Government proposals for the UK competition law system: major changes ahead

March 2011

Contacts

Introduction

The UK Government has announced major changes to Britain’s competition law system - which will have a major impact on companies doing business in the UK.  These proposals are the subject of a consultation issued by the Government on 16 March 2011.

The main topic of the consultation is the proposal, trailed by the Government last autumn, to merge the UK’s two main competition authorities, the Office of Fair Trading and the Competition Commission, into a single competition body, to be called the Competition and Markets Authority (CMA).  However, the Government has taken the opportunity to review almost all aspects of the UK’s competition regime, and the changes resulting from the consultation will be far more than merely procedural.

Key proposals

The key proposals for reforming the UK’s competition law regime are summarised below.  

  • How the new authority will work - mergers and market investigations:  The consultation puts forward a range of options for the structure of the new CMA and how it might take decisions.  The main concern is to retain the structural fairness built into the existing two phase process for mergers and market investigations (achieved currently by having a second body take an independent look at the case) while trying to ensure the procedure is streamlined and efficient.  The main suggestion is to use panels within the CMA as a fresh pair of eyes, to whom cases would be referred for further investigation and the taking of final decisions.
  • UK merger control:  Significant changes to the merger control regime are contemplated:  
    1. Mandatory merger notification?  The most controversial proposal - which the Government is considering, but not yet convinced of - is to impose a mandatory notification requirement under the UK system, which would mean that M&A transactions under UK competition jurisdiction could not be completed without competition clearance.  This would bring the UK into line with most other competition systems including the European Commission, but it would mean that even parties to mergers raising no competition concerns would need to notify and await clearance before they could complete.  As the consultation paper recognises, “a mandatory notification regime would increase the regulatory burden and cost to both business and the CMA”.  
    2. Completed mergers:  A real concern is that the existing system, by allowing mergers to be completed before clearance, makes it difficult to “unpick” transactions that are found to be anti-competitive.  The consultation paper suggests some practical measures to address this as an alternative to a mandatory notification system.  
    3. Thresholds:  There are also various proposals to change the thresholds above which the UK authorities have jurisdiction to examine a merger (whether or not a mandatory notification system is introduced).
  • Cartel investigations:  For cartel investigations and investigations into anti-competitive agreements and abuses of dominance, the consultation suggests three options to improve efficiency and potentially deal with concerns that have been raised about a lack of separation of powers in the current system.  
    1. The first option is to maintain the existing structure of investigation by a single authority with some procedural improvements.  
    2. The second option is to create an internal tribunal within the CMA (or to use the panels within the CMA mentioned above) to take decisions on whether the law has been infringed and any penalties to be imposed.  
    3. Thirdly, there is a suggestion of adopting a more “prosecutorial” approach, where the CMA would be required to submit its case to examination before the Competition Appeal Tribunal, which would reach the ultimate decision and impose any penalty.
  • Cartel criminal offence:  The consultation proposes significant changes to the cartel offence:  either removing the existing “dishonesty” test entirely or replacing it with a test based on secrecy.  The intention of these proposals is to make it easier to bring prosecutions; the criminal offence, under which individuals involved in serious cartel agreements (like price fixing or market carve-ups) can face personal fines and/or prison, was intended as a deterrent.  However, since its introduction in 2003 there have been very few successful prosecutions, and the May 2010 collapse of the trial of four former British Airways executives accused of price fixing was seen as further weakening its deterrent power.  The consultation paper recognises, nevertheless, that there is a risk that, if the cartel offence is simplified in this way, it may become insufficiently distinguishable from the ordinary civil competition law prohibitions.
  • Market investigations:  The market investigation procedure is to be kept, but there are a number of suggestions to improve it, including streamlining the timetable, increasing information gathering powers and allowing representative bodies of small and medium-sized enterprises, as well as consumer bodies, to make “super-complaints” to launch a market investigation.
  • Sector regulators:  There are proposals to encourage sector regulators - such as the ORR for rail, OFGEM for energy, Ofwat for water - to make greater use of their competition law powers, possibly through imposing an obligation on them to seek to use competition law first, before their regulatory powers.  There are also proposals to increase the regulators' interaction with the CMA, in order that they can benefit from the CMA’s expertise.
  • Costs and fees:  Finally, there are significant - and surprising - proposals on costs and fees.  For mergers, the suggestion is that fees should increase to cover the entire costs of the merger review process.  Depending on the structure adopted, this could lead to fees in some cases as high as £220,000.  For investigations into cartels, anti-competitive agreements and abuse of dominance, the possibility is raised of the CMA being able to recover the cost of its investigations from companies against whom it has made a finding of infringement.  This would lead to a significant additional penalty for companies involved in investigations, and raises a number of concerns about their rights of defence.

Responses to the consultation are sought by 13 June 2011.  Norton Rose LLP is proposing to submit a response; if you would like to make your views known to us, please phone or email the Norton Rose LLP competition lawyers whose contact details are on this briefing.

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