On 25 April 2013, the Enterprise and Regulatory Reform Act 2013 (ERRA), which introduces a number of changes to the UK competition law regime, received royal assent. One key change is that the Competition and Markets Authority (CMA) will replace the Office of Fair Trading (OFT) and the Competition Commission (CC). The CMA will be established on 1 October 2013 and will assume its powers on 1 April 2014 (when the other changes to the UK competition regime will also come into effect).
On 15 July 2013, the Department for Business, Innovation and Skills (BIS) launched the first of two tranches of consultations on the role of the CMA by publishing the following documents:
- "Towards the CMA", which sets out the background of the CMA and the context for the draft guidance
- CMA guidance on mergers (on jurisdiction and procedure)
- CMA supplemental guidance on market studies and investigations
- CMA Guidance on administrative penalties
- CMA Guidance on cost recovery in telecoms price control references
- CMA Guidance on transparency and disclosure, and
- the government's strategic priorities for the CMA (the CMA's "Steer") together with draft secondary legislation on penalties and merger control procedure.
Responses are due on 6 September 2013. The next tranche of consultations will be published on 17 September 2013, with responses due on 11 November 2013.
The key issues arising from the first tranche of consultations are summarised below.
The draft guidance covers jurisdiction and procedure, and is a development of existing OFT and CC guidance to reflect the changes introduced by the ERRA.
Parties wishing to notify a merger should do so in accordance with a "merger notice" and the CMA will be subject to a statutory timetable of 40 working days. Although the voluntary notification regime has been retained, the draft guidance contains a draft template "merger notice" to be used when making a notification. The existing informal notification process will cease to exist and the CMA will have 40 working days in which to reach a Phase I decision. The draft guidance encourages parties to engage in informal pre-notification discussions with the CMA in order for the CMA to examine the merger in a targeted fashion.
The CMA will conduct Phase I and Phase II investigations. At present, the OFT handles Phase I investigations, while the CC handles Phase II investigations for mergers that are more problematic. The CMA will conduct both Phase I and Phase II investigations. However, the draft guidance indicates that evidence from Phase I will be more readily used in Phase II investigations, which could save time and costs.
The draft guidance details how the CMA will use its strengthened powers under the ERRA. In particular, the CMA will have strengthened powers to take interim measures (that is, to prevent and unwind actions taken by parties during an investigation) and a template interim enforcement order is included with the draft guidance. Other new powers include the power to suspend merger investigations when a merger is likely to be abandoned and stronger investigatory powers.
The draft guidance details a new procedure for offering undertakings in lieu of a decision to refer a transaction for a Phase II investigation. Parties will now have five working days after the CMA’s decision to refer a merger for a Phase II investigation in which to offer the undertakings in lieu of a reference. The CMA will then have five working days to decide whether the undertakings are acceptable in principle. If they are, the CMA will have 50 working days from its decision to refer to consult on and formally accept the undertakings.
Market studies and investigations
The draft supplemental guidance on market studies and investigations explains each of the relevant changes made by the ERRA and supplements existing guidance on market studies (currently conducted by the OFT) and market investigations (more detailed investigations currently conducted by the CC).
The draft supplemental guidance explains the CMA's new powers under the ERRA. The CMA will have the power to make cross-market references (that is, to refer conduct that exists in multiple markets without referring each entire market). Other strengthened powers include the CMA's investigatory powers and its powers to impose remedies by order.
The draft supplemental guidance sets out new procedures and timetables. The role of market studies will become formalised: the CMA must use a "market study notice" to launch a market study and it must publish its report within 12 months of such a notice. If, following a market study, the CMA intends to make a market investigation reference, it must, within six months of the market study notice, publish and consult on its proposed decision. The CMA then has 18 months following a market investigation reference to publish a final report. Final undertakings/orders must be published within six months of that report.
BIS is consulting on how the CMA should use its new powers to impose administrative penalties. The CMA’s powers to impose such penalties have been extended by the ERRA. For example, the CMA will be able to use these powers to enforce interim measures in merger cases and information requests in merger, market and Competition Act 1998 investigations. It is currently suggested that:
- failure to comply with information requests could result in a fixed penalty of up to £30,000 and/or a daily penalty of £15,000 (the maximum specified in the ERRA)
- a failure to comply with interim measures imposed in the context of merger investigations could lead to a fine of up to 5% of the turnover of the owners of the party in question.
The draft guidance lists factors which are relevant to the decision on whether to impose a penalty and the appropriate type and level of penalty. It also sets out the procedures that the CMA will follow before imposing administrative penalties.
Transparency and disclosure
The draft guidance includes a statement on the CMA's policy on transparency and disclosure. It states that the CMA will endeavour to be open and transparent, engage with parties and interested persons as early as possible, and keep parties informed. The CMA has also committed to providing parties with an indicative timetable when a case is opened.
The draft guidance also sets out the CMA's aims of preparing clear and focused information requests and of allowing reasonable time for responses. The draft guidance also sets out the procedures that the CMA will generally follow when dealing with market-sensitive and confidential information.
Strategic priorities for the CMA
BIS has produced a draft of the Government's strategic priorities for the CMA for 2014-2017. This will be revised every three years.
The strategic priorities for the CMA include enforcing antitrust rules robustly and undertaking a mix of small and complex cases to create a deterrent effect. The CMA is also tasked with identifying markets in which competition is not working well, tackling problems early and increasing the number of cases handled. Businesses can therefore expect increased scrutiny going forward, including in smaller markets where intervention has typically been less common.
The CMA will have new, stronger powers and a new set of priorities which are likely to result in increased scrutiny and enforcement. The CMA has also been given additional funds to perform its role: in the 2013 Spending Review, the CMA's budget was increased by £16 million. The consultation documents make clear that we should expect to see a stronger and more active competition authority going forward.
A further and final tranche of consultations will be published on 17 September 2013. That tranche of consultations will cover Competition Act 1998 investigations, the criminal cartel offence, concurrent sectoral regulation and remedies.