As of 1 April 2014, the Enterprise and Regulatory Reform Act 2013 (ERRA) brings about significant substantive and structural change to the United Kingdom’s competition regime. As part of a more general overhaul of this regime, the recently created Competition and Markets Authority (CMA) becomes fully operational, a revised criminal cartel offence enters into force, and the merger control regime becomes more robust. These changes bring in their wake a swathe of new investigatory and enforcement powers and penalties for failure to comply. Businesses are therefore urged to take note of these new changes and to be alert to compliance risk. This On the Subject summarises some of the key aspects of the reforms.
Core Components of the Reform
CMA Fully Operational
The CMA, bringing the Office of Fair Trading (OFT) and the Competition Commission (CC) under one umbrella, is fully operational from 1 April 2014. As the primary enforcer of UK competition law, the CMA will have jurisdiction to carry out UK merger control reviews and market investigations. It will also be the authority which decides whether to prosecute the criminal cartel offence. In seeking to fulfil this mandate, the CMA will have additional information gathering and enforcement powers.
The UK Government expects that the amalgamation of the OFT and the CC will streamline and expedite the investigation and decision-making process, leading to more efficient and timely competition law enforcement. It remains to be seen, however, whether this will be the case in practice. In particular, there is a danger that the reform could lead to a heavier regulatory burden on the parties in certain cases, neutralising the anticipated gains envisaged under the reform.
Antitrust – A Revised Criminal Cartel Offence
In an effort to make the cartel offence more robust, the new reforms remove the “dishonesty” requirement underpinning the criminal cartel offence, thus arguably lowering the evidentiary bar to bringing a successful action. Its removal stems from the perceived under-enforcement of hard-core conduct by the OFT over the past years. Indeed, since the cartel offence was first introduced in 2003, only three individuals involved in the Marine Hoses cartel have been successfully prosecuted, despite the launch of several high-profile investigations (subsequently dropped for want of evidence).
While the ERRA aims to render the cartel offence more robust, thus arguably signalling increased enforcement activity by the CMA in this sphere, alleged conspirators will not have committed the cartel offence where the following exclusions apply: (i) customers are given information about an arrangement prior to entering into an agreement to supply; (ii) information about the arrangement is published; or, (iii) as was the case prior to the reforms, in the case of bid-rigging arrangements, the person requesting bids is given information about them prior to or at the time of a bid being made.
New defences also now apply (i) where at the time of concluding the agreement it can be shown that there was no intention to conceal the nature of the arrangements from customers or from the CMA, or (ii) where it can be shown that, prior to the conclusion of an agreement, reasonable steps were taken to ensure that the nature of the arrangements were made available to legal advisers for the purposes of advice.
No change has been made to the leniency regime. Individuals will continue to receive immunity from prosecution if they come forward early with information about their involvement in hard-core cartel conduct.
It remains to be seen if the revised cartel offence will lead to an increase in criminal prosecutions. Arguably, successful prosecution will be facilitated by the removal of the dishonesty requirement. Furthermore, the new defences will likely only apply in a very limited number of situations and will be narrowly construed. The CMA has issued Cartel Offence Prosecution Guidance on the revised cartel offence, in particular the new defences. Its limited scope, however, means that the intricacies of the cartel office will have to be fleshed out in practice. Reassuringly, the Guidance does state that any evidence of attempts by an individual to bring relevant arrangements to the attention of the CMA will be considered. With that said, considerable uncertainty exists as to how cartel enforcement will take shape under the new regime.
Antitrust – New Investigation Powers
The CMA will also have additional investigatory powers. The CMA will, for example, have powers to compel current and former employees of a company under investigation to answer questions during or after a dawn raid. To back up this additional power, the CMA will be able to impose heavy financial fines on the individual for failure to comply. Indeed, failure to cooperate in general with an antitrust investigation can be met with serious financial penalties. The CMA can now obtain a warrant to enter premises during an investigation from the Competition Appeal Tribunal and not only from the High Court. The CMA is vested with the power to impose interim measures pending the outcome of an investigation, and a lower threshold for imposing interim measures has been introduced. The CMA is no longer bound to show that “serious irreparable damage” will be incurred in the absence of such measures but can order measures where they are necessary to prevent “significant damage” to customers or competitors.
A Merger Control Regime with More Bite
Under the ERRA, some of the key features of the United Kingdom’s merger regime will remain the same. The obligation to notify will remain voluntary, and the jurisdictional thresholds also remain unchanged.
The CMA will now conduct the full merger review, which will be subject to mandatory time limits. Phase I is now limited to 40 working days, and Phase II is limited to 24 weeks.
The ERRA, however, also confers on the CMA significantly stronger enforcement powers. The CMA now has the power to suspend all integration steps in both anticipated and completed mergers. It can also require the parties to reverse any integration steps already taken. Failure to comply with a CMA order can be punished with a fine of up to 5 per cent of the parties’ aggregate worldwide turnover. Fines can also be levied for failure to respond to information requests.
Market Studies and Investigations
The CMA will be solely responsible for carrying out market studies (so-called Phase I reviews) and market investigations (Phase II) in those sectors where concerns arise that the market is not functioning properly. Crucially, investigations are no longer limited to one sector, and the CMA will be able to extend its investigations into a combination of markets without needing to investigate the entirety of each individual market. The CMA will be subject to stricter time limits in this context. The CMA will be required to publish a market study report within 12 months of publication of a market study notice, and to complete a market investigation within 18 months of the date of reference.
The UK Government expects that the CMA’s powers and tighter timeframes will lead to speedier and more extensive cross-market investigations, notably in sectors where there are many consumer complaints. With that said, the CMA will begin its tenure with a heavy workload, inheriting numerous market sector cases, such as private health care, higher education and pay-day loans. It may be some time therefore before the CMA carries out any new market studies with a view to potentially launching an investigation.
The ERRA represents the most significant reform of the UK competition regime since the decentralisation of the competition rules in 2004. The reforms seek to bring about procedural efficiencies and thus streamline the antitrust enforcement process. With that said, the ERRA will likely increase the regulatory burden on many businesses, especially in the field of merger control. The reforms furthermore signal increased enforcement action against some of the more egregious types of anti-competitive conduct. Whether the new criminal cartel offence will have the desired deterrent effect will depend on how it operates in practice. What is sure is that overall the compliance risks for business have become higher and more uncertain.