Risk & Economy » Regulation » Radical overhaul brings powerful competition regulator into existence

A POWERFUL regulator came into existence on 1 April as part of the government’s attempts to reduce quangos and cut red tape in what is essentially the biggest overhaul of UK antitrust regulation in decades.

The Competition and Markets Authority (CMA) brings together the former competition and certain consumer protection functions of the Office of Fair Trading (OFT) and the responsibilities of the Competition Commission. Naturally, it remains to be seen what effect these changes will have but, in addition to some specific details, there has also been certain high-level guidance from the CMA ahead of the formal assumption of its duties, which may be indicative.

The key objective for the CMA is to make markets work in the interests of consumers, businesses and the economy. This represents an expansion of the new organisation’s remit by the inclusion of businesses and the economy in general, rather than a focus on only consumers. Underlying this mission are five key goals: two look at the professionalism and efficiency of the new organisation, and a third concerns consumers. The remaining points are more directly market-facing in nature.

The CMA will seek to build a credible enforcement record so as to establish a body of precedent and guidance on a range of competition and consumer matters, large and small. This will take time and is intended to clarify the law in these areas, cover new market developments and speed up the competition process. It also appears that the CMA will not hold back from testing the boundaries of enforcement and is seeking to be active on this front. The specific changes noted below support this view.

There are several markets where the CMA is looking to extend its coverage. Importantly, these now include established markets such as the regulated sectors (eg, financial services and key utilities) and those markets the CMA considers to be public markets, such as health and education.
Another key sector for focus is the online market. Participants in these markets can expect the CMA to consider these markets carefully. For regulated businesses, the new Enterprise and Regulatory Reform Act 2013 places a strengthened obligation on regulators for the use of their competition enforcement powers ahead of regulatory enforcement. The CMA is likely to co-operate closely with the relevant regulators to ensure this change of emphasis takes hold but can also take its own independent course of action if necessary.

Known changes
While there is no experience yet of how the CMA will interpret its mandate in practice, there are some known changes that have come into force since 1 April.

The notification of mergers will remain voluntary, although a statutory form will now need to be completed if parties decide to notify the CMA. (It will no longer be possible to notify using an informal submission.)

For mergers that are investigated, a two-phase investigation process will remain, although the Phase I process will now have a statutory time limit of 40 days for the CMA to decide whether to make a referral to Phase II. This is an example of how the CMA is seeking to be efficient and responsive.

The CMA will now provide reasons before parties have to propose remedies, which may be considered and agreed during Phase I to avoid an in-depth Phase II investigation. Any remedies required at the completion of the Phase II review must be implemented within 18 weeks of the publication of the CMA’s final report.

The CMA will have a new power to ‘stop the clock’ on the investigation process if information is not provided promptly. Importantly, penalties can be imposed on businesses and individuals that fail to co-operate with an investigation. It is expected the CMA will be robust in this area and make use of new compulsory interview powers.

The CMA will be able to suspend the integration of a target before merger clearance has been approved and also potentially reverse steps that have already taken place.

Larger penalties of up to 5% of aggregated global turnover for breaches of interim orders can also be imposed by the new watchdog, and the threshold for such orders has been reduced to the level of preventing ‘significant damage’ to customers and competitors. Additionally, payment of notification fees, which have recently increased to a maximum of £160k, will only be required on publication of the CMA’s decision.

From the outset, it seems the CMA will be taking an active approach, and will also do so in respect of markets where its predecessor bodies have been less involved, such as regulated businesses. An investigation will result in a significant increase in the level of engagement expected from the parties involved, against a backdrop of increased sanctions for non-compliance. Companies, therefore, need to ensure they have the right procedures in place, and take early advice to handle any investigation effectively.

Phil Cowan is a partner at Moore Stephens