In the first of a series of updates setting out the key aspects of the reforms to the UK competition law regime which go live on 1 April 2014, we discuss below the formation of the new Competition and Markets Authority (CMA) and consider what the new CMA means for businesses in the UK.

The formation of the CMA, replacing the Office of Fair Trading (OFT) and the Competition Commission (CC), is one of the main features of the UK competition reforms.  The new regime will also implement certain key changes to the application of the substantive rules with a number of amendments to procedure which will affect all areas of UK competition law practice. These other changes, in particular the changes to the cartel offence, merger control, investigations and the CMA’s relationship with concurrent regulators, will be covered in further Law-Now updates over the course of the next month.

The Enterprise and Regulatory Reform Act 2013

The Enterprise and Regulatory Reform Act 2013 (ERRA) received Royal Assent on 25 April 2013.  The changes to the UK competition regime set out within ERRA reflect the government’s view that there was scope for better performance from the competition and consumer authorities.  The government conducted a two-year consultation with the aim of improving the robustness of decision making and the regime generally, to ensure that cases are dealt with efficiently and to reduce the complexity brought about by having two competition authorities.

A new single competition authority

The central feature of the reforms is the creation of the CMA bringing together the OFT’s consumer and competition work with that of the CC under one single authority.  The CMA acquires its full powers on 1 April 2014.

The CMA will be responsible for the investigation of alleged infringements of the Competition Act 1998 and for bringing criminal proceedings against individuals in respect of the cartel offence, both stages of merger control reviews and all market studies and market investigations.   The CMA also takes on part of the OFT’s consumer activities with responsibility for enforcing consumer protection legislation under the Consumer Protection from Unfair Trading Regulations 2008 although responsibility for enforcement of consumer law at national level has largely been transferred to Trading Standards Services.

The CMA is comprised of a Board of Directors which will be chaired by David Currie, a former chairman of Ofcom, with board members including a number of former heads of other competition authorities, notably Bill Kovacic, previously Chairman of the US Federal Trade Commission, and Philip Lowe, who ran the European Commission’s competition directorate. Alex Chisholm who previously headed up the Irish competition regulator has been appointed as Chief Executive.  The CMA will comprise three directorates for enforcement, markets and mergers, and corporate services.  These will be staffed principally by staff moving from the OFT and CC.

The government believes that creating a single authority will bring a number of benefits to the UK competition regime, in particular that it will promote efficiency and remove duplication in the two-stage merger and market investigation procedures; it will allow it to manage its resources more effectively by enabling it to plan and prioritise work in a coherent way, and lastly that the CMA can be a more powerful advocate for competition and consumer protection in the UK and abroad.

To achieve these benefits, the CMA has set itself five strategic goals which are to deliver effective enforcement, extend competition frontiers, refocus consumer protection, develop integrated performance and achieve professional excellence. The government has further extended these in a Ministerial Statement in which it sets out a number of strategic priorities to which the CMA must have regard.  These are to:

  • identify markets where competition is not working well and tackle constraints on competition using the CMA’s competition and consumer enforcement tools;
  • enforce antitrust rules robustly and fairly where they are breached;
  • play a key role in challenging government where government is creating barriers to competition; and
  • provide leadership and work with partner agencies to deliver positive competition outcomes.

Will a change in regulator bring about a change in the enforcement of competition law in the UK?

The number of investigations and decisions of the OFT in recent years has lagged behind other European national competition authorities, and the OFT has been criticised for long-running investigations, which have either been abandoned or have resulted in decisions later overturned by the CAT.  The reforms have been introduced to address these concerns and the government’s strategic priorities emphasise the need to tackle markets and engage in robust enforcement. The CMA has responded by stating that it intends to achieve its aims through a “combination of vigorous enforcement of competition law, active cooperation with other regulators and consumer bodies and strong advocacy of the benefits of competition to consumers, businesses, government and internationally”.

It is unlikely that there will be any immediate changes. The CMA has stated that in the first year, its work will substantially involve progressing and completing work currently being undertaken in the OFT and CC.  And it is important to remember that whilst there are a number of important reforms to the competition regime (such as changes to the cartel offence) the basic prohibitions against anti-competitive agreements and the abuse of a dominant position remain unchanged.

One of the objectives set out in the Ministerial Statement on the CMA encourages the CMA to tackle markets which are not working well.  We therefore expect that the CMA will actively continue the OFT’s market work, in particular the use of calls for information and market studies, to form the basis of future enforcement work.  The CMA has stated that it intends to commence at least four studies or similar in its first year.

We also anticipate that the CMA may have a broader focus than the OFT in its enforcement approach. The OFT’s stated mission was to make markets work well for consumers and this focus is enshrined as the CMA’s primary duty within ERRA.  However, the CMA has stated that its remit is wider and its role is also to make markets work well in the interests of businesses and the economy. It believes that open, well-functioning markets are in the interests of efficient, innovative and fair dealing businesses as well as consumers, which benefits the overall economy.  Will this mean a change of approach?  Certainly in recent years there has been a greater focus on the part of the OFT on consumer-facing markets in its enforcement activity and thus this wider remit may mean that the CMA will look more broadly when deciding which markets to tackle.

Will the loss of two separate competition bodies result in a loss of objectivity in second stage procedures?

This has been a concern in the consultation process. At present, responsibility for mergers and market investigations is shared between the OFT and CC, with the OFT conducting the first phase of a merger review or market investigation, and the CC undertaking the longer and more detailed second stage.  This led to concerns that these processes could be inefficient and lead to duplication. Under the reforms, the two-stage process will be retained, but will be conducted within the CMA.  Thus, in order to preserve the benefit of the objectivity currently provided by a different authority conducting the second-stage process, the CMA will put into place a number of safeguards to avoid bias.

Conclusions

The launch of the CMA is a significant change for the UK competition landscape.  It represents more than just a simple merger of two authorities, and instead potentially represents a shift towards more targeted and robust enforcement.  To that end, all businesses should ensure that they are competition law compliant and have effective risk management policies in place.