By Paul Stone, Head of Competition and Regulation at Charles Russell LLP
The UK government decided to review the UK competition regime in 2011. It was concerned that there was unnecessary duplication between the existing competition regulators (the Office of Fair Trading (OFT) and the Competition Commission) and that competition cases were taking too long to be completed.
This article discusses the changes to the UK competition regime that have resulted from the government’s review, including the establishment of the new UK competition regulator, the Competition and Markets Authority (CMA). The changes came into effect on 1 April 2014.
Overview of the CMA
The centrepiece of the reforms is the abolition of the OFT and the Competition Commission and the transfer of their functions to a new regulator, the CMA.
One of the government’s concerns about the old regime was that the skills and expertise of the two competition regulators were not always being fully utilised. The government hopes, therefore, that the CMA will have more resources to pursue a larger number of cases and conclude them more quickly.
For mergers and market investigations, the CMA retains the two phase approach from the previous regime, with Phase I decisions the responsibility of the CMA Board and Phase II decisions taken by independent panels of experts (equivalent to former Competition Commission members).
Although the CMA has a new senior leadership team, the vast majority of its staff have transferred from the OFT and the Competition Commission. It will be interesting to see the extent to which the CMA is able to establish itself as a new regulator in its own right, rather than simply an amalgamation of its predecessors.
Competition Act enforcement – how will this work in practice?
The CMA has taken over the OFT’s function of enforcing the prohibitions on anti-competitive agreements and abuse of a dominant position set out in the Competition Act 1998.
The government considered making changes to the model for enforcing these prohibitions. In the end it adopted the model used by the OFT, although incorporating a number of recent improvements put in place by the OFT, such as having separate decision makers at the provisional decision (statement of objections) and final decision stages.
One significant new power for the CMA is that it can require individuals to answer questions. It is expected that compulsory interviews will therefore become a common feature of the CMA’s Competition Act investigations.
One of the government’s key concerns was that the sectoral regulators (ie those responsible for regulated sectors such as Ofgem and Ofwat) were not making use of their concurrent powers to apply the Competition Act.
Sectoral regulators are therefore now required to consider using their Competition Act powers before using sector-specific powers. There is also a duty on the CMA and sectoral regulators to cooperate and they have formed a new UK Competition Network as a forum to facilitate this.
As a result of these changes, we can expect more competition cases in the regulated sectors.
One of the most significant changes is the removal of the dishonesty element from the criminal cartel offence. The need to show that individuals had acted dishonestly was regarded by the government as a major impediment to the successful prosecution of the cartel offence.
A number of concerns were expressed about this change, and so the government has introduced a number of new exclusions and exceptions to the offence, including where details of the arrangement are notified to customers or published before implementation.
It seems inevitable that this change will result in more prosecutions under the cartel offence.
The CMA has a new power to investigate practices across markets and the Secretary of State has broader powers to intervene in cases on public interest grounds. There are also new statutory deadlines for market investigations.
There are new statutory time limits for merger reviews: these include a 40 working day time limit for Phase I decisions and a time limited process for parties to offer undertakings post the Phase I decision.
The CMA also has strengthened powers to adopt interim measures during the course of its investigations, which can prevent further integration and unwind integration that has already occurred.
How can companies ensure they are prepared?
The expectations of the CMA are clear – more enforcement and quicker throughput of cases. That means companies should ensure they are ready – and take the opportunity to review the effectiveness of their competition law compliance programmes.