The UK Office of Fair Trading (OFT) has today adopted new procedures for investigating suspected breaches of UK and EU competition laws.  The new procedures follow a public consultation earlier this year and are part of the government’s on-going reforms to the UK competition regime.  They follow closely behind the OFT’s new policy on setting financial penalties, which were adopted last month.  

New policies in context

The UK regime for investigating and fining companies for anti-competitive agreements and/or abuses of a dominant position has been subject to some criticism over the comparatively low number of cases taken, the time taken to reach decisions and the overall effectiveness and robustness of the system.  In March 2012, the government decided against a major overhaul of the regime in favour of pushing through improvements to the current administrative system.  Once the Enterprise and Regulatory Reform Bill (ERRB) comes into force, these internal reforms will be backed-up by new statutory powers of investigation and measures that enable the Secretary of State to intervene if the reforms are not seen to deliver real improvements in enforcement.

Key changes announced today

The government wants to see improvements to the speed of the process and the robustness of decision-making, together with measures to address perceptions of confirmation bias within a combined investigatory and decision-making structure.  The new procedures adopted by the OFT are a significant step towards addressing these objectives before the statutory measures in the ERRB are enacted and the new Competition and Markets Authority (CMA) takes office.

The key changes adopted by the OFT are:

  • More publicity early on: the OFT is now publishing Case Opening Notices on its website setting out basic details of on-going cases. The first of these appeared today. The notices are published early-on in an investigation, once the OFT has reached the relatively low threshold of ‘reasonable grounds for suspecting’ that the law has been infringed and has decided that the case should be taken. The OFT has responded to concerns about the damage this publicity can cause for companies involved by confirming that parties’ names will not be included, save in exceptional circumstances.  Names are, however, likely to be added later on in the investigation if the OFT decides to issue a Statement of Objections (provisional infringement finding) against the parties.
  • Case timetables: the OFT will also publish case-specific timetables at the outset of investigations in order to increase public accountability to deliver case timelines. These will be updated on an on-going basis, together with any reasons for changes. If the OFT considers the parties have been responsible for delaying the investigation, this new procedure will allow the OFT to publicise that.
  • New decision-making model: to address concerns about separation of investigators from decision-makers, the new procedures require a three-person Case Decision Group (CDG) to be appointed in each case when a Statement of Objections is issued. This CDG consists of senior staff who have not been involved in the investigation so far. They are responsible for deciding whether the evidential burden for an infringement decision has been met, and for taking any final decisions on liability and penalty. Helpfully, the OFT has responded to concerns about potential prejudice resulting from the CDG being involved too early in cases by deciding that the CDG will not be responsible for settlements, commitments and interim measures decisions. These decisions remain with the Senior Responsible Officer who leads the investigation team, with approval from the Policy Committee (a separate body comprising OFT senior staff) as appropriate.
  • Strengthened procedural rights during an investigation: to meet the overarching objective of improving the robustness of decisions, the OFT has adopted a number of changes which allow greater access to decision-makers and swifter resolution of procedural disputes during the investigation. These include:
    • An extension of the ‘Procedural Adjudicator’ to resolve procedural disputes until the CMA takes office, together with a wider remit for this role.
    • Enhanced oral hearings which allow parties to make oral representations to the decision-makers followed by OFT questioning. The effectiveness of such hearings has been questioned in the past but the OFT is keen to encourage parties to make more use of them. Although the OFT has not gone so far as to allow full oral questioning by each side, the agenda for the hearing will be settled between the case team and the parties in advance and the OFT is keen to ensure the process leaves the CDG with a full understanding of the parties’ case.
    • More ‘state of play meetings’ between the OFT and the parties will be offered, including one after the parties have responded to the Statement of Objections. In a welcome move to allow more access to the decision-makers, the OFT has confirmed that at least one member of the CDG will attend this later meeting.
    • More checks and balances are being introduced throughout the process with enhanced roles for the General Counsel and Chief Economist.
  • Draft penalty calculations: following European Commission practice, the OFT will provide parties with the key elements of a draft penalty calculation to allow them the opportunity to make representations on the calculation before it is imposed. The OFT has decided to issue this draft at a later stage than the Statement of Objections to meet concerns about liability and penalty considerations being conflated. A separate Oral Hearing on penalty will also be offered. The draft penalty calculation will be confidential to the parties, but early notice of fines will inevitably raise concerns about disclosure obligations on listed companies.

Changes ahead

The new procedures adopted by the OFT today are backed-up by a number of statutory measures contained in the ERRB which are aimed at further strengthening the regime. These include:

  • New powers of investigation: the CMA will be able to compel a wide class of individuals connected with a party under investigation to answer questions and produce documents.  Significant fines may be imposed for failure to comply.
  • Interim measures: the threshold for the CMA to impose orders to stop conduct pending an investigation will be lowered. The current test of preventing ‘serious, irreparable damage’ is being replaced with preventing ‘significant damage’.
  • Statutory time-limits: the ERRB includes a power for the Secretary of State to impose time-limits on investigations, which the government may use as a backstop should the reductions in the time it takes the CMA to investigate cases not be forthcoming.
  • Parliamentary review: the ERRB also requires the Secretary of State to review the operation of the antitrust regime and to report to Parliament on how it is working, no later than five years from the ERRB coming into force.

The ERRB is currently completing its Report and Third Reading in the House of Commons before it moves to the House of Lords for further debate.  The government intends the new regime to be fully operational by April 2014.