Government consults on improvements to UK competition regime

On 25 May 2016, the Department for Business, Innovation & Skills (BIS) launched a public consultation on the proposed reform of the competition regime in the UK, and is seeking views on proposed changes to the CMA's powers.

This consultation opens a week after the Queen announced Government proposals to “improve Britain’s competitiveness” in her annual speech to Parliament on 18 May 2016.

Background

The Government believes that the current UK competition regime works well and is well-regarded both domestically and internationally. It notes that the recent changes brought into effect in 2014 streamlined the regime and had a positive impact.

However, it intends to enable competition authorities to carry out their duties even more effectively and deliver benefits to consumers as quickly as possible, and is introducing a number of proposals to that effect.

BIS has identified a number of areas for improvement in the current competition regime.

Market investigations

The Government confirmed that it was happy with the CMA's newfound focus on market investigations and that it fully supports its work on the energy and banking market reviews.

However, it believes that market investigations need to be completed as swiftly as possible so that remedies may be put in place sooner rather than later, which had not been the case so far.

To that end, BIS is seeking views from the public on three alternative solutions:

• reduce the statutory timetable for market investigations from 18 to 12 months;
• retain the current 18-month time limit but remove the CMA's right to extend that timescale (which it notes was used by the authority in both the retail banking and energy inquiries); or
• retain the current 18-month time limit but require the CMA Board to determine a specific timeline for each market investigation on a case-by-case basis and based on its scope.

Merger control

The feedback gathered by the Government on the current merger control process has been largely positive. However, BIS' prior consultation revealed three main areas of concern.

The first issue relates to the CMA's information requests, which are said to place a disproportionate burden on companies. BIS' proposal to address this issue is to develop guidance with the CMA to better identify the nature and scope of the information it should request and how often it may do so. The CMA is to launch a public consultation of its own on that matter shortly. The Government believes that this measure would be sufficient, however it does not rule out legislative change, which it suggests could take the form of a statutory restriction on the type of information the CMA may request and/or on the frequency of its requests. Alternatively, the Government would consider legislating to create an obligation that information requests be proportionate and consider the impact on the business.

Another area of concern outlined in BIS's prior inquiry is the separation of the Phase 1 and Phase 2 processes, which it notes is unique to the UK regime and is believed to create inefficiencies and unnecessary burden and costs for businesses. Whilst the Government is not offering to overhaul the process entirely, it is proposing to improve the constitution of the CMA panel (which would be made up of fewer but more experienced members), streamline and clarify the role of the inquiry group in Phase 2 reviews (and allow it more flexibility to delegate) and increase the inquiry group's accountability to the CMA Board. BIS hopes that these measures would put more pressure on the CMA to introduce internal efficiencies and therefore complete merger reviews more swiftly.

BIS has also heard that hold-separate orders in their current form impose undue burden on companies, and entail serious practical challenges especially in the case of completed mergers. The Government confirmed that the CMA is currently drafting recommendations to improve its use of hold-separate orders, and will also publish clearer guidance on derogations. However, it does not believe at this time that legislative change is necessary to address this concern.

CMA's enforcement powers

BIS has identified a number of ways it can reinforce the CMA's enforcement powers to benefit the regime as a whole.

The Government is proposing to improve the enforcement of undertakings and commitments by allowing the CMA to issue civil fines in case of breach. Currently, the CMA's only option is to apply to the High Court for an Enforcement Order, which is lengthy and not an effective deterrent.

Under BIS' proposals, the CMA’s power to impose administrative fines on companies which provided false or misleading information will be revised to provide it with a wider range of possible sanctions. The Government hopes that this would fill an 'enforcement gap' where criminal sanctions are not seen as appropriate. Additionally, BIS is seeking views on whether it would be right to increase the level of fines the CMA may impose where parties refuse to comply with its requests.

BIS is also proposing to add the CMA to the list of 'designated prosecutors' under the Serious Organised Crime and Police Act 2005, which would allow the authority to enter into agreements with assisting cartel offenders when pursuing criminal cartel prosecutions. It is hoped that this measure will increase the number of cartel prosecutions.

The consultation paper also contains a general statement affirming that there is scope to improve the CMA's decision-making process and speed of enforcement. However, the Government is not proposing to legislate to that effect; the CMA is to consider the best way to achieve this (which will include looking into its internal governance) and report to the Government by 2017.

Comments

It appears that the Government is generally satisfied with the CMA’s track-record in its first two years of operation and that the overhaul of the UK competition regime brought into force in 2014 introduced much efficiency and had been very positive. The overall feedback received by BIS seems to confirm that sentiment.

However, the Government believes that additional improvements should be brought in to build on the success of the regime – these would see the CMA become more accountable when carrying our merger reviews and market investigations, and gain new tools to enforce competition rules more strictly. Whilst many of the proposed changes may not require new legislation, some of them will require validation by Parliament.

This consultation appears to be part of a wider push by the Government to reinforce competition enforcement, including in Scotland where the Scottish Government is currently developing a competition strategy as part of which it is proposed that the functions of the Competition Appeals Tribunal be devolved.