Ten things you need to know about
the Competition and Markets Authority
Guy Lougher, Partner
EU & Competition Group, Pinsent Masons LLP
30 January 2014
Agenda
• Background
• Merger Control
• Antitrust Investigations and Dawn Raids
• Market Investigations
• BIS Strategic Steer, CMA Strategy and Concurrency
2
Reform of UK Competition Law - Background
• Enterprise and Regulatory Reform Act 2013
– Intended to strengthen the UK’s competition regime
– Creates a single Competition and Markets Authority (CMA) by
merging Office of Fair Trading and Competition Commission
– Limited changes to substantive law BUT
– Significant changes to procedures and administrative penalties
regime
• Key dates:
– 1 October 2013 – CMA came into existence
– January 2014 – first tranche of final guidance published
– 1 April 2014 – CMA becomes operational
3
Merger Control
Impact of the new regime
Current Merger Control Procedure Concerns
• Early integration is undermining effective scrutiny of
completed mergers
• Relevant data and documents are not accessible at
Phase 1
• Procedure for offering undertakings in lieu to try and
avoid a Phase 2 merger investigation is flawed
5
What has NOT changed…
Jurisdictional thresholds
(i.e. £70m UK t/over or
25% share of
supply/purchase)
Legal test of what is
a “merger”
No change
Test for whether to refer
a “merger” to Phase 2
(i.e. may give rise to
an SLC)
No formal obligation to
pre-notify a “merger”
6
What HAS changed…
Strict review timetables
(statutory 40 working
days for Phase 1; 24
weeks + 8 for Phase 2)
Phase 1 and Phase 2
within same authority
(but panel of experts
system retained for
Phase 2)
Undertakings in lieu –
can wait until reference
decision at Phase 1
before offering [means
fewer references to
Phase 2?]
More detailed Merger
Notice: will require
additional time for
pre-notification
discussions with CMA
7
What else HAS changed……
CMA powers to compel
provision of data and
documents at Phase 1
and Phase 2
Power to impose
administrative penalties
HOLD SEPARATES
(Interim measures with new penalties)
8
Hold Separates
•
CMA can issue orders to prevent pre-emptive action before final decision on
whether to approve a merger
– NB: ban on integration also prohibits sharing confidential information
– For completed mergers: orders “normally” sent with CMA enquiry letter
– For anticipated mergers: orders possible
– Derogations to be individually negotiated afterwards with CMA
•
Statutory powers to reverse any integration steps already taken
•
Fine up to 5% of worldwide turnover for breaching an order
•
Will uncertainty over the CMA approach towards completed mergers (and
especially reversing integration) effectively require pre-notification?
9
Conclusions
• Main changes
– More transparent undertakings in lieu procedure may mean
fewer references to Phase 2
– Power to compel data and documents at Phase 1
– Hold Separates (and reversal of completed mergers)
– Threat of administrative penalties; potential impact on
complainants and other third parties
• Likely trend towards pre-notification of mergers
10
Antitrust Investigations and
Dawn Raids
Impact of the new regime
Institutional changes
•
Competition Enforcement Directorate
– Antitrust Group (ATG)
– Cartels and Criminal Group (CCG)
•
Procedural Officer
– to consider significant procedural complaints
– not involved in case
•
Decision making
– formal separation of functions:
• decision making re investigation and SO
• decision making re SSO, infringement decision and penalty
•
Appeals
– CAT retains role
– CAT can also issue warrants (previously only High Court)
12
Key procedural changes (1)
• Apply to all ongoing and future cases from 1 April 2014
• Power to require individuals to answer questions “on any
matter relevant to the investigation” (including during dawn raid)
• Oral hearings – SO stage and remedy stage
• Procedural complaints
• Formal settlement procedure
• discount capped at 20% pre-SO or 10% post-SO
• in addition to leniency discount
• there will be an infringement decision
• lose discount if appeal
• but binding even if another party successfully appeals
13
Key procedural changes (2)
• Interim measures threshold reduced to make it easier:
– show necessary to “prevent significant damage” rather
than “prevent serious irreparable damage”
– i.e. restricted in ability to compete effectively in market
• Short Form Opinion procedure: will continue on trial basis
for horizontal and vertical arrangements – covers “novel or
unresolved questions, clarification of which would benefit a
wider audience”
14
Other procedural points to note
• CMA must give notice of proposed penalty
• Clarifies that CMA can decide to proceed against only one party,
e.g. vertical agreements case
• CMA can publish notice of an investigation and name parties (if
appropriate) – privilege against defamation
• Delay publication of decision if necessary to avoid prejudicing any
criminal investigation
• Access to file, data rooms and confidentiality rings
15
Cartel offence
•
•
•
•
General objective to bring more criminal prosecutions
OFT increased in-house criminal expertise and resources
Pre-1 April 2014 agreements will be prosecuted under current dishonesty
offence test
Post-1 April 2014, no need to prove “dishonesty”
– 2 exclusions:
1. Notification exclusion
2. Publication exclusion
– 3 new defences:
1. No intention to conceal nature of arrangements from customers
2. No intention to conceal nature of arrangements from CMA
3. Disclosed to professional legal advisers to seek legal advice
– Prosecution Guidance: factors as to when to prosecute
– No intention to prosecute practices that have a legitimate commercial purpose
16
Penalties
• Civil penalties replace criminal sanctions for failure to comply
with requirements (e.g. information requests) “without real
excuse”
– fixed penalty up to £30k
– daily penalty up to £15k
• Retain criminal sanctions for:
– obstructing a dawn raid
– destroying or falsifying documents
– giving false or misleading information
• Penalties for infringing UK competition law unchanged:
– cap of 10% global turnover
– 0-30% of relevant turnover starting point for penalty calculation
17
Market Studies and
Investigations
Impact of the new regime
Market Investigations –
A Recap on the Current Regime
OFT Market Study
No Action
Competition/
Consumer Law
Action
Recommendation Govt/Customers etc
19
CC Market
Investigation (UILs)
Market Investigations
A reminder of the substantive test
• CC to investigate whether feature(s) of relevant market(s)
prevent(s), restrict(s) or distort(s) competition (Adverse Effect on
Competition – AEC)
• If so, CC to consider remedy to AEC & any detrimental effects on
customers resulting from AEC
• If remedy AEC & detriment:
- Need to achieve as comprehensive a solution as practicable
- Need to take into account relevant customer benefits
20
Market Investigations: Developments
• EA 2002 Regime in force since June 2003 - Statistics:
– 13 Completed MIRs (Aggregates decision on 14 January 2014)
– 3 Ongoing (Private Healthcare, Private Motor Insurance & Payday Lending)
– Of these: 7 in Financial Services; 3 transport-related; 1 energy; 1 professional
services
– Of those completed: 1 no AEC (Movies on Pay TV); 10 Behavioural Remedies
(and, in certain cases, recommendations); 2 divestments and behavioural (BAA
– divestment of LGW, STN & EDI; and Aggregates)
• Recent cases = Trend towards more intrusive remedies
– Divestments in Aggregates and suggested also in Private Healthcare
– Audit – Mandatory Tendering
• Appeals
– Appeals on Remedies: BAA, PPI and Groceries
– Appeals on Procedure: BMI (Private Healthcare) and Aggregates
21
What has NOT changed…
The tests for the CMA
in Phases I and II
Two-stage process
No change
The general range of
remedy powers in
Phase II
Phase II procedures
and powers generally
22
Changes to Timetable & Procedures
•
Phase I
–
–
–
–
–
•
Market Study Notice
Findings and proposed action (if any) within 12 months
Proposed decision / consultation in relation to reference within 6 months
Mandatory information gathering during Phase I
Significant work prior to Market Study notice?
Phase II
– 18 months (subject to 6 month extension where special reasons)
– Overlap in case team
– Remedies to be implemented within 6 months (subject to “stop the clock” and 4
month extension for special reasons)
– Mandatory information gathering powers during remedies implementation
– Interim measures: reversal of steps already taken
– New order making powers (publication of non-price info without price info, plus
requirement for 3rd party to monitor, implement and resolve disputes)
23
Other Changes
• Cross-Market References
• Public Interest References
– Restricted and full public interest references
– SoS can appoint an expert to advise CMA where a full PI
reference
• Reminder re Sectoral Regulators
– Ofwat, Ofgem, Ofcom, URegNI, ORR, CAA
and Monitor – soon to be FCA and PSR
– Concurrent Powers
24
Key Market Investigation changes
• Timetable Pressure
– Similar procedures
– Pressure to complete parts of investigation pre-Market
Study Notice
– Threat of administrative penalties in Phase I
• Overlap between case teams in Phases I and II
– Loss of “fresh look”?
• The future prospects for Appeals
25
Government’s Objectives and
Strategic Steer
Overall objectives
•
More investigations, more decisions, more penalties
•
Make it easier to prosecute those involved in criminal cartels
•
Reform antitrust procedures to improve speed and quality of decision
making
– reduce number of decisions challenged/overturned on appeal
– note recent consultation on regulatory appeals
•
Improve coordination and consistency in competition enforcement in
regulated sectors
•
Pinsent Masons FOIA request to HM Treasury
– additional real terms budget increase for CMA anticipated to be of £16m
(Autumn Statement – £12m)
– £16m “would fund 5 -10 additional major cases per annum”
•
Robust procedures and penalties in mergers / markets cases
27
BIS Strategic Steer
• Transparent, high level statement of strategic priorities
• Focus on sectors where competition might secure faster
economic growth
• Importance of consumer behaviour in identifying markets for
intervention and designing remedies
• Long-term dynamic competition and an eye on market
structures
• Tackling problems early
• Role in challenging Government
• Management of cases
28
CMA Consultation on vision, values and strategy
• One of 5 goals is to extend competition frontiers
– Using markets regime to improve the way competition works where this
can benefit consumers
– Encourage effective competition in evolving markets
• Also effective integration of consumer and competition tools
• Areas of focus
– Regulated sectors
– Emerging sectors and business models
– Historic public services markets “where opportunities for competition to
develop in the interests of users/taxpayers may be greatest”
29
Concurrency
• “Use it or lose it” - requires all regulators (except Monitor) to
consider whether use of competition powers is more appropriate
than using licensing enforcement powers
• More information sharing and better case management → new UK
Competition Network (UKCN)
• CMA power to decide who should lead case and to take over
existing cases
• Annual report on use of concurrent powers
30
Continuing concerns
• Transparency and effective disclosure (including access to file)
• Effective use of wider staff resource while avoiding confirmation bias
• Effective engagement with other relevant authorities
– NCAs in other countries re mergers
– Concurrent regulators
• Increasingly litigious and contentious context
31
Ten things you need to know about the CMA
• 1 CMA can impose administrative penalties; advise clients on the
risks and need to challenge upfront any unreasonable data requests
• 2 Mergers – CMA can prevent completion of mergers; review your
standard merger conditions to accommodate the possibility
• 3 Mergers – CMA has much wider Hold Separate powers; advise
clients on the risks and whether it is safer to pre-notify the CMA
• 4 Mergers – Merger Notice content is compulsory; more time
needed for pre-notification discussions
32
Ten things you need to know about the CMA
• 5 Criminal Cartel Offence – no dishonesty required; clients should
be more cautious (and consider legal advice defence)
• 6 Antitrust – CMA has wider powers to question individuals; ensure
dawn raid policies have details of another firm that could represent
individuals during a raid
• 7 Antitrust – CMA has greater scope to grant interim measures
• 8 Antitrust – expect more cases and higher penalties from the CMA
33
Ten things you need to know about the CMA
• 9 Market Investigations – CMA can undertake cross-market
investigations, warn clients
• 10 Market Investigations – shorter formal CMA timetables may lead
to even more intense investigations (and real risk of administrative
penalties)
34
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