Introduction
New institutional structure
New distribution of functions and competencies

Task reallocation between NCMC and Central Administration
When will NCMC be fully operational?
Comment


Introduction

On February 24 2012 the government announced the merger of the National Competition Commission (NCC) with up to six other sector regulators to create a new institution: the National Commission on Markets and Competition (NCMC).

More than a year after the announcement, and following a controversial legislative procedure, Act 3/2013 on the Creation of the NCMC was finally approved by Congress on June 5 2013. This is the first step on what is likely to be a difficult path towards implementation.

Although the government eventually accepted the inclusion of some improvements in the final draft of the act, there are still doubts as to whether this new super-regulator structure is the best way to implement the legislation regarding competition and sectorial regulation. In order to weigh up the pros and cons of the NCMC, this update first provides an insight into the act, including a brief explanation of the new organisational structure, the activities that the new institution will perform and the allocation of tasks between the NCMC and the Central Administration, and then gives some conclusions on this novel institutional framework.

New institutional structure

The most revolutionary change brought about by the NCMC is that it will merge into a single institution the NCC and the six regulators currently in charge of supervising some of the most strategic economic sectors.(1) To date, the ex ante supervision of compliance with the existing regulatory framework of these strategic sectors (traditionally monopolised by incumbent operators) had been carried out by independent regulators, in line with other EU member states.

The act merges ex ante sector regulation with antitrust supervision, ensuring the ex post application of fair competition principles in all economic sectors (not only the regulated ones).

The government justified the reform by the needs to:

  • strengthen the competitiveness of Spanish companies – the new regulatory model will bring flexibility to the economy;
  • reduce administrative burdens and costs; and
  • simplify the general sector regulation.

Moreover, the goals of greater austerity, efficiency and professionalism have also inspired the reform.

Although this far-reaching reform could be seen as a good opportunity to strengthen the supervisory aim of regulation, the novelty of the proposed institutional model (in the European Union, only the Netherlands has explored a partially comparable system), as well as the existence of numerous relevant issues still pending regarding the development of and difficulties posed by the implementation of such a complex organism, has cast some doubts as to the effective functioning of the new 'super-regulator' and the benefits to the performance of the economy in general.

Regarding the internal structure of the new NCMC, the act divides it into four investigatory directorates:

  • the Competition Investigatory Directorate (in charge of monitoring compliance with competition rules and initiating sanctioning proceedings); and
  • three other investigatory directorates with jurisdiction over specific regulated sectors (energy, telecommunications/audiovisual and transport/postal services).

The four investigatory directorates will be in charge of putting together administrative files, which will then be sent for resolution by the council, the NCMC's decision-making body.

The council will have 10 members, each appointed for a six-year term. Although initially selected and proposed by the government, the appointment of the council members must be expressly confirmed by Congress, which will have the power to veto specific candidates by an absolute majority.

The council will be divided into two chambers, each composed of five members. One chamber will deal with antitrust issues (the Competition Chamber), while the other will decide on the regulatory issues managed by the three remaining sector-focused investigatory directorates (the Regulation Chamber).

The council will be chaired by the president and the vice president (each of of whom will also preside over one of the two chambers), to be appointed internally by and among its members. A secretary will also be appointed and will participate in council meetings with a voice but without a vote, providing advice to the council when necessary.

New distribution of functions and competencies

The tasks and functions to be attributed to the new institution can be divided into five areas.

Supervision and control of the markets
The NCMC will inherit the supervisory and market control activities of the NCC and the merged regulators. From a competition law perspective, the new institution will assume – together with the investigatory powers described below – merger control jurisdiction, as well as providing general supervision of economic markets. It will also retain the capacity to propose measures to the government aimed at introducing or boosting competition in specific markets.

Resolution of conflicts
The NCMC will be entrusted with the task (currently fulfilled by the soon-to-be merged regulators) of resolving – when possible and appropriate – any conflict arising between operators in their respective industries, deriving from either the application of legislation or their respective commercial activities.

Investigation and resolution of sanctioning proceedings
The investigation and resolution of sanctioning proceedings, previously dealt with by the NCC, will be fully assumed by the NCMC. Similarly, the investigatory and penalising powers that regulators have enjoyed to date will also be absorbed by the new institution. The wide powers of investigation granted by the antitrust legislation to the NCC (including the possibility of launching site inspections, known as 'dawn raids') have been extended to all the NCMC's activity, and thus will also be applicable to the investigation of purely regulatory files.

Advisory activity
The NCMC will act as an advisory body to the government, and – when appropriate – Parliament, concerning issues affecting regulated industries subject to the NCMC's jurisdiction, as well as on competition law matters.

One of the tasks already attributed to the NCC (and now to the NCMC) is advising commercial courts on the quantification of damages compensation awarded in private actions derived from antitrust infringements. Although, to date, this has not been fully developed (notably due to the scarcity of such private actions in Spain), this task will no doubt develop in the near future as private enforcement is promoted.

Transparency and publicity activities
The NCMC will be responsible for the implementation of different measures aimed at introducing more transparency and publicity into its activities. In line with recent government initiatives to promote transparency in public institutions, the NCMC will have to publish an annual report and regular action plans, as well as the decisions reached as a result of sanctioning proceedings.

This increased transparency has led to some controversy, since the NCMC will have to disclose information about all the meetings held (for whatever reason) with market operators. Although increased transparency is always welcome, this particular measure will likely act as a strong deterrent for some companies when consulting with the NCMC, since the mere disclosure of contacts with the antitrust authority can be a sensitive issue, particularly for listed companies.

Task reallocation between NCMC and Central Administration

One of the most controversial aspects of the reform is the re-assumption by the Central Administration of a number of functions and activities which, to date, had been carried out by the merging independent regulators.

The initial draft of the act sought to relieve regulators from a significant proportion of their administrative activities, which were to be transferred to the corresponding ministries (eg, the Ministries of Industry, Public Works and Economy). In fact, that initial draft included an allocation-closing mechanism whereby any functions that were not directly and expressly attributed to the NCMC by the act (of which there were many) would automatically be re-assumed by the Central Administration.

The initial allocation of regulatory tasks was so unbalanced in favour of the administration that from a regulatory standpoint, the new NCMC was almost an empty shell. The withdrawal of functions in the initial plans was particularly intensive in the case of the former energy and telecommunications regulators.

The intense criticism surrounding these initial plans (due in part to the lack of prior consultation with the sector), which included direct warnings from the European Commission about the infringement of EU law that the re-assumption of functions implied, forced the government to change its plans, considerably reducing the reallocation of tasks and changing the sense of the allocation mechanism (the act now states that those functions not directly attributed to the Central Administration in the act will be automatically assigned to the NCMC).

When will NCMC be fully operational?

The next step in the implementing procedure will be the approval of the statute which will regulate the internal functioning of the NCMC. Once this is approved, the Ministry of Economy will select the members of the council and propose them to Congress, which will then have a one-month period to evaluate them and vote on their acceptance.

Once the new council members have been approved and officially appointed, the council will select and appoint the senior management of the four investigatory directorates. In parallel, the council will discuss and approve an internal regulation and coordinate the hiring of staff and the obtaining of the material resources needed to commence work.

The act provides for a maximum of four months for the government to implement the new structure of the NCMC. Therefore, the new NCMC should be operative before October 5 2013, although the consequences of failing to meet this deadline are unclear.

Comment

The government has introduced far-reaching, revolutionary changes to the institutional structure in charge of applying the antitrust and regulatory framework in Spain, which has been relatively effective and successful in recent years.

The new structure will no doubt bring some of the benefits expected by the government, since it will reduce operational costs (although not as much as initially predicted) and increase the level of coordination between the merged authorities. However, doubts remain as to whether these efficiencies could have been obtained without unifying functions such as ex ante regulation and ex post competition law, which are so different in nature (and hence difficult to coordinate) that they appear unlikely to be able to work efficiently under the same umbrella.

While the Spanish regulatory framework could have opted for a system such as that established in the United Kingdom (with sector regulators entrusted with ex ante and ex post powers), or a simple merger between sector regulators leaving the competition authority as a separate authority (as in Germany), the option chosen is significantly more aggressive and is yet to prove its benefits and efficient performance.

As regards the reallocation of tasks between the NCMC and the Central Administration, although the final wording of the act has introduced some rationale for the changes, the practical re-assumption of such functions by civil servants (instead of the external professionals that used to carry them out at the sector regulators) will represent a crucial test for the success of the reform. Equally, the transfer of staff may be controversial since although the act establishes that the staff must consist of civil servants, the staff of the merged sector regulators (who will be assigned to the new entity) do not currently enjoy such status.

The European Commission has also stated that regardless of the amendments included in the final draft of the act, it still disagrees with the significant assumption of activities by the Central Administration, some of which should be attributed to independent regulators. It is yet to be confirmed whether the European Commission is willing to take further action to preserve the independence of the regulators.

Regarding the organisational structure, it would have been beneficial to regulate in detail how the discrepancies between the decisions taken by the different investigatory directorates will be resolved in future. In this regard, since the jurisdiction of the different investigatory directorates of the NCMC overlaps intensively (eg, the Competition Investigatory Directorate will supervise the application of competition law in all sectors, including those subject to the other investigatory directorates), there is little doubt that jurisdictional conflicts will arise in future, and their resolution has not been clearly determined in the act.

For further information on this topic please contact Casto Gonzalez-Paramo or Sara Salvador at Hogan Lovells by telephone (+34 91 349 82 00), fax (+34 91 349 82 01) or email (casto.g-paramo@hoganlovells.com or sara.salvador@hoganlovells.com).

Endnotes

(1) The merged entities are the regulators of the energy sector (Comisión Nacional de Energía), telecommunications (Comisión Nacional del Mercado de las Telecomunicaciones), postal services (Comisión Nacional del Sector Postal), airports (Comisión de Regulación Económica Aeroportuaria), the audiovisual sector (Consejo Estatal de Medios Audiovisuales) and the rail sector (Comité de Regulación Ferroviaria).

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