Summary and implications
Businesses should be aware that there is more than institutional change afoot when the new Competition and Markets Authority (CMA) replaces the Office of Fair Trading (OFT) and Competition Commission (CC) from 1 April 2014.
Reform of the UK competition regime is also aimed at sharpening up enforcement. This is likely to mean:
- more criminal prosecutions;
- more dawn raids;
- compulsory interviews for current and former employees;
- enforcement of competition law in new sectors; and
- cross-sector market investigations.
Companies need to consider how they will update compliance training, procedures and dawn raid manuals.
Those operating in sectors under increased scrutiny need to consider again what features of their industry might fall foul of the regulators and take steps to mitigate any exposure.
a) Which changes will impact on compliance programmes?
Criminal charges for individuals
At the moment, it is an offence for an individual to agree dishonestly with others to make or implement arrangements relating to:
- price fixing;
- limiting supply/production of goods or services;
- market sharing; and
- bid rigging.
By now, the Government had expected to secure up to 100 convictions under this offence, but has in fact only secured three. The OFT has found it difficult to show where individuals have acted dishonestly, according to the standard criminal law test.
This requirement will be removed from 1 April 2014. However:
- There will be no offence if the customer is informed in advance about a proposed arrangement, or if information on that proposed arrangement is published.
- A defence will also be available to a person who entered into an agreement but did not intend to conceal it either from customers or regulators, or took legal advice before going ahead.
Penalties will not change – these are currently a prison term of up to five years, a fine, or both. However, these are likely to be levied more frequently.
Action – despite these additional wrinkles, the compliance message remains to avoid secret anti-competitive agreements with competitors.
Easier for the CMA to gather evidence in investigations
The Competition Appeal Tribunal (CAT) has been granted powers to sign warrants to authorise unannounced inspection of premises (i.e. dawn raids). These are used not only in relation to business premises but also employees' and directors' homes and vehicles. The ability to obtain warrants from a specialist court rather than the High Court may embolden the CMA to make more applications – potentially leading to more warrants overall.
The CMA will be permitted to publish a notice of investigation on its website as soon as possible after a formal investigation has been opened (except where this would prejudice the investigation or any open criminal investigation). The CMA will only name parties if appropriate, e.g. if the names are already public. The CMA will therefore be able to gather third party comments on an investigation significantly sooner than at present.
Action – Offices, cars and homes will be more at risk of an inspection than ever before. Companies should ensure that compliance guidance on document creation and retention remains up-to-date and relevant.
Public relations teams should be aware that in the event of an investigation, it could be necessary to deal with public comment/speculation very quickly after an investigation is launched.
The CMA's powers to interview employees
Currently, the OFT can only compel individuals to attend an interview if they are suspected of having committed a cartel offence, or to provide information on the location of, or meaning of specific documents. The CMA will, however, enjoy considerably wider powers from 1 April 2014.
Any individual "with a connection to" a company under investigation can be required to attend a stated location at a stated time, to answer questions. This includes both present and previous employees.
However, there will only be a duty for the CMA to inform a company under investigation that an individual will be interviewed if they have a "current connection" to the company, i.e. the duty does not apply in the case of ex-employees. Therefore, a business many simply not know if an ex-employee is being interviewed.
Action − Businesses should consider:
- appropriate guidance for current employees;
- appropriate terms and conditions including robust obligations on ex-employees; and
- how to co-ordinate a media strategy for an investigation where non-employees are beyond the reach of public relations teams.
b) Increased emphasis on sector specific investigations
More sectoral bodies with competition law powers
In spite of its much-trumpeted "bonfire of the quangos", the UK Government continues to increase the number of sector-specialist competition regulators in the UK.
The latest additions are Monitor with respect to healthcare, and the granting of competition law enforcement powers to the new Financial Conduct Authority. This is likely to lead to more investigations and potential penalties.
Action – operators in sectors covered by these new regulators should familiarise themselves with competition law and ensure that appropriate compliance programmes are in place.
Increasing use of competition law powers in non-traditional segments
Competition law principles are also being introduced into more and more areas which were traditionally characterised by a public service focus; or provided by organisations with exclusive rights.
The Government is seeking to use these principles as a tool to drive the embedding of a competitive culture. Examples:
- The OFT's decision to investigate competition in the higher education market (click here).
- An intensifying focus on competition in the healthcare sector, due to the increasing role of market principles in procurement and service delivery. Examples include attacking collaborative pharmaceutical arrangements; the private healthcare market being investigated by the CC; or the CC controversially blocking the merger of two NHS foundation trusts (click here).
- In energy markets, the prime minister has pledged to carry out a "proper competition test" over the next year to determine whether the sector is properly competitive (click here).
Action - Operators in these sectors should consider now any practices that could attract regulatory attention, and take steps to mitigate them.
Cross-market investigations
The OFT is currently empowered to make a preliminary market assessment of features that are common to a number of markets. However, it cannot make a reference to the CC for an in-depth market investigation without opening the possibility of the CC investigating every feature of every market concerned. This means that markets tend to be investigated individually.
By contrast, the CMA will be able to undertake detailed cross-market investigations; it will be able to review a specific practice or conduct (or combination of practices) in more than one market or sector.
|
Take-away points Prior to 1 April 2014, businesses should:
|
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
