Reform of the UK Competition Regime – The Competition Provisions of the Enterprise and Regulatory Reform Act (1)
Following detailed consultation exercise carried out by the Department for Business, Innovation and Skills (BIS) and a legislative process, we now have the Enterprise and Regulatory Reform Act. The Enterprise and Regulatory Reform Act 2013 (the "Act") provides for changes in respect of all key areas of UK competition law. The changes are expected to come fully into force by April 2014.
1. The establishment of the Competition and Markets Authority
The Act establishes the Competition and Markets Authority (CMA) by bringing together into one body the Competition Commission (CC) and the Office of Fair Trading (OFT). The CC and the OFT will be abolished. The OFT's responsibilities for consumer advice will be transferred to the Citizens' Advice service and the Trading Standards Institute will be responsible for most consumer education and enforcement activities.
The Government has stated that the this single merged authority are will give greater coherence in competition practice, faster and less burdensome processes for business and more flexibility in resource utilisation. A single authority is also expected to carry greater weight as a competition regulator at an international level.
The CMA is due to come into legal existence in October 2013 and will become fully operational, with the functions of the OFT and CC transferred to it, in April 2014. Lord Currie (a former Chairman of Ofcom) has been appointed Chairman of the new CMA and will take up his four year appointment during the summer of 2013. Alex Chisholm, previously a Commissioner at the Commission for Communications Regulation (ComReg) Ireland, was appointed as Chief Executive designate and took up his role on 25 March 2013.
The main duty of the CMA is to "promote competition, both within and outside the United Kingdom, for the benefit of consumers". The explanatory notes to the Bill state that this general duty reflects the CMA's position as the UK's principal competition authority and its leadership role in tackling anti-competitive behaviour as part of ensuring markets work well for consumers, and its domestic and international advocacy role. The general duty does not constrain the proper exercise of its function such as determining (energy) licence modification references and appeals, Energy Code modification appeals and the CMA’s consumer functions.
The CMA will be a non-ministerial department in order to ensure it is free from influence of Ministers. The Act provides the details of the governance and decision making structures of the CMA. The membership of the CMA will consist of one chair, Board members and panel members appointed by the Secretary of State (SoS). The Board will be responsible for the strategy and performance of the CMA, oversight of CMA staff, rules and procedures, and some decisions (for example, Phase 1 merger, Phase 1 market references, and competition law cases). The Board must have at least five members with terms of no more than five years. No more than half of the members may be members of the staff of the CMA and at least one member must also sit on the CMA panel. The CMA panel is a panel of independent experts (equivalent to the current CC members). The CMA panel will be established to conduct in-depth merger and market investigation (for example, Phase 2 merger) and regulatory appeals. There must be at least one newspaper panel member, at least three specialist communications panel members, at least six specialist utility panel members and at least one reporting panel member.
The Act transfers to the CMA all of the CC's current regulatory appeals and reference functions under sector specific legislation (gas, electricity, water, post, communications, aviation, rail and health (when the Health and Social Care Act 2012 comes into force)). It also provides for the transfer of the OFT's and Competition Commission's current ancillary competition functions under other legislation (relating to legal services and transport) to the CMA.
2. Cartel offence
Ambit of a cartel offence – The definition cartel offence in section 188(1) of the Enterprise Act is amended by removing the requirement that an individual must be acting "dishonestly". Without dishonesty, the criminal cartel offence will still require proof of the mental elements of intention to enter into an agreement and intention as to the operation of the arrangement in question. The Government has stated that this approach is consistent with the definition of other economic crimes, such as bribery or insider dealing, which require proof that the defendant knew he had inside information, but not require proof of dishonesty. The aim is to make it easier to prosecute individuals under the cartel offence.
A new section 188A sets out circumstances in which the cartel offence is not committed. These are:
- customers were given relevant information about the arrangements before they enter into agreements for the supply to them of the product or service;
- in the case of bid-rigging arrangements, the person requesting bids would be given relevant information about them at or before the time when a bid is made; or
- in any case, relevant information  about the arrangements would be published, before the arrangements are implemented, in the manner specified at the time of the making of the agreement in an order made by the SoS.
The stated aim is to create a straightforward way of bringing arrangements outside the offence, but the revised definition of the offence has come under criticism for being too formalistic and potentially criminalising conduct that would not normally qualify as a civil competition law infringement.
In addition, an individual does not commit an offence under section 188(1) if the agreement is made in order to comply with a legal requirement (as defined in paragraph 5 of Schedule 3 to the Competition Act 1998).
A new section 188B provides defences to the commission of the cartel offence. This provision was added during consideration of the Bill in the House of Commons and introduces the following three defences:
- that at the time of making the arrangement, they did not intend to conceal the nature of cartel arrangements from customers;
- that at the time of making the arrangement, they did not intend to conceal the nature of the cartel arrangement from the CMA;
- that before making the agreement, they took reasonable steps to ensure that the nature of the arrangements would be disclosed to professional legal advisers for the purposes of obtaining advice.
The wording of these additional defences has been criticised as being unclear and even unworkable. It has been argued that the mens rea element of the offence has now been included in the defences rather than in the definition of the offence itself, which reverses the burden of proof from the prosecutor to the defendant. It is not clear to what extent the concept of "intention not to conceal" refers to a positive intention not to conceal the arrangement or whether it will be sufficient for the defendant to show that there was an absence of an intention to conceal the arrangements. The legal advice defence could appear to apply even if no advice was actually obtained, or if legal advice was taken but subsequently ignored.
The above will only apply to agreements or arrangements that are made after the commencement of this section. Agreements or arrangements made before the commencement of this section will continue to be subject to the current legislation which requires the mens rea element of dishonesty for the conduct to qualify under the cartel offence.
CAT's power to issue warrants – The Competition Act is amended to give the Competition Appeal Tribunal (CAT) the power to issue warrants to enter premises for cartel investigations.
3. Competition Act 1998 amendments
The Government's main concern was that Competition Act cases take too long and that, in comparison with other EU Member States, far fewer Competition Act decisions are adopted in the UK. The Act contains a number of measures aimed at improving the efficiency of investigations and the quality of decision-making in the enforcement of competition law in the current regime.
Power to ask questions – A new power is introduced to enable the CMA to require individuals to answer questions as part of an investigation under the Competition Act. The new power is similar to the power currently in section 193(1) of the Enterprise Act in relation to the criminal cartel offence. This power can be used where the individual is connected to the undertaking involved in the investigation (where the individual is or has been concerned in the undertaking's management or control or is or has been employed by it). The statement may be used when prosecuting for a criminal offence under section 44.
Civil enforcement of investigation powers – Section 40 substitutes civil sanctions for the current criminal sanctions for failure to comply with investigations. Sanction for failure to comply will be similar to the merger investigations - maximum amount of a penalty will be set by order by the SoS, but as for mergers, cannot exceed £30,000 (for a fixed penalty) or £15,000 per day (for a daily penalty).
CAT's power to issue warrants – The Competition Act is amended to give the CAT the power to issue warrants to enter premises for abuse of dominance cases.
Change of the interim measure threshold – The Competition Act is amended to change the interim measure threshold from "significant damage" for "serious, irreparable damage". This is intended to make it easier for the CMA to order interim measures.
Guidance on penalties – The current appeal process (providing for a full merits appeal to the CAT) will remain unchanged. The Competition Act is amended by requiring that, in fixing a penalty, the CMA must have regard to the seriousness of the infringement concerned and the desirability of deterring both the undertaking on whom the penalty is imposed and others from entering into agreements which infringe the Chapter I / Chapter II prohibitions and/or Article 101/102 of the TFEU. The Act also amends section 38 of the Competition Act to require the CAT to have regard to the guidance published by the CMA as to the appropriate amount of any penalty imposed.
SoS power to impose time-limits – The Competition Act is amended to give the SoS powers to impose time limits in relation to the conduct by the CMA of section 26 investigations.
Review of the Competition Act – The SoS is required to lay before Parliament a report on the outcome of the review of the Competition Act within 5 years.
4. Reform of mergers
The merger control regime remains voluntary and the jurisdictional thresholds are not being changed, but a number of changes aimed at strengthening the voluntary regime and speeding up the decision making process have been made to the current regime. The amendments include:
- greater powers in relation to interim measures;
- statutory time limits have been introduced;
- greater transparency for Phase 2 investigation process; and
- cooling off period for Phase 2 investigation.
Although the CMA will be in charge of the whole merger control process, the current system of Phase 1 and Phase 2 investigations will be preserved. The CMA Board will be in charge of Phase 1 decisions (with power to delegate these decisions to executives and senior staff) and Phase 2 decisions will be adopted by a panel of independent experts, who must act independently of the CMA Board, in order to preserve the 'fresh pair of eyes' approach of the current system.
Investigation powers – The powers to investigate by the CMA is extended to require a person to give evidence, provide specified documents and information for the purposes of merger investigations. The CMA will have a single set of powers that can be used consistently across the whole of the merger investigation process. Section 109 of the Enterprise Act  is amended so that section 109 power can be used to assist the CMA in carrying out its functions:
- including enforcement functions in relation to a reference or a possible reference (during both Phase 1 and Phase 2 investigations); and
- in relation to assistance provided to the SoS in relation to an actual or possible public interest references.
Amendments to section 109 will enable the CMA to use the section 109 investigation powers during any period of monitoring and enforcement relating to any remedies implemented following an investigation, including undertakings in lieu. The power will also enable the CMA to exercise its investigation powers for the purposes of preventing pre-emptive action.
Interim measures: pre-emptive action – The CMA will have greater powers to prevent pre-emptive action by parties in anticipated as well as completed mergers. The powers currently are limited to completed mergers.
The CMA will now be able to issue an initial enforcement order where it suspects that a merger has taken place or is in the process of taking place (i.e. the threshold for "belief" has been lowered to "suspicion" and there is no need for the CMA to suspect that the merger might be a "relevant" merger situation). Where the CMA has reasonable grounds for suspecting that pre-emption action has or may have been taken, the CMA will have the new power to make an order to take action to restore the position to what it would have been had the pre-emptive action not been taken or otherwise for the purposes of mitigating its effects (to reverse steps that have already been taken (or to reverse the effects of such steps)). The CMA will no longer be able to accept undertakings from the parties to deal with pre-emptive action. The CMA will be able to consent to derogations from the interim measures orders it has issued.
The CMA can impose financial penalties for failure to comply with an interim measure. The penalty is capped to 5% of the total value of the turnover (both in and outside the United Kingdom) of the enterprises owned or controlled by the person on whom it is imposed. The SoS may determine whether the enterprise is to be treated as controlled by a person and the turnover of an enterprise for these purposes. In addition, the SoS may, by order, reduce the penalty to a level below 5%.
The new powers are intended to make it easier for the CMA to stop integration of enterprises subject to a merger investigation, particularly at Phase 1. The changes are intended to deal with the current difficulties that the OFT and the CC face in reviewing and remedying completed mergers.
Time limits – There is a new statutory time limits for mergers. There is a new 40 working day statutory time limit for Phase 1.  The statutory time limit for Phase 2 remains unchanged, at 24 weeks, extendable by 8 weeks in special circumstances.
A new section 41A of the Enterprise Act is introduced to require the CMA to take a decision on remedies within 12 weeks following a Phase 2 decision. The CMA may extend this period, by no more than 6 weeks, if it considers that there are special reasons for doing so. The period may also be extended for so long as a person fails to comply with a request under section 109.
Undertaking in lieu of reference – The process for considering undertakings in lieu of a reference to Phase 2 (UILs) has been amended to increase transparency. A new statutory time period has been introduced after the Phase 1 decision in which the parties can offer UILs.
Under the current regime the parties are required to offer UILs based on the issues letter and before having seen the OFT's decision. Under the new regime the timetable for UILs will run as follows:
- the parties will have 5 working days from announcement of the Phase 1 decision to offer UILs;
- the CMA will then have 10 working days decide whether there are reasonable grounds for believing that the undertaking or a modified version of it might be accepted by the CMA; and
- if the CMA issues a notice suspending its duty to refer, the CMA then has a further period of 50 working days (extendable by up to 40 working days if there are special reasons for doing so) to decide whether to accept the undertaking.
The CMA is required to publish guidance on the circumstances in which it may extend the deadline. Section 96 of the Enterprise Act (statutory merger notices) is amended to reflect the new statutory time periods for Phase 1 investigations.
Cooling off period - The CMA can suspend the commencement of a Phase 2 investigation for a period of up to 3 weeks at the request of the parties and if the CMA considers that there is a possibility that the merger will be abandoned.
5. Market investigation
The Act contains a number of provisions aimed at streamlining processes in market investigations and making the regime more efficient.
Power of CMA and ministers to make cross-market references – The CMA is been given powers to make a market investigation reference in relation to more than one market in the UK for goods or services where the market features concerned relate to any conduct of the suppliers or customers of the goods or services concerned (a cross-market reference). Ministers may also make a cross-market investigation reference.
Public interest interventions in markets investigations – In order to bring the public interest markets regime in line with the public interest mergers regime, the SoS has been given the power to request the CMA to investigate public interest issues (currently this power is limited to national security) alongside competition issues during a Phase 2 market investigation, and to propose remedies which address any adverse effect on competition and any adverse public interest issue.
Where a full public interest reference is made, the SoS will have a power to appoint independent public interest experts to advise the CMA on the public interest issues. There have been no public interest interventions in market investigations to date and it remains to be seen to what extent these new measures will have an impact on the regime.
Investigation powers – The CC's existing investigation powers are extended to the conduct of market studies by the CMA and the CMA may exercise any of its enforcement functions (similar to the new power for mergers above).
The CMA will not be able to use these investigation powers before publishing a market study notice. Failure to comply with the notice will no longer be a criminal offence. Instead financial penalties can be imposed – the penalties will be set by order, but must not exceed a fixed penalty of £30,000, a daily penalty of £15,000. The current criminal penalties for intentionally altering, suppressing or destroying any document which is required to be produced as a result of information gathering powers for mergers and Phase 2 investigations will remain.
Market studies and market investigations: consultation and time-limits – A new statutory time limit for market investigation is set out in Schedule 12 of the Act
Interim measures - The CMA's powers to impose interim measures now include the power to require parties to take steps to reverse pre-emptive action taken, or to reverse the effects of such action, once a market investigation reference has been made.
6. Concurrent application in regulated sectors
Primacy of general competition law - An explicit duty is imposed on each sector regulator (e.g. Ofcom, Ofgem, Ofwat, ORR, CAA, Monitor) to consider whether a more appropriate way of proceeding would be under the Competition Act before using its sector-specific powers.
Powers to remove competition functions from concurrent sector specific regulators – The SoS may now make an order to remove the competition functions from the sector regulator if the SoS considers that it is appropriate to do so for the purpose of promoting competition, within any market or markets in the UK, for the benefit of consumers. This clause applies to all sectoral regulators with concurrent competition powers except Monitor.
Concurrency - The CMA and the sector regulators are required to work more closely together and there will be greater sharing of information between them in respect of competition cases. The CMA has the power to take competition cases from the sector regulators where it is better placed to proceed with the case. Before doing so it will have to consult the sector regulator concerned and there will have to be a formal agreement with each regulator on how this will work in practice.
Offence of disclosing information – The Enterprise Act is amended to provide expressly that a person to whom information is disclosed, cannot unless the information has been made available to the public, use that information for any purpose other than those stated in the Enterprise Act. The Enterprise Act enables a public authority to disclose information in order to facilitate the exercise of the disclosing authority’s statutory functions.
Third party expert to monitor compliance – The Act enables the CMA to appoint a third party expert to monitor the implementation of remedies, including compliance with orders and to determine disputes.
Publication of non-pricing information – The powers in the Enterprise Act is extended to give the CMA or the SoS the power to require the publication of information in relation to prices of the goods or services supplied or any such other information in relation to the goods or services supplied as the relevant authority considers appropriate.
8. Next steps
The Department for Business, Innovation and Skills (BIS) will be publishing a detailed implementation timetable shortly and is expected to consult on the various Statutory Instruments and guidance for the new Competition and Markets Authority over the coming months.
 Relevant information' is defined in section 188A (2) as: the names of the undertakings to which the arrangements relate, a description of the nature of the arrangements and the products or services to which they relate, and such other information as may be specified by the SoS.
 Currently, the CC’s information-gathering powers under section 109 of the Act include the power to require persons to attend and give evidence to the CC, to produce specified or described documents that are within that person’s custody or under their control and, in the case of a person carrying on a business, to supply estimates, forecasts, returns or other information as may be specified.
 The CMA may extend the 40 working day initial period if it considers that a relevant person has failed (with or without a reasonable excuse) to comply with any requirement of a notice under s 109 of the Enterprise Act. The CMA may extend the initial period by no more than 20 working days where an intervention notice is in force.