On 20 April 2022, the government published its response to its consultation on Reforming Competition and Consumer Policy, which it launched in the summer of 2021.
The government has confirmed that it is proceeding with a number of its initial proposals, which – if adopted – will result in significant reforms to the UK’s current competition law and consumer protection regimes. Below is a summary of some of the key changes.
The voluntary and non-suspensory merger control regime will be retained but the jurisdictional thresholds will be adjusted so that the CMA would have jurisdiction if (amendments marked in bold below):
- The UK turnover of the target exceeds £100m (increased from the current £70m) or
- The merger:
- Creates or enhances a 25% share of supply or purchases in the UK (or a substantial part of it) and
- Each party’s UK turnover exceeds £10m or
- The acquirer (group) has:
- An existing share of supply of goods or services of 33% in the UK or a substantial part of the UK and
- A UK turnover of £350m.
The new tier of thresholds under (iii) does not require any overlap and is stated to be introduced to enable review of so-called "killer acquisitions" and mergers which do not involve direct competitors, e.g. transactions of a "vertical" nature, which can fall outside the CMA’s jurisdiction under the current thresholds. Whilst this has been considered to be of particular relevance in tech acquisitions (e.g. where tech giants acquire smaller start-ups to prevent a challenger emerging in the market), the new threshold is likely to also capture smaller acquisitions with no overlap in e.g. life sciences sectors; or a large nationwide retailer’s acquisitions of local retailers with limited overlaps (if any). Whilst it is welcome that the government has increased the share of supply and turnover thresholds within the new tier (iii) from the initial proposal - in which they were set at levels of 25% and £100m - the new tier will certainly enable an even greater intervention in M&A by the CMA.
The new threshold under (ii)(b) is described as a new “small merger safe harbour” to reduce the burden on small and micro enterprises and support such businesses to grow and thrive. Whilst it is expressed as exempting any merger where “each party’s UK turnover is less than £10m”, it appears it could only impact the share of supply test under (ii), subject to further clarifications. The original proposal referred to worldwide turnover but has been changed to refer to UK turnover to provide greater certainty for foreign-to-foreign mergers involving businesses with little or no UK turnover. Given the scope of the threshold tiers (i) and (iii), the new “small merger safe harbour” will only be relevant for transactions which would otherwise only be caught by the share of supply test under (ii), a test which government suggests was left unchanged (although stating it will “continue to monitor” the operation of the test and “may consider further proposals on how to reform it”).
Leaving aside the importance for certain foreign-to-foreign mergers, the new “small merger safe harbour” could also allow for smaller UK businesses engaging in mergers that result in high combined market shares, or even monopolies, as the £10m turnover threshold does not come with any market share caveat. Given the low level of the turnover threshold, this is unlikely to have any impact in larger markets but could prove to be a very significant development in local/regional markets, e.g. for independent retail mergers, or SME-mergers in more narrowly defined niche markets, such as certain life sciences areas.
The government is also proposing some further amendments to merger control procedure, in particular:
- Enabling the CMA to accept commitments from businesses which resolve competition issues earlier during a phase two investigation, and
- Enabling an extension of phase two investigations by 11 weeks, instead of the current limit of eight weeks, for further information gathering not taken place in phase one.
The "markets regime" will be amended by e.g.:
- Allowing more opportunity for binding commitments to be accepted by the CMA at any stage during market studies and market investigations (although the CMA can still only order remedies in market investigations).
- Providing the CMA with greater flexibility to define the scope of market investigations.
- Removing the requirement to consult on a market investigation reference within the first six months of a market study.
- Enhancing the CMA’s ability to amend remedies in the 10-year period following its final report on adverse effects of competition in a market investigation (although the CMA will still need to consult before its final decision to revise remedies).
The antitrust rules and procedures will be significantly altered to widen the CMA’s powers and the scope of application:
Amending the Chapter I prohibition against anti-competitive agreements in the Competition Act 1998 so that it can apply to a concerted practice or agreement implemented outside the UK if it has an effect within the UK.
Whilst not explicitly stated, this amendment is partly brexit-related and will clarify the extraterritorial scope of the Chapter I prohibition. A similar amendment to the Chapter II prohibition against abuse of dominance was initially considered but the government thought it was less clear that an enforcement gap arose from the requirement that a business in question has a position of dominance within the UK. However, it has not been clarified whether a gap could occur where a company abuses a dominant position on a market outside the UK and the abuse has an effect in the UK.
Enabling the CMA to interview any relevant individual in a Competition Act investigation, regardless of their connection to an investigated undertaking.
This amendment is likely to make CMA investigations more effective but can also expose staff of third parties – e.g. suppliers or customers of an investigated business – to a CMA interview. Although the government states the CMA should use this tool “fairly and proportionately”, clear guidance ought to be given as to when this power can be exercised, particularly covering rights of the individual to obtain legal representation before such interviews.
Introducing a duty to preserve evidence in all Competition Act investigations where a person knew there was an ongoing investigation; or suspected an investigation was likely to be carried out, with civil penalties for breaches.
Whilst the government stresses the CMA should enforce this duty proportionately, it could in effect impose open-ended document preservation obligations on businesses in circumstances where e.g. it is difficult to assess whether an investigation is likely to be launched. As such, it could have a disproportionate effect on document retention policy requirements at a time when data creation within businesses is increasing exponentially.
Seize & sift powers
Giving the CMA powers to "seize and sift" evidence when it inspects domestic premises under a warrant; and strengthening powers to obtain information stored remotely when executing a warrant.
The government considered this amendment justified given that the border between work and home is increasingly blurred and the increasing trend of data being stored remotely. However, although being limited to where the CMA holds a warrant, these powers risk depriving individuals of personal belongings for extended periods and the CMA inadvertently seizing personal information.
De minimis (abuse of dominance)
The turnover threshold for immunity from fines under the Competition Act for breaching the Chapter II prohibition will be reduced from £50m to £20m.
This is an alignment with the £20m threshold that applies for the Chapter I prohibition and is to ensure that businesses in smaller and local markets are sufficiently deterred from abusing dominance. However, given the new “small merger safe harbour” under merger control, which might enable a company with turnover below £10m to acquire dominance, some might argue the threshold could have been lowered even further.
The Competition Appeal Tribunal (CAT) will have the ability to grant declaratory relief and award exemplary damages for breaches of competition law.
The route of declaratory relief will add flexibility and means some parties will not need to formulate competition law claims as damages claims or applications for an injunction. The possibility for exemplary damages will divert from the EU Damages Directive, i.e. another post-brexit diversion from EU competition law.
Enable the CMA to impose fines of up to 1% of annual worldwide turnover and additional daily fines of up to 5% of daily worldwide turnover if non-compliance continues for failures to comply e.g. with an information request.
This would constitute significant increases to the current £30k and £15k maximum fines respectively and the impact on small businesses could be significant, considering how onerous and burdensome CMA information requests can be, even for larger firms. Government stated that it will ensure penalties imposed are proportionate and require further guidance to be published to ensure there is certainty around how penalties will be applied in practice. However, a further proportionality analysis on how the CMA exercises its information gathering powers in the first place would be welcome in this regard.
Introducing a civil penalty regime for breaching commitments or undertakings, directions, orders or interim measures, capping the penalty at 5% of annual turnover.
This will bring such penalties in line with the existing position for interim enforcement orders in merger investigations, under which regime the CMA has increased fine levels in the last year (e.g. including a £50m fine on Facebook).
Making CMA’s co-operation with overseas authorities more flexible by e.g. enabling the CMA and concurrent authorities to use compulsory information gathering powers to obtain information on behalf of such overseas authorities. All investigative assistance requests would be subject to Ministerial approval. The Secretary of State for Business, Energy and Industrial Strategy would be able to provide general consent for providing assistance “deemed to be in the UK’s interest”.
Prior to sharing information with overseas authorities, UK authorities will still be required to assess public interest reasons for why information should not be shared outside the UK and have regard to whether the legitimate interests of individuals and businesses might be significantly harmed.
Some of these amendments may be brexit-related to e.g. compensate for the CMA’s exit from the EU’s European Competition Network of competition authorities. In any case, it will be important that any future international co-operation continues to be subject to clear and defined terms to ensure legal certainty on e.g. how confidential information will be treated by the authorities. Moreover, if the oversight is to be provided by ministers, it is questionable whether this would satisfactorily address concerns around e.g. legal certainty and proportionality; and it would rather increase concerns regarding the CMA’s independence.
The government proposals indicate a significant set of changes to the enforcement of consumer protection laws in the UK, which includes enabling the CMA to decide itself whether consumer protection law has been breached, i.e. mirroring its abilities in competition law enforcement. The CMA will thus be able to:
- Determine whether an infringement of consumer protection laws has occurred and order the infringement to be brought to an end; awarding redress to consumers who have suffered loss; securing positive action from businesses to improve compliance; or imposing turnover-based or fixed monetary penalties for breaches. Penalties may be imposed of up to:
- For companies - 10% of global annual turnover (i.e. mirroring the legal maximum under competition law), and
- For individuals - £300,000
- Direct compliance and impose turnover-based or fixed monetary penalties where a direction, or a given undertaking, has been breached without reasonable excuse. Penalties may be imposed of up to:
- For companies, 5% of a business’s annual global turnover, with an additional daily penalty of 5% daily global turnover while non-compliance continues, and
- For individuals, £150,000 with additional daily penalties of up to £15,000 while non-compliance continues
- Direct compliance and impose turnover-based or fixed penalties where a person e.g. has failed to comply with an information request. Penalties may be imposed of up to:
- for companies, 1% of a business’s annual global turnover, with additional daily penalties of 5% daily global turnover while non-compliance continues, and
- for individuals, £30,000 with additional daily penalties of up to £15,000 while non- compliance continues.