Proposed UK competition law reforms – ‘he ain’t heavy, he’s my micro-economic sibling’

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In what could herald the most significant changes to the UK competition regime in 25 years,  the UK Government has announced a series of proposed reforms to UK competition law enforcement.  The stated aims of the reforms are to produce a “best in class” competition regime to allow the UK to exploit post-Brexit opportunities, whilst also helping the Government address other challenges – including its ”build back better” recovery strategy, its pre-Covid “levelling-up” agenda, and harnessing the benefits (and reducing the consumer risks) of an increasingly digitalised economy.

Proposals

The proposed reforms announced on 22 July 2021 are wide-ranging and include:

  • Changes to the UK merger control regime, including:
    • Changes to the jurisdictional thresholds, to enable scrutiny of a wider range of transactions (including in relation to so-called ‘killer acquisitions’).  Under the proposals, the Competition and Markets Authority (CMA) would have jurisdiction to review a transaction where one party to a transaction has (i) at least a 25% share of supply, irrespective of whether its activities overlap with those of the other party, and (ii) turnover in the UK of over £100m.  This would mean that, for certain businesses, all transactions would always meet the jurisdictional test.
    • Introducing a ‘safe harbour’ exempting transactions from review where each party's worldwide turnover is below £10m, although the impact of this is expected to be limited. 
    • Proposals to improve the efficiency of merger control review by, for example, allowing the CMA to agree binding commitments earlier during a Phase 2 review, narrowing the scope of the Phase 2 review to issues identified at Phase 1, and allowing parties to request the ‘fast track’ of mergers to a Phase 2 review without having to accept that there is a realistic prospect that the transaction could substantially lessen competition.
  • Proposals to reform the CMA’s market review powers, including:
  • Potentially replacing the existing market study and market investigation system with a new single stage market inquiry tool, or allowing the CMA to impose (likely non-structural) remedies at the end of a market study.
  • Giving the CMA powers to impose interim measures to prevent potential harm while reviews are ongoing, and resolve concerns more quickly through accepting binding commitments.
  • Introducing a more flexible design process for remedies (including requiring businesses to participate in remedy implementation trials), and changes to the way in which remedies imposed in previous investigations are monitored and reviewed.
  • A series of reforms aimed at stronger enforcement against anticompetitive conduct.  Some of the most significant proposed reforms include:
    • Expanding the territorial scope of the Competition Act 1998 (CA98) to include conduct which is likely to have direct, substantial or foreseeable effects within the UK.
    • Reducing to £10m the turnover threshold below which small companies are immune from penalties for infringements.
    • Strengthening the CMA’s ability to impose interim measures, by reducing the evidence hurdles that the CMA is required to meet, and making appeals against interim measures tougher to bring.
    • Enhancing the CMA’s information and evidence gathering powers, including by broadening the power to interview individuals, extending the duty to preserve evidence, and extending the CMA’s powers to ‘seize and-sift’ evidence.
    • Introducing further incentives for cooperation, including through enhanced leniency arrangements (including providing parties with full immunity from penalties additional immunity from follow-on damages claims).
    • Streamlining the ‘settlement process’, including, for example, the introduction of an ‘Early Resolution Agreement’ tool in dominance cases (that would not be binding in any subsequent damages claims.
  • The Government envisages a range of additional enforcement reforms that would apply across the CMA’s competition tools. These include:
    • significant fines for non-compliance/cooperation, with the ability to levy fixed penalties of up to 1% of annual turnover in relation to investigations (5% for orders/remedies) as well as additional daily penalties up to 5% of daily turnover where non-compliance continues;
    • powers to disqualify company directors who make false declarations to the CMA;
    • the power to take voluntary binding commitments earlier during a  phase 2 merger review or at any stage of a market inquiry; and
    • enhanced international cooperation to facilitate the timely review of global cases and to ensure information exchanges amongst authorities are carried out safely and appropriately.
  • Measures designed to achieve a more active pro-competition strategy, with a view to the CMA becoming the “micro-economic sibling” of the Bank of England that better monitors the state of competition in key UK markets. To this end, the Government envisages a number of changes, which could impact on the independence (or perceived independence) of the CMA, including:
    • providing the CMA more “regular steers” on the sectors of the economy in which the Government believes the CMA should focus its efforts;
    • requesting advice from the CMA on how competition law can better support the UK’s transition to an environmentally sustainable and net zero economy; and
    • requiring the CMA to produce regular ‘State of Competition’ reports assessing and documenting “the vibrancy of competition” in UK markets.

In addition to the above proposals, the Government notes recommendations made in preceding reviews (including the Furman Review and the Penrose Report) regarding potential changes to the standard of review and procedures of the Competition Appeal Tribunal (CAT) where it reviews the CMA’s CA98 decisions. Although it has not put forward any specific proposals in this respect, the Government has asked views on the appropriate level of judicial scrutiny of the CMA’s decisions, and whether there are alternative standards of review or changes to CAT procedures which should be considered, to improve the efficiency of enforcement while at the same time maintaining a robust process that produces high quality decisions.

Digital markets

The Government has also launched a separate consultation (‘A new pro-competition regime for digital markets’) on the Digital Markets Unit.  For more detail, please see our article ‘Sending out an SMS’ – UK proposes powers for regulating digital markets.  It is noteworthy that the Government launched both consultations on the same day and for the same period, particularly given the wide-ranging reforms envisaged in both.  The Government is evidently keen to get moving on widespread change to the competition regime, partly also in response to the CMA’s increased role on the international stage following Brexit.

Get in touch!

The Government is now consulting on the competition and consumer law measures proposed – see Reforming competition and consumer policy.  Interested parties have until 1 October 2021 to provide feedback. 

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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