UK: Countdown To The CMA - Enterprise And Regulatory Reform Act Receives Royal Assent

The Enterprise and Regulatory Reform Act 2013 (the "Act") is expected to herald the development of a more effective and efficient competition law regime in the UK. The changes to the existing system of Competition Act enforcement in particular are intended to make processes more robust and enhance the authorities' ability to detect and punish illegal activity. It is hoped that tighter deadlines and strengthened investigatory powers under the Act's merger control and markets regimes will also reduce burdens on businesses overall, but at the cost of some additional obligations as a quid pro quo.

Most of the key changes are expected to be implemented in spring 2014, but steps can be taken now to begin to prepare for the new regime. Much will also turn on how the new Competition and Markets Authority ("CMA") intends to exercise its new powers and a number of important substantive and procedural matters are expected to be the subject of consultation in the coming months.

What does your business need to do now to comply with the new legislation?

• There are no changes to the underlying competition law rules in terms of the prohibition on anti-competitive agreements and abuse of a dominant position
• However, the way competition law will be enforced is being changed. It would therefore be prudent to refresh and update your dawn raid guidance, competition law compliance guidelines and HR policies to take account of the new Act. The changes required will not just reflect changes in terminology but also the enhanced powers of investigation for the CMA and an increased focus on criminal investigations
• Other more strategic issues to consider in the medium term are:

Single CMA

The CMA will combine the UK's Office of Fair Trading ("OFT") and the Competition Commission ("CC"). The basic structure of two-stage merger and market reviews is retained with safeguards to ensure that the Phase II process provides a genuinely 'fresh pair of eyes', while enabling a more streamlined process at staff level to improve efficiency. It has been suggested that there may be a role for Phase II panel members used in these cases to support the CMA's competition enforcement activity but there are no clear proposals on this yet.

Competition Act enforcement

The main changes here are procedural, reinforcing the work the OFT has already undertaken to improve the rigour of the enforcement regime as well as bringing the system more into line in some respects with other policy developments in recent years. It is worth noting though that the threshold for the imposition of interim measures will also be lowered: the CMA will have to be satisfied that action is required to prevent 'significant damage' as opposed to 'serious, irreparable damage'.

• Procedural fines – Consistent with a general move away from imposing criminal sanctions in the context of essentially civil regimes, the CMA will have the power only to impose fines on companies for breaches of procedural requirements, such as a failure to provide information in a certain timescale. Criminal sanctions will remain where a party has been obstructive, provided false/misleading information or destroyed documents.
• Oral evidence – The CMA will have enhanced powers to ask individuals (including former employees) questions orally as well as in writing during civil investigations, subject to the privilege against self-incrimination and other safeguards. This will increase the need for care in assessing whether individuals need to be separately represented during investigations and potentially a greater risk that their interests will diverge from those of the company and at an earlier stage.
• Greater transparency – More information about the CMA's caseload will be published in order to encourage third parties to assist in the evidence-gathering process.This means that companies may have more public exposure earlier on in the process.
• Greater access and engagement – Parties will have a greater opportunity to engage with the CMA during the process, including through ongoing state of play meetings. The Act formalises certain procedural safeguards in relation to, for example, the conduct of oral hearings, procedural fairness and handling complaints. It also provides a clear statutory basis for the settlement procedure.

Criminal Cartel Offence

The most significant substantive change to the law is the removal of the requirement for "dishonesty" from the criminal cartel offence. This caused great controversy during the passage of the Bill and additional defences were introduced to mitigate the risk of substantially extending the scope of the offence. The essence of the offence will remain the same: engaging in price-fixing, market-sharing or bid-rigging with competitors. However, the Act provides for the following defences:

• Disclosure or publication – The provision of 'relevant information' to customers or, in the case of bid-rigging, the tendering body: similarly if relevant information were published before the arrangements were implemented. However, precisely what information must be made available, or how publication would have to be made, is not yet clear and there remain concerns that in order to ensure protection, companies will have to disclose commercially sensitive information.
• No intention to conceal – Where an individual can show that, at the time the arrangement was entered into, they did not intend the information to be concealed from customers or from the CMA. This raises similar issues in relation to confidential information and how these defences can be demonstrated.
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• Legal advice – Taking reasonable steps to ensure disclosure of the nature of the arrangements to obtain legal advice before the agreement is made or implemented. However, again it is not clear how widely (or narrowly) this defence would be construed, for example how much would turn on the extent of the disclosure.
• Compliance with a legal requirement.

Concurrency – "Use it or lose it"

Sector regulators with concurrent competition powers will be encouraged to use them rather than relying on other regulatory enforcement mechanisms, with a new explicit duty to consider whether the competition law route is more appropriate before exercising other powers. The Secretary of State ("SoS") may by regulation set out the circumstances in which the CMA would take the lead where there is concurrent jurisdiction and as to what information must be shared. Ultimately, there is the threat that concurrent enforcement powers will be withdrawn from any economic regulator (other than Monitor, the UK's health care regulator) if the Government feels that this split regime is not working effectively.

Mergers

The reforms here principally relate to information gathering, timetables and the 'hold separate' process. The jurisdictional thresholds remain unchanged and notification voluntary in principle but:

• Hold separate – The CMA will now have a discretionary power not only to suspend integration, but also to reverse steps already taken in completed mergers at the start of Phase I. This may include obliging parties to recreate separate reporting lines or functions within a business. The risk of completion in potentially problematic cases in terms of business continuity and uncertainty will increase substantially. This change is likely to further encourage parties to pre-notify for clearance mergers over which the CMA will have jurisdiction.
• Penalties – The CMA will be able to impose fines (up to 5% of the combined worldwide turnover of the companies concerned) for breach of an order preventing or reversing integration.
• Faster timetable at Phase I – Phase I decisions will have to be taken within 40 working days. This does not apply on a referral back under the EU merger regime. This 40 day period may be extended in certain circumstances, including for failure to comply with a formal request for information. Businesses can therefore expect a greater use of the CMA's formal powers with their associated sanctions.
• Undertakings in lieu – Under the new regime, parties will be able to wait until receipt of the reference decision before submitting undertakings in lieu (rather than having to submit them immediately after the issues meeting). This should provide greater transparency.
• Remedies – The existing 24 week timetable for Phase II remains, but the Act provides that the CMA must take a decision on remedies within 12 weeks of its Phase II decision. In terms of substance, in addition, parties may be required to publish certain non-price information and to appoint and remunerate a third party to monitor and arbitrate on the implementation of remedies. This will also apply to market investigations (see below).

Market investigations

Again the changes here principally relate to timetables, information gathering and pre-emptive action and in the case of the latter to align procedures with the mergers regime. In terms of jurisdiction, the CMA will also have greater flexibility to consider issues that are common to more than one sector.

Where there has been a public interest intervention notice, the CMA may also be asked by the SoS to consider the relevant public interest issues alongside the competition aspects during a Phase II investigation. The SoS can appoint public interest experts to advise the CMA. Even if the SoS does intervene, the option of making a restricted reference for the CMA to consider only the competition issues will remain.

• Statutory time limits for all stages – Market studies (Phase I) must be completed within 12 months of publication of a market study notice, and where a reference for a market investigation (MIR) is being considered, the public consultation must take place within six months of the launch of the market study. The timescales for Phase II will also be reduced from 24 to 18 months (subject to a six month extension in special cases).
• Information gathering and pre-emptive action – Compliance with a market study information request will be mandatory, as in the case of market investigations. The CMA may impose financial penalties for failure to comply. Similar measures to prevent or unwind pre-emptive action are introduced as for mergers.
• Remedies – Phase II remedies must be implemented by the CMA within 6 months, extendable by four months if there are special reasons for doing so. This should provide greater certainty for businesses.

Comment

The Act requires the new authority to publish guidance on both procedural and substantive issues, such as the principles the CMA will apply in deciding whether to pursue criminal proceedings. It is expected that consultation in many of these areas will be initiated prior to the main competition-related provisions in the Act coming into force next year.

It clearly remains to be seen whether the aspirations of the Government will be realised but businesses can at minimum expect renewed vigour in terms of enforcement activity on the part of the CMA and greater use of its strengthened powers of investigation and inquiry in all contexts.

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.