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Dual Elements

11 April 2019 by Robert Bell

Dual Elements

The CMA and Furman Review propose wide-ranging reforms to UK competition law

Travelling under cover of the Brexit chaos which is gripping the UK at the moment are two sets of recommendations for the reform of UK competition law.

The first was a set of proposals sent in an open letter dated 21st February 2019 by the Chairman of the CMA, Lord Tyrie to Greg Clark, the Secretary of State for Business, Energy and Investment, arguing for wide-ranging legislative and institutional reforms of UK competition law. Widely seen by many in the competition law community as a ‘power grab’ by the CMA Lord Tyrie argues the reforms are necessary to place consumers at the heart of the competition law enforcement regime and to maintain and boost public confidence in markets.

The other set of proposals published on 13th March 2019 emerged from the final report of the H.M. Treasury’s ‘Digital Competition Expert Panel’ led by Professor Furman (the Furman Review). The Furman Review makes certain recommendations for updating the UK competition rules to ensure they are ‘fit for a digital age’.

CMA Proposals

In its proposals the CMA identified two distinct challenges which needed to be addressed. These were the growth of the digital economy fuelled by the large increase in e-commerce on the one hand, twinned on the other  with declining public confidence as to whether competition in markets can deliver low prices, consumer choice and innovation.

The CMA concluded that to address these concerns certain reforms were needed to both competition and consumer protection law. The main CMA’s proposals are as follows:

New Duties and Responsibilities

The Enterprise and Regulatory Reform Act 2013 tasked the CMA with ‘promot[ing] competition, both within and outside the United Kingdom, for the benefit of consumers’.

Lord Tyrie proposes that this duty be revised to establish a primary duty that directly addresses the protection of consumers’ interests. The rationale for this change is that it better reflects the CMA’s strategic aim whilst also addressing the concern that, at present, the wording of the current duty ‘can leave the CMA constrained from acting to protect consumers’ interests unless doing so through purely competition-based remedies’. It is intended that the courts (including the Competition Appeal Tribunal (the ‘CAT’)) would also be subject to this new statutory duty.

Further statutory reform is mooted in the letter, including a requirement on the CMA to conduct its investigations ‘swiftly, while giving due consideration to parties’ rights of defence’.

Expanded Powers and a New Toolkit

The changes to powers and functions proposed in the letter include the following

Market Studies and Investigations 

At present, the CMA is empowered to conduct market studies and investigations, and may require legal remedies at the end of the process to address any adverse effects on competition that it identifies.

Lord Tyrie is critical of the current system which he says has “significant defects”, including the capability for delays of over three years from starting the process to remedies being ordered, and differences in scope between market studies (which can consider any adverse effects on consumers) and market investigations (which must consider adverse effects on competition).

To remedy this, the CMA is proposing the following measures:

• powers to impose remedies to address adverse effects on consumers without establishing a link to adverse effects on competition

• aligning the scope of market studies and market investigations such that both consider the issue of adverse effects on consumers (including but not limited to those arising from adverse effects on competition)

• powers to impose interim remedies at an earlier stage in the process where it is necessary to do so in order to protect the interests of consumers 

• power to fines firms where they fail to comply with the remedies the CMA imposes, bringing the position more in line with the fining powers available to other regulators

• extending the CMA’s ability to accept undertakings and commitments from firms, with compliance ensured through the availability of fining powers.

Consumer Protection

The CMA considers its consumer protection powers to be inadequate for deterring wrongdoing when benchmarked against both its equivalent competition enforcement powers and international standards.  The primary reason identified in the proposals is that the CMA has to resort to Court action to stop practices it considers to be illegal. To address this, the CMA is proposing the following measures:

• the CMA to have the power to determine compliance with consumer protection legislation and directing businesses to cease any infringements that the CMA identifies. The use of these powers would be subject to appeal in the same way that the CMA’s competition enforcement powers are currently

• interim orders can be made by the CMA requiring the cessation of practices it suspects to be harming consumers.

Individual Responsibility

The CMA proposes that the deterrent effect of competition law enforcement could be further enhanced with the threat of civil fines for individuals found to be involved in serious competition law infringements, It is also proposing that the CMA be given powers to seek the disqualification of company directors where it identifies serious failures to comply with consumer protection legislation.  Complementary to the measures above, the CMA also suggests reforms to the corporate governance regime in the UK, such as requiring board-level responsibility for compliance with consumer protection law and tasking auditors with responsibility for assessing firms for compliance risks.

Whistleblowing

The CMA considers that much should be done to compensate whistleblowers for the risks they take and is proposing the existing £100,000 cap on compensation should be increased.  Additional measures to protect the anonymity of whistleblowers are proposed.

Investigatory and Information-gathering Powers

The CMA in its proposals calls for much stronger sanctions for firms that refuse to provide information, or that supply false or misleading information. It is proposing that it should have the power to impose fines linked to firm turnover.

Appeals

The CMA is also proposing a change in the standard of review applied by the CAT, alongside changes to its procedural rules, to ‘improve the efficiency of the appeals process’ and alter the duration of proceedings to bring them ‘more closely into line with the original intentions for the CAT’. This is the second time this particular proposals has seen the light of day. Similar reforms were proposed by the Government in 2013 for the CMA and were quietly dropped in the face of strong opposition.

Merger Control

Having regard to the need for the CMA to scrutinise a larger number of multi-jurisdictional mergers post Brexit than are currently considered by the European Commission, the CMA suggests that the existing regime of voluntary merger notifications may need to be partially abandoned in favour of mandatory notifications of mergers for transactions above a certain threshold. No further details as to thresholds or types of transactions to be covered are mentioned.  Merger control fees should also rise it states.

Shedding Legal Responsibility or Powers

The CMA is also anxious to shed powers and responsibilities it does not see as part of its core role as a competition regulator. It is seeking a reduction in its functions with respect to handling references and appeals of certain decisions made by sector regulators, such as licensing conditions, industry code modifications, tariff methodologies, and price controls,. These should be transferred to the Courts.

Similarly, never really comfortable about enforces criminal law alongside its civil competition law enforcement role it is proposing that the CMA is divested of its responsibility for bringing criminal prosecutions against individuals for ‘hard-core’ cartel activity. This should be led by the Serious Fraud Office.

Furman Review

This Treasury Committee was formed to look at how UK competition law deals with the digital economy and what if any recommendations should be made to updating our enforcement systems to deal with the unique challenging of coming to grips with the challenges of the digital economy. 

Formed of competition law academics and economists the Committee under Professor Furman a one-time aide to President Obama came up with the following recommendations:

  • a new digital markets unit should be set up with expertise in technology, economics and behavioural science and the legal powers to back it up
  • the new unit should give people more control over their data by enabling people to switch between platforms more easily
  • it should also develop a code of conduct so the largest digital companies know the competitive rules of the game
  • regulators’ existing powers for tackling illegal anti-competitive practices need to be strengthened – making it quicker and simpler to prosecute breaches, such as bullying tactics by market leaders
  • changes to merger rules are needed so the Competition and Markets Authority (CMA) can better stop digital mergers that are likely to damage future competition, innovation and consumer choice
  • the CMA should launch a formal market study into the digital advertising market which is dominated by two players and suffers from a lack of transparency
  • powers to force the largest companies to open up to smaller firms through providing access to key data sets, when doing so does not affect privacy
  • the UK should engage internationally on all of these issues.

Conclusion

Both proposals contain similar themes which are likely to be well received by the Secretary of State. These proposals coincide with BEIS statutory review of the Enterprise and Regulatory Reform Act 2013 which is tasked with reviewing whether UK competition law is fit for purpose and whether reforms are necessary.

Whilst some make a lot of sense many more are controversial and bear further detailed consideration as to their wisdom. The CMA proposals at the moment are still in outline and have not been fully fleshed out. There is however enough detail to cause alarm. Reaction to these proposals has been mixed. Some commentators have painted them as a cynical power grab by the CMA and an attack of the rights of the defence. Businesses need to be aware that they would face stiffer penalties and narrower rights of appeal under the proposed reforms

Dovetailing nicely with the CMA’s proposals come the recommendations of the Furman Review which call for increased competition powers. However it is not quite clear how novel or workable their competition law reforms are to combat anti-competitive practices. The central proposal here appears to be to increase the use and availability of interim measures .However these remedies are already widely available to competition regulators. It is just they fail to use their existing powers.  Their proposals for the increase in merger review powers for tech mergers are similar to those introduced in Germany and other member states. For the most part their other recommendations deal with the challenge of the use and exploitation of data which does appear to be an important and recurrent theme when dealing with digital market challenges.

It is to be seen what proposals are forthcoming from Government arising from the CMA proposals and Furman Review recommendations. With Brexit dominating domestic policy considerations Parliamentary time will be scare and many of these proposals may not see the light of day.

Robert Bell is a partner at Bryan Cave Leighton Paisner LLP

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