On 15 March 2012, the Department for Business, Innovation & Skills (BIS) published its response to its consultation on reforms intended to refresh competition law. 

Creation of the Competition and Markets Authority

Perhaps the most apparent reform will be the creation of the Competition and Markets Authority (CMA), which will combine the competition functions of the Office of Fair Trading (OFT) and the Competition Commission (CC) into a single authority.  This merger has been widely anticipated since the government's announcement of plans to abolish, merge or reduce funding for a large number of "quangos" in October 2010, which included plans for the merger of the organisations currently in charge of competition.  Currently, the OFT is tasked with the first phases of merger control reviews and market studies, the cartel investigations and prosecutions, and consumer protection; whereas the CC is in charge of the second phases of merger control reviews and market investigations, and some regulatory reviews. 

It is currently envisaged that the CMA will take on the roles of both of its predecessors, whilst retaining the two-phase decision-making process for merger reviews and market investigations. The separation between the Phase I and Phase II teams aims to minimise the risk of the decision-makers seeking unjustifiably to confirm at Phase II the existence of issues which they had identified at Phase I.  The move to a single authority responsible for competition is in line with international trends, but it remains to be seen whether the CMA will be able to maintain sufficient separation and independence within itself.

Changes to merger control

The merger control regime will be subject to a limited number of additional changes.  The proposals considered major changes to bring the UK merger control rules in line with the EU rules, but the majority of these will be not carried forward.  For example, under the EU regime, the notification of mergers which meet certain low thresholds is mandatory and has a suspensory effect until clearance is obtain.  By contrast, in the UK, merger notifications are voluntary and parties do not need to await the outcome of the review before closing the deal.   BIS had also proposed a hybrid solution, whereby only mergers where the value of the target exceeds a specified amount would have to be notified and the CMA would retain its ability to initiate investigations in mergers falling below that threshold.  However, little will be changing, as the government has followed the view of most practitioners that the current system works well.  As a result, the new merger control regime will stay largely the same: 

  • jurisdictional thresholds will be unchanged – mergers in which the target has a UK turnover in excess of £70 million or the parties have a combined share of supply in excess of 25% will be subject to the CMA's jurisdiction;
  • notification will remain voluntary, but filing fees will increase from bands ranging from £30,000 to £90,000 to bands ranging from £40,000 to £160,000;
  • the CMA will acquire the power to suspend all integration steps in both anticipated and completed mergers (rather than only completed mergers);
  • parties that take steps to integrate their merging businesses in breach of the CMA's orders will risk civil financial penalties of up to 5% of their aggregate group worldwide turnover;
  • statutory time-limits will be introduced, including turning the OFT's 40-working day administrative target into a statutory deadline for a decision in Phase I and some deadlines to finalise any divestments offered as a remedy to possible competition problems; and
  • penalties will be introduced for failure to reply to information requests by parties and third parties in Phase I.  

Other changes

Outside merger control, the most significant reform relates to the cartel offence, the existing criminal offence for individuals who engage in cartel agreements which operates alongside the civil cartel investigations regime.  Only two cases have been prosecuted since the offence was introduced in 2003.  The decision has been made to remove the dishonesty element to ensure that the offence serves as a deterrent to individuals as well as companies. To counter-balance this relaxed standard for prosecuting cartels, which carry penalties of up to five years in prison and unlimited fines, there will be a carve-out for agreements published before they are implemented.  The removal of the dishonesty component is highly contentious amongst practitioners, as it could imply the introduction of strict liability. 

There will be no significant changes to the antitrust regime which will retain its administrative approach.  Similarly, the markets regime will be subject to little reform, apart from the introduction of statutory time-limits and information gathering powers for the CMA for all stages of the markets process.

Next steps

BIS has indicated that it aims to implement the reforms by April 2014. This is, however, a very tight deadline as the reforms will require multiple legislative processes and/or further consultation.  Although there is no specific deadline for establishing the CMA, it is thought that it might be up and running up to one year before then.  It remains to be seen whether this new authority will be as effective at enforcing the competition regime as its predecessors have been to date. The OFT is already consulting on proposed changes to its competition investigation procedures and BIS has also opened a consultation on proposals aimed at facilitating private damages actions.

To link to the BIS response paper click here.