Major changes to UK competition regime
The Government released yesterday its Response to the Consultation on the options for reforming the UK's competition regime. The Consultation was launched in March 2011 in response to concerns that the current regime is not functioning as effectively and efficiently as it should.
We set out below the key, proposed changes, the most far-reaching of which are the creation of the Competition and Markets Authority ("CMA") and the removal of the 'dishonesty' requirement in criminal cartel offences.
Competition and Markets Authority
A single authority, the CMA, will be created, drawing together the functions of the Competition Commission ("CC") and the Office of Fair Trading ("OFT") in an effort to improve the regime by simplifying and streamlining procedures, increasing the deterrent effect and decreasing the burden for business. The CMA should be fully operational by April 2014.
The primary duty of the CMA will be to promote competition in markets across the UK, for the benefit of consumers. With wide-ranging powers, it will be responsible for consumer enforcement, investigating practices across markets (leading to a more targeted approach to tackling recurring sources of complaint) and, when requested by the Secretary of State, investigating public interest issues alongside competition issues. A CMA Board will oversee overall performance, rules and guidance.
To alleviate concerns about 'confirmation bias' i.e. the danger that once opened, cases are decided on preconceptions rather than evidence, phase 1 and 2 decision-making in mergers and markets cases will be separated. The CMA Board will take phase 1 decisions and independent panellists will take phase 2 decisions.
Criminal Cartel Offence
Controversially, the Government's view is that the 'dishonesty' requirement in the cartel offence inhibits the prosecution of cases, so it has decided to remove it. Proof will still be required of the mental elements of intention, both to enter into an agreement and to operate the arrangement. The offence will exclude cartel arrangements that the parties have agreed to publish in a suitable form (e.g. the London Gazette) before they are implemented. The intention is to bring the test in line with other economic crimes (e.g. insider dealing and bribery) which do not rely on dishonesty, but do carry comparable penalties.
The Consultation expressed concern that some problematic deals escape review and are completed before the OFT and CC are able to investigate. The Response indicates that merger control will remain largely unchanged; the Government will not introduce a mandatory notification regime; and the current jurisdictional thresholds for turnover and share of supply will be retained.
There will be some changes:
- The CMA will have discretion to suspend all integration steps that constitute pre-emptive action and can impose financial penalties where integration measures are taken in breach of CMA orders (up to 5% of the aggregate group worldwide turnover of the companies concerned).
- A merger control exemption will apply for small businesses, where the target's UK turnover is less than £5 million and the acquirer's worldwide turnover is less than £10 million; and
- Merger fees will increase from October 2012. For target companies with a UK turnover exceeding £120 million, the fee will rise to £160,000.
The Consultation expressed concern that too few antitrust cases are brought in the UK and the small number that are brought take too long to prosecute. One proposal to tackle this was to shift from the current administrative system to a prosecutorial approach (similar to the U.S. require). This has been dropped. Instead, the Response commits to "embed an enhanced administrative approach to antitrust enforcement, involving improvements to the speed of the process and robustness of decision-making to address perceptions of confirmation bias". The OFT will shortly be consulting on this.
Concurrency and Sector Regulators
Sector regulators will retain their concurrent competition powers, but the CMA can take over cases where it is better placed to proceed. The primacy of the Competition Act 1998 will be strengthened, requiring sector regulators to consider it first when faced with a choice between enforcing under the Act or using sector powers. The CMA and sector regulators will also work more closely together and share more information but will be subject to government monitoring.
If you would like to discuss the potential impact of any of the reforms please contact us.