The safest course of action, therefore, is to start discussions with the CMA well before 29 March, in cases where it is expected that a Commission review may not be completed before that date.

Antitrust and cartels: appetite for more enforcement?

Following a hard Brexit the EU rules prohibiting anti-competitive agreements and abuse of dominance will no longer apply in the UK. But the pre-existing UK rules will remain intact. Like merger control, this means that post-Brexit the CMA (and the sector regulators) will be able to investigate a suspected infringement in parallel with the Commission: it will no longer be precluded from investigating conduct that is being looked at by the Commission. This applies to `live' investigations, ie cases opened by the Commission but where a decision has not been reached by 29 March 2019. And it applies equally to investigations opened after Brexit.

Clearly this could lead to the CMA bringing more enforcement action. It opens up the possibility for it to investigate large cross-border cartels or, for example, the unilateral conduct of businesses suspected of being `dominant' in their markets. The CMA has estimated that it may investigate between five and seven additional complex cartels or other antitrust cases each year. If this prediction proves accurate, it would be reasonable to also expect a corresponding uptick in action against individuals in the form of criminal cartel prosecutions and director disqualification. But it will all depend on resource. This type of enforcement action is discretionary, unlike the CMA's review of mergers and state aid notifications, which it has a statutory duty to undertake. The CMA has been clear that it will carefully apply its prioritisation principles when deciding whether to open an investigation. It will be very interesting to see whether in practice there is any significant shift in enforcement activity.

Benefit of block exemptions will remain

Under the EU rules, there are a set of regulations which exempt certain types of agreement, if criteria are satisfied, from the prohibition on anti-competitive agreements (the so-called `Block Exemption Regulations'). They cover, for example, vertical agreements, research and development and technology transfer. Following a hard Brexit the Block Exemption Regulations will be adopted into UK law. This is key for businesses which rely on them. Existing agreements will continue to benefit, and new arrangements can be structured to fall within the scope of the relevant safe harbour.

Damages actions: little difference in practice?

Currently, claimants can rely on a Commission decision as a binding finding of infringement in a private damages action. In the event of a hard Brexit, where the Commission reaches a decision before 29 March 2019, this position will continue. But Commission decisions reached after Brexit, even where they relate to pre-Brexit facts, will no longer have a binding effect. Claimants will therefore need to prove the infringement from scratch, using the infringement decision as evidence.

This sounds like a major change. In practice, however, we may see little difference. On balance, our view is that the UK courts are likely to accept a Commission infringement decision as discharging the evidential burden of proof to establish an infringement (even if that is no longer automatic). CMA infringement decisions will also continue to be binding. For these reasons we expect that the UK courts will continue to be a forum of choice for potential claimants, even after a hard Brexit.

State aid: new regime, familiar process?

In relation to state aid we will see a real difference in the event of a hard Brexit. The UK currently does not have a domestic state aid regime, and only the Commission has jurisdiction to review state aid applications from the various Member States. Following a hard Brexit the UK Government intends to establish a new UK state aid regime. EU state aid rules will be adopted wholesale into UK law and the CMA will take on the job of enforcement authority.

There are a lot of details still to be ironed out the CMA has said that it will publish guidance and notification forms "in good time" before the end of March. What we do know is that state aid approved by the Commission pre-Brexit (or given under a block exemption) will not need to be approved again by the CMA. However, where aid was notified before 29 March but the Commission has not yet reached a decision, this will need to be re-notified to the CMA. The CMA will have powers similar to the Commission in terms of investigation and enforcement. It will be able to investigate cases where aid has been granted (either before or after Brexit) without prior approval, or where no block exemption applies. In terms of process, the Government intends that it will be as similar to the EU regime as possible. For example, initial decisions on aid must be taken within 40 working days, with the CMA using `best endeavours' to reach any in-depth conclusion within 18 months. So, in theory the new, unprecedented and unique UK national state aid regime is intended to look quite familiar to the existing EU supra-national state aid regime. Of course, the really interesting issue is one of political sensitivities the CMA will effectively be reviewing and potentially challenging Government measures. Importantly, the draft SI provides that the rules will not prevent Parliament from passing future legislation that directly grants state aid (and the SI may be repealed to the extent there are inconsistencies with this legislation). Ministers must seek an opinion from the CMA in relation to proposals to grant aid by legislation, although this opinion will not be binding. If a hard Brexit does occur, it will be very interesting to see how this aspect in particular unfolds.

An aside: what if there is a deal?

If the UK and the EU do reach a deal, then much of the impact on antitrust will depend on the details of the agreement. If the deal is broadly along the lines of the one set out in the current Withdrawal Agreement, then during the transition period it will be business as usual, with any changes only taking effect at the end of transition. Broadly though, following the end of that transition period, we would expect that the impact will be the same as described above there will be parallel merger control and antitrust enforcement regimes, as well as a new UK state aid system. Based on the current Withdrawal Agreement, however, there may be scope for some degree of future harmonisation between UK and EU rules, greater coordination between the CMA and the Commission, as well as, particularly in state aid cases, a possible continued role for the Commission.