Following a detailed consultation exercise carried out in 2011, the Government published a series of proposals for reform of the UK competition regime in 2012, aimed at improving the effectiveness of competition enforcement and streamlining the process. The provisions introducing these reforms are contained in the Enterprise and Regulatory Reform Act 2013 and provide for changes in respect of all key areas of UK competition law. They are expected to come into force in April 2014.
- The new Competition and Markets Authority (CMA)
The Government has decided to create a new single Competition and Markets Authority (CMA), which will bring together in one body the current Competition Commission (CC) and the competition functions of the OFT. The OFT's responsibilities for consumer advice will be transferred to the Citizens' Advice service and the Trading Standards Institute will be responsible for most business facing consumer education activities.
The key benefits of this single merged authority are seen by the Government to include a greater coherence in competition practice, faster and less burdensome processes for business and more flexibility in resource utilisation. A single authority is also expected to carry greater weight as a competition regulator at an international level.
The CMA will be constituted as a non-ministerial department in order to ensure it is free from influence from Ministers, and it will prioritise its own resources and annual plans of activity. Its primary duty will be to promote effective competition in markets across the UK economy, for the benefit of consumers, and this duty will guide its work and prioritisation of resources.
The CMA Board will be responsible for overall strategy, performance, rules and guidance and it will be in charge of phase I mergers and markets decisions (with the power to delegate these to executives and senior staff, except for decisions on market investigation references). The CMA panel is a panel of independent experts (equivalent to the current CC members), available for selection as members of a group to undertake phase II merger and market decisions and regulatory appeals.
The CMA is due to come into legal existence in October 2013 and will become fully operational, with the functions of the OFT and CC transferred to it, in April 2014. Lord Currie has been appointed Chairman of the new CMA and will take up his four year appointment during the summer of 2013. Alex Chisholm, previously at the Commission for Communications Regulation in Ireland, was appointed as Chief Executive designate and took up his role on 25 March 2013.
- The criminal cartel offence
The new legislation removes the dishonesty element from the cartel offence, which was seen by the Government and by the OFT as an obstacle to successful criminal prosecutions. Without dishonesty, the criminal cartel offence will still require proof of the mental elements of intention to enter into an agreement and intention as to the operation of the arrangement in question. The Government believes this approach is consistent with the definition of other economic crimes, such as bribery or insider dealing, which requires proof that the defendant knew he had inside information, but does not require proof of dishonesty.
The offence has been redefined and a number of exemptions and defences have been added in order to limit what would otherwise be its very wide application.
A new section 188A has been added to the Enterprise Act 2002 which sets out the circumstances in which the cartel offence is not committed. It provides that a person does not commit the cartel offence if, in the case of arrangements affecting the supply of goods or services, customers are given 'relevant information' before entering into the arrangement; or in the case of bid-rigging, the person requesting the bid is given the 'relevant information' before the bid is made; or in any case, before the arrangements are implemented, 'relevant information' is published in a manner specified in an order made by the Secretary of State. The exact publication/notification requirements will be set out in secondary legislation.
'Relevant information' is defined in section 188A(2) as: the names of the undertakings to which the arrangements relate, a description of the nature of the arrangements and the products or services to which they relate, and such other information as may be specified by the Secretary of State. The stated aim is to create a straightforward way of bringing legitimate arrangements outside the offence, but the revised definition of the offence has come under criticism for being too formalistic and potentially criminalising conduct that would not qualify as a civil competition law infringement.
In response to concerns raised by a number of stakeholders that the new cartel offence and its form-based nature would criminalise the participation of individuals in a wide range of otherwise lawful commercial conduct (including agreements that do not infringe Article 101 TFEU or the Chapter I prohibition) the Government has added three defences to the cartel offence which are set out in a new section 188B. This provides that it is a defence for an individual who is charged with the cartel offence to show that:
- At the time of making the arrangements, they did not intend to conceal the nature of the cartel arrangements from customers; or
- At the time of making the arrangements, they did not intend to conceal the nature of the cartel arrangements from the CMA; or
- Before making the agreement they took reasonable steps to ensure the nature of the arrangements would be disclosed to professional legal advisers for the purposes of obtaining legal advice.
The wording of these additional defences has been widely criticised as being unclear and even unworkeable. It has been argued that the mens rea element of the offence has now been included in the defences rather than in the definition of the offence itself, which reverses the burden of proof from the prosecutor to the defendant. It is not clear to what extent the concept of "intention not to conceal" refers to a positive intention not to conceal the arrangement or whether it will be sufficient for the defendant to show that there was an absence of an intention to conceal the arrangements. The legal advice defence would appear to apply even if no advice was actually obtained, or if legal advice was taken but subsequently ignored.
A new section 190A in the Enterprise Act requires the CMA to prepare and publish prosecutorial guidance.
Existing agreements or agreements made before commencement of the new cartel legislation will continue to be subject to the current legislation which requires the mens rea element of dishonesty for the conduct to qualify under the cartel offence.
- Merger control
Although the UK merger regime was seen to be working well, the Government considered there was scope for further improvements by addressing what if felt were some of the disadvantages of the current voluntary notification regime. The merger control regime remains voluntary and the jurisdictional thresholds are not being changed, but a number of changes aimed at strengthening the voluntary regime and speeding up the decision making process have been made to the current regime.
The CMA will have greater powers to suspend pre-emptive action (integration) in completed as well as anticipated mergers (currently this power is limited to completed mergers only). The CMA will also be able to use its interim measures powers to require parties to reverse integration steps that have already been taken, or reverse the effect of such steps. In addition, as a change to the current regime, the CMA will no longer be able to accept undertakings from the parties to deal with pre-emptive action. Instead, the CMA will be able to consent to derogations from the interim measures orders it has issued.
Penalties of up to 5% of aggregate worldwide turnover can be imposed where integration measures are taken in breach of CMA interim measures orders.
The new powers are intended to make it easier for the CMA to stop integration of enterprises subject to a merger investigation, particularly at phase 1. The changes are intended to deal with the current difficulties that the OFT and the CC face in reviewing and remedying completed mergers.
Statutory time limits and investigation powers
Statutory time limits for the CMA's review have been introduced in order to streamline the process and increase certainty and predictability for businesses. The statutory time limit for phase I will be 40 working days (subject to a "stop the clock" provision where the CMA is waiting for information to be provided). The time limit will start running the first working day after a satisfactory submission has been received for mergers notified by way of a merger notice, or otherwise when the CMA notifies the relevant persons that it has sufficient information to investigate. The statutory time limit for phase II remains unchanged, at 24 weeks, extendable by 8 weeks in special circumstances.
In order to support it with meeting its new statutory timeframes, the CMA will have a single set of investigation powers that can be used throughout the whole merger investigation process.
Undertakings in lieu of reference
The process for considering undertakings in lieu of a reference to phase II (UILs) has been amended to increase transparency. A new statutory time period has been introduced after the phase I decision in which the parties can offer UILs. Under the current regime the parties are required to offer UILs based on the issues letter and before having seen the OFT's decision. Under the new regime the timetable for UILs will run as follows: (i) the parties will have 5 working days from announcement of the phase I decision to offer UILs (ii) the CMA will then have up to the tenth working day after the date of the decision to consider the UILs proposed by the parties and decide whether to pursue UILs and suspend the duty to refer. If the CMA issues a notice suspending its duty to refer, it will have 50 working days from the day the parties were advised of the original decision in order to decide whether or not to accept the UILs. This period can be extended once by up to 40 working days if there are special reasons to do so and it is expected that such an extension will mainly be used in case where an upfront buyer is required. The CMA will need to publish reasons for such an extension.
The CMA can suspend the commencement of a phase II investigation for a period of up to 3 weeks at the request of the parties and if the CMA considers that there is a possibility that the merger will be abandoned. The purpose of this provision is to prevent unnecessary work by the CMA and information requests on the merging parties and third parties. If the CMA suspends the investigation it must publish a notice at the end of the suspension period stating that the power was used and if the merger was not abandoned the date by which the phase II report will be published.
Phase II Remedies
In relation to phase II remedies, a 12 week statutory time limit from the publication of the final report has been introduced for the implementation of remedies. This will be subject to a stop the clock provision where the CMA is waiting for further information, and can be extended by 6 weeks for special reasons.
Although the CMA will be in charge of the whole merger control process, the current system of phase I and phase II investigations will be preserved. The CMA board will be in charge of phase I decisions (with power to delegate these decisions to executives and senior staff) and phase II decisions will be adopted by a panel of independent experts, who must act independently of the board, in order to preserve the 'fresh pair of eyes' approach of the current system.
- Market investigations
The ERR Act contains a number of provisions aimed at streamlining processes in market investigations and making the regime more efficient.
Statutory time limits and investigation powers
There will be statutory time limits at all stages of the process. At phase I, the CMA is required to publish a market study notice which sets out the timeframe for completion of the study, its scope and the period for making representations to the CMA. Publication of the market study notice triggers the start of the new statutory time period for completion of the market study.
The CMA will have to consult on proposals to make a reference, or on proposals not to make a reference where third parties request that a reference be made, but it is no longer required to consult generally on a decision not to make a reference. Within six months from publication of the notice the CMA must either hold such consultation or publish a notice of its decision not to make a reference.
Within 12 months of the original market study notice being published, the CMA must publish a market study report setting out its findings and the action that will be taken as a result of the study. Where the market study report contains a decision to make a market investigation reference, the CMA will make the reference at the same time as publishing the report.
At phase II, the time limits are reduced from the current 24 months to 18 months, with a possible 6 month extension if there are special reasons. There is also a new, 6 month statutory time limit for the CMA to implement phase II remedies, with a possible 4 month extension.
As with the mergers regime, the new statutory time limits are supported by consistent investigation powers for the CMA.
The CMA's powers to impose interim measures now include the power to require parties to take steps to reverse pre-emptive action taken, or to reverse the effects of such action, once a market investigation reference has been made.
The CMA has been given the powers to carry out investigations of practices that are present in more than one market ("cross-market references"). The CMA will be able to refer a specific feature or combination of features which exist in more than one market for a market investigation, without having to investigate competition across the whole of each of these markets. Some practices are common across a number of markets and the Government believes that these new powers will lead to a more targeted approach for tackling recurring sources of complaint.
The same timeframes, investigation powers and interim measures will apply to cross-market references as to ordinary references.
Public interest interventions
In order to bring the public interest markets regime in line with the public interest mergers regime, the Secretary of State has been given the power to request the CMA to investigate public interest issues alongside competition issues during a phase II market investigation, and to propose remedies which address any adverse effect on competition and any adverse public interest issue (currently the CC can only investigate competition issues and has no role or powers to investigate and remedy the public interest issues).
Where a full public interest reference is made, the Secretary of State will have a power to appoint independent public interest experts to advise the CMA on the public interest issues.
There have been no public interest interventions in market investigations to date and it remains to be seen to what extent these new measures will have an impact on the regime.
- Antitrust enforcement
The Government's main concern was that antitrust cases take too long and that, in comparison with other EU Member States, far fewer antitrust decisions are adopted in the UK. Following Consultation, the Government decided not to move to a prosecutorial regime, but instead to retain and enhance the existing administrative regime for investigation and enforcement of Competition Act 1998 cases. The OFT was asked to put in place a number of improvements, including measures aimed at speeding up the process and improving project management, improved access to the decision makers, greater transparency of the checks and balances, greater use of state of play meetings and separation between the teams responsible for the investigation of the case and for the final decision. The OFT published its revised procedural guidance in October 2012.
The ERR Act itself also contains a number of measures aimed at improving the efficiency of investigations and the quality of decision-making in the enforcement of antitrust prohibitions in the current regime.
- The Secretary of State will have the power to introduce statutory time limits by order should the reductions in the time taken to complete antitrust cases not be forthcoming and s/he is required to review the operation of Part 1 of the Competition Act and report on the outcome of the review within five years of the relevant powers having been transferred to the CMA.
- The current appeal process (providing for a full merits appeal to the CAT) will remain unchanged, but the new legislation provides that financial penalties should reflect the seriousness of an infringement and the need for deterrence, and that the CAT must have regard to the statutory guidance on the appropriate amount of a penalty.
- A new section 26A has been added to the Competition Act 1998 which gives the CMA the power to require individuals to answer questions as part of an investigation under the Competition Act. The power can be used where the individual is connected to the company involved in the investigation and is subject to the individual's privilege against self-incrimination and other safeguards.
- The threshold which determines when the CMA will be able to impose interim measures has been lowered, from "serious irreparable harm" to "significant damage" and should result in interim measures being used more often.
- The CAT now also has the power to issue warrants to enter premises as part of an investigation (in addition to the High Court).
- Current criminal sanctions for failure to comply with investigations have been replaced with a system of civil penalties (similar to that for failing to comply with merger investigations).
- In addition, a number of amendments have been made to the Competition Act in relation to procedural matters. The CMA has the power to publish a notice of investigation (to which absolute privilege against defamation will attach). The CMA will be able to adopt rules which provide for the exercise of the CMA's antitrust functions on its behalf by one or more members of the board, panel or members of staff; for the procedures for oral hearings and for the procedures for dealing with complaints and settling cases.
- Concurrency and the sector regulators
Many of the sector regulators (e.g. Ofcom, Ofwat, Ofgem, the ORR, the CAA) have competition powers for their respective sectors concurrently with the OFT, but there have been very few Competition Act decisions or market investigation references made by the sector regulators.
The ERR Act includes provisions to strengthen the current concurrency regime and to address concerns that the sector regulators are not making use of their concurrent competition powers. Primacy of general competition law has been strengthened and sector regulators are now required to consider whether the use of their antitrust powers is more appropriate before they decide to use their sectoral powers to promote competition.
The CMA and the sector regulators are required to work more closely together and there will be a greater sharing of information between them in respect of competition cases. The CMA has the power to take competition cases from the sector regulators where it is better placed to proceed with the case. Before doing so it will have to consult the sector regulator concerned and there will have to be a formal agreement with each regulator on how this will work in practice.
In addition the Secretary of State now also has the power to remove the competition functions from a sector regulator if s/he considers that it is appropriate to do so for the purpose of promoting competition within any market(s) in the UK, for the benefit of consumers.