Yesterday the Chair of the Competition and Markets Authority (“CMA”), Andrew Tyrie, published a response outlining his proposals for radical reform of the UK’s competition law regime. In this brief summary, we outline the key proposals and give some context to these significant reforms.
Shortly after Andrew Tyrie took on the role of Chair of the CMA last June, he received a request from the Secretary of State for Business, Energy and Industrial Strategy to propose legislative and institutional reforms to protect consumer rights and improve market confidence. Yesterday, Lord Tyrie published his preliminary advice in response (see here).
The proposals sketch out potentially radical changes to the UK competition and consumer protection landscape. Their stated aim is to deal with the challenges of the growth of the digital economy and new forms of consumer detriment, as well as the perceived loss of public confidence in market competition. The CMA considers that the counterpart to consumer detriment is often excess rents and cites a statistic that in the UK, economy wide profit margins have risen from around 1.2 in 1980 to close to 1.7 today. This is part of a contemporary global narrative amongst competition regulators which considers that lack of market intervention has led to increased profits and shareholder returns at the expense of workers and consumers.
The key theme throughout these changes is a renewed focus on consumer protection via reform of the markets regime and other material reforms. In brief, the proposals include:
- Refocusing the CMA from its current statutory duty (the promotion of competition for consumer benefit) to the protection of consumer interests. This would involve the introduction of a new, overriding “consumer interest” duty on both the CMA and the courts. It would enable the CMA to address consumer detriment that can’t be alleviated by intervention based on competition. The letter gives as an example the use of technology which may have helped business to take advantage of market power by enabling more effective targeting and segmenting of customers according to willingness to pay (which reflects the CMA’s recent action in December to tackle “loyalty penalties” in mortgages and mobile phone contract markets amongst others, and unfair trading practices across a sector or exploitation of consumer vulnerability). The CMA says that it considered changing the substance of competition law prohibitions, for example by introducing a prohibition on exploitation of economic dependence or inequality of bargaining power even in the absence of dominance or, by broadening the prohibition against anti-competitive agreements to extend to spontaneous collusion (e.g. by price matching algorithms or AI even in the absence of a conscious meeting of [human] minds). However, it expects to address many of these concerns through markets tools.
- The new consumer interest duty would also underpin proposals enabling the CMA to act swiftly using interim measures, for example in the markets regime or in respect of consumer protection breaches. This comes shortly after the CMA made substantial changes to the interim measures section of its guidance on investigation procedures in Competition Act 1998 cases (revised in January 2019) and in the wake of years of pressure from some quarters (including House of Lords Committees) to impose interim measures to deal with abuses in online markets, where the need to act quickly is heightened.
- Reforms to the CMA’s markets powers. Following significant criticism in the context of energy and retail banking of the adequacy of remedies imposed to tackle demand side issues and significant delays, of several years between investigation and action, in tandem with the reforms above, the CMA proposes a power to enable the CMA to impose binding remedies in market investigations (to address consumer detriment) without the need to demonstrate such detriment arose from an adverse effect on competition. It also proposes empowering the CMA to impose fines on companies for failure to comply with such remedies (as opposed to the current regime which requires a court order to enforce remedies). This broadens the scope of the CMA’s power to impose remedies to rectify consumer harm and gives the CMA more teeth from an enforcement perspective.
- Requiring mandatory merger control filings for transactions above a certain threshold in the UK and imposing a standstill obligation (a fundamental shift from the current voluntary, non-suspensory regime). This proposal is intended to ensure that, post-Brexit, the CMA can work effectively with other competition authorities on large, multi-jurisdictional mergers and ensure companies prioritise a UK filing. Lord Tyrie also considers amendments to the filing fees, potentially imposing a larger fee on big deals that require considerable scrutiny by the CMA. It will be interesting to see whether this influences the proposed longer term reforms to the UK’s foreign investment regime, which is also currently voluntary (see our Client Alert published at the time that these reforms were announced).
- Introducing a statutory requirement on the CMA to conduct investigations as quickly as possible (while respecting the parties’ rights of defence). The CMA considers that it is slowed down by legal challenges, something it has indicated in the past. For example, in response to the Competition Appeal Tribunal (“CAT”) decision in the Pfizer/Flynn appeal, the CMA publicly expressed frustration that several of its active investigations may be severely delayed as a result of the decision.
- Aligning the CMA’s powers to enforce consumer law with its competition law powers by giving it the power to order companies to stop practices that breach consumer law (instead of having to seek court orders) and to impose civil fines for such breaches.
- Extending the scope of the CMA’s formal information-gathering powers by introducing a new power to require information to be produced even where there is no formal investigation (currently companies are not obliged to respond to such a request and no sanctions are imposed for incomplete and/or misleading responses). Lord Tyrie suggests this could help the CMA identify and deal with issues arising from fast-moving markets. He gives the example of the information gap between companies and the CMA in the digital economy, in particular, and notes that this could be addressed by requiring firms to help the CMA understand complex data types or asking them to analyse algorithms before a formal investigation has been launched, for example.
- Extending individual responsibility for compliance with competition and consumer protection law, including personal sanctions for serious competition law breaches (although it is acknowledged this would be a significant step-change and considerable work is needed to assess the merits of such a deterrent). Also extending the scope of the CMA’s director disqualification powers, enabling it to seek disqualification of directors involved in serious consumer law breaches. This builds on the work the CMA is currently doing in respect of director disqualifications, including issuing revised guidance earlier this month (see our Client Alert on the updated guidance).
- Changes to the standard of review of the CMA’s Competition Act 1998 decisions, reverting to a more procedural (judicial review or some other specified standard) as opposed to “full-merits” review by the CAT, in order to reduce the duration of proceedings to a level that more closely reflects the original intentions for the CAT. The CMA comments that “the UK is not only one of the best jurisdictions for companies to defend a competition case; it is one of the best jurisdictions to lose one” given that it considers the level of fines imposed by the CMA are often lowered by the CAT on appeal.
- Changes to corporate governance of public companies in order to improve competition and consumer law compliance, including an obligation to appoint a board director responsible for assessing (and reporting) compliance risks and requiring auditors to report any compliance risks identified during their ordinary course of work.
- Improving the incentives for whistleblowers by removing the cap on compensation (currently set at £100,000) and taking steps to better ensure their anonymity.
- Not all the proposals suggest an increase in the CMA’s powers. In order to ensure the CMA can focus on its new overriding consumer interest duty, Lord Tyrie suggests the transfer of responsibility for:
- references and appeals of certain decisions made by sector regulators (such as price controls and tariff methodologies) from the CMA to the courts; and
- cartel prosecutions to another agency, such as the Serious Fraud Office.
The proposals only constitute preliminary advice at this stage, and work is still ongoing at the CMA. As Lord Tyrie notes at multiple points throughout the letter, further assessment is needed to assess the merits of many of these changes, and indeed in respect of some, no work has been initiated as of yet. The letter notes that the CMA’s capacity to give priority to this work would be impeded by a “no deal” Brexit.
We would therefore expect to see more developed (and possibly fewer) proposals at the formal consultation stage. In terms of timing, it appears Lord Tyrie is keen to instigate change as soon as possible, preferring this “amend and improve what we have” approach, because in his view wholesale legislative overhaul would take “at least two years” and that is too long. Realistically however, given current legislative commitments due to Brexit, it is unlikely that any significant reforms, particularly in relation to the statutory duty could be in place before 2020.