Proposed reform of CMA’s remit: mandatory notification of larger mergers, consumer law and enhanced CMA toolkit

​On 25 February the Competition and Markets Authority (CMA) published its preliminary proposals for legislative and institutional reforms to competition and consumer protection law and policy. The proposals if implemented have the potential to change significantly the balance of enforcement enabling a more interventionist stance by the CMA in the regulation of markets and merger activity.

In summary, in response to concerns about its ability to tackle effectively existing and new forms of consumer harm, it is proposed that the CMA be given new duties and responsibilities relating to consumers together with new tools and powers to support those duties and responsibilities, including to facilitate the use of interim measures. To help the CMA focus more effectively on its core responsibilities, it is proposed that the CMA transfer some of its existing powers and functions to other bodies, for example in the field of regulatory appeals and criminal cartel enforcement. One of the key changes proposed (and not for the first time) is a mandatory and suspensory notification of certain mergers. We set out below some of the key proposals in further detail.

Mandatory merger regime on the cards

The CMA Chairman, Lord Tyrie notes that whether or not there is a deal on Brexit, further changes to the procedural framework, the statutory timetable and the decision-making structures for merger control are likely to be needed. In particular, “for the UK to ensure that it has appropriate influence” and to protect consumers, he proposes mandatory notification to the CMA of mergers above a threshold set at a level to catch larger mergers that are typically reviewed by multiple international competition authorities, accompanied by a “standstill provision” designed to prevent parties from proceeding with the transaction prior to CMA approval as it is the case in the majority of other jurisdictions including the US, the EU and most Member States. Although not clear in the proposals, the CMA also considers that there may be merit in introducing reporting mechanisms for certain businesses so that they are required to inform the CMA of mergers and acquisitions they undertake, and giving the CMA an opportunity to “call in” merger activity. Whilst in practice most large mergers that fall under the jurisdiction of the CMA are in any event notified, if this proposal is implemented acquirers would no longer be able to take the antitrust risk and close pending notification.

Consumer protection at centre of proposals, particularly in the digital economy

It is proposed that the economic interest of consumers, and their protection from detriment, be made a paramount overriding statutory duty not only of the CMA but also the courts (including the Competition Appeal Tribunal (CAT)). This is not a purely academic debate. It would have practical implications. The expectation is that, together with further new duties, including for the CMA to conduct its investigations swiftly while respecting parties’ rights of defence, the CMA will be better armed to address quickly and effectively novel and emerging forms of consumer detriment, particularly in digital markets, and to protect vulnerable consumers.

A more effective and flexible markets regime

The UK is one of the few jurisdictions worldwide where the CMA can intervene in relation to markets to investigate whether they are functioning appropriately in the absence of a breach of competition law. The CMA has done so on a number of occasions in relation to banking, energy and airports to name just a few examples. The CMA wants to improve its ability to intervene and take action.

Recommendations to improve the regime for market studies and market investigations include:

• Aligning the scope of phase 2 market investigations more closely with phase 1 market studies to enable the CMA to order legally enforceable remedies to address consumer detriment without having to demonstrate an adverse effect on competition;
• Giving the CMA the ability to impose legally enforceable requirements on firms on an interim basis, pending the completion of its full market investigations;
• Allowing the CMA to accept undertakings at any time before or during a market study, and to fine firms for breaching such undertakings; and
• Empowering the CMA to fine firms that fail to comply with remedies ordered.

Enhanced powers for enforcement generally

Individual responsibility

Criminal hard-core cartel provisions have been invoked rarely by the CMA and the CMA takes the view that personal responsibility for competition law compliance could be bolstered “if the CMA were able to impose individual fines directly on individuals for serious competition law infringements”. Lord Tyrie notes, however, that a good deal of further work would be required to assess the merits of such a change. And he believes the case for giving responsibility for cartel prosecution to an agency that routinely brings criminal prosecutions, such as the Serious Fraud Office, merits reconsideration.

The CMA also advocates the consideration of measures to establish a clear line of responsibility to the boards of public companies for competition and consumer law compliance, including a requirement to appoint a board director with responsibility for assessing and reporting on relevant compliance risks and a requirement on auditors to make a report to the company if, during the course of their usual work, they identify practices that may raise compliance risks, with a corresponding duty on company directors to attest in annual reports that these risks have been noted and addressed.

Whistleblowers

Noting the value of whistleblowers to the CMA’s work, the CMA advocates giving whistleblowers far greater financial compensation (currently limited to GBP100,000) and stronger protections of confidentiality, together with a requirement on auditors to report suspected infringements of competition law identified during the course of their usual work to the CMA and the Financial Reporting Council.

Investigatory and information-gathering powers

In the CMA’s view:

•  A turnover-based fines regime for non-compliance with both competition and consumer protection law enforcement investigations is almost certainly required;
• Civil fines for the provision of false or misleading information are needed;
• The CMA could be made subject to an explicit statutory requirement to conduct its investigations swiftly, while giving due consideration to parties’ rights of defence;
• A general power to require information to be produced could assist in the identification and response to problems in fast-moving markets; and
• Further consideration should be given to whether information-gathering powers are sufficiently effective to investigate companies located outside the UK.

Court review of CMA decisions

The CMA feels that its efforts to tackle consumer harm are dampened by an excessively heavy judicial oversight which absorbs a large degree of resources in defending cases and, indirectly, at the investigative stage. Whilst accepting that judicial oversight is important, the CMA proposes:

• Moving from the current “full merits” standard of review either to a judicial review standard or to a new standard of review, setting out specified grounds of permissible appeal; and
• Amending the CAT’s rules of procedure to restrict admissibility of new evidence and place less reliance on oral testimony.

An enhanced consumer law enforcement toolkit

Finally the CMA is proposing to add more teeth to its consumer protection powers. Lord Tyrie states that “the CMA’s consumer law powers are unfit for its current purpose, and far short of what would be required to enable the CMA effectively to fulfil a consumer interest duty” and that “deterrence, in short, is very limited”. He suggests:

• Empowering the CMA to itself decide whether consumer protection law has been broken, declare the fact publicly, direct businesses to bring infringements to an end and impose fines, with fines applying also for breach of undertakings provided to the CMA;
• Enabling the CMA, in urgent cases, to order the cessation of practices that it suspects may be harming consumers on an interim basis, pending a final decision on whether the law has been broken;
• Introducing director disqualification provisions for more serious breaches of consumer protection law; and
• Entrenching a division of responsibilities for consumer law enforcement between the CMA and Trading Standards in law.

The majority of the CMA’s proposals will require further, often extensive work, and we expect to see more detailed proposals put out to wider consultation including as part of the Government’s review of the competition regime. We will closely follow developments and responses.