UK: Competition And Markets Authority – BIS Announces Reforms Of Competition Law Regime

Last Updated: 20 March 2012
Article by Susan Hankey, Caroline Hobson, John Markham and David Marks

Today, the Department for Business, Innovation and Skills has announced its intended reforms of the UK's competition law regime.

The main change is the creation of a single body, the Competition and Markets Authority or CMA, to replace the functions of the Office of Fair Trading (OFT) and the Competition Commission (CC). There is no set timetable for the introduction of the CMA, but BIS has announced its aim to implement the regime by April 2014.

The announced reforms have been widely expected, following a consultation process begun exactly a year ago. Although the new regime involves many details of procedural change to support the new authority, a number of more radical reforms of the enforcement and review process, which had been raised in the consultation process, have not been adopted.

What will the new CMA do?

Under the current regime, the OFT's competition law remit involves four broad functions:

  • It conducts first-phase reviews of mergers.
  • Its market studies assess the competitive impact of practices across whole sectors.
  • It investigates potential breaches of the main civil law rules concerning anti-competitive behaviour. This antitrust function is carried out by separate sector-specific regulators for certain utility markets (whose functions will be preserved).
  • It has the ability to investigate the cartel offence under criminal law.

The CC currently has three main roles:

  • It conducts second-phase reviews of mergers following an OFT reference.
  • It conducts investigations of markets on reference following an OFT market study (i.e. another form of second-phase review, but in this case for a whole sector).
  • It also reviews various issues (typically, licence modifications and price controls) in relation to regulated sectors following a reference or appeal.

The CC has no involvement in the other mainstream competition rules.

The CMA will do all of the above. The most significant feature of its procedure will be the preservation – under the same roof – of the distinction between first-phase and second-phase investigations.

What else is new?

The new regime will contain no other sweeping reforms, despite a number of major changes having been considered in the consultation process. Nonetheless, many procedural changes are to be made – only the main points are covered below.

  • The CMA will have the power to investigate practices across markets. It will, like the OFT before it, conduct first-phase market studies and will then decide whether to proceed to a second-phase market investigation. The process will be the same, but BIS will introduce tighter timetables. Also, the CMA will have a new power to investigate public interest issues which are not necessarily competition issues.
  • Other than the creation of the CMA, which will perform both phases of the review, there will be no great change to the merger control regime. Most significantly, there will be no move to a mandatory notification regime, which had been debated at the consultation phase. Notifications to the CMA will still be made on a voluntary basis. As with market investigations, stricter timetables will be imposed on the new authority. There will, however, be a new exemption for transactions involving smaller businesses, which will not be subject to potential investigation. The Government has also decided to increase merger fees from 6 October 2012 (to aid cost recovery). This will involve the introduction of a new fee band (where the target has UK turnover of above £120m) and increases in each fee band (now ranging from £40k-£160k).
  • Enforcement of the competition law or antitrust prohibitions is in essence unchanged. A suggested move to a US-style court-based regime has been rejected. Again, there may be a tightening of timetables and there will be new civil law powers to fine companies which fail to comply with investigations, replacing the current and unused criminal law enforcement powers for non-compliance.
  • Possibly the most significant change to the detail of enforcement is to the criminal law cartel offence. This offence currently requires a finding of "dishonesty". This requirement will be removed and BIS will introduce a definition of the offence as "not including agreements made openly". In other words, an agreement the main features of which are publicised cannot be subject to this offence, but all other agreements in principle are liable under it. It remains to be seen whether such a broader definition will lead to more extensive enforcement of this offence.

Is the creation of the CMA a good thing?

There are no surprises in today's BIS announcement. The merger of the two existing (and separate) authorities was widely expected and has been a long time coming. Both the OFT and the CC always score highly in global ratings of competition authorities, but having two institutions has long been regarded as an expensive luxury involving a certain amount of duplicated enforcement.

Today's reform is motivated by efficiency and resource considerations, but also by a desire to streamline procedure and governance. In particular, the role of the CC in conducting second-stage reviews of mergers and markets has always benefited from its autonomy and expertise. The preservation of sufficient institutional safeguards for the independence of the second phase is behind various detailed aspects of today's reforms and will be a chief concern for future enforcement.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 15/03/2012.

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