Out-Law Analysis 3 min. read
05 Jul 2016, 4:39 pm
It is possible that existing EU exemptions that allow insurers to enter into certain agreements without breaching competition laws will no longer apply once the UK leaves the EU.
This could potentially disadvantage insurers if no equivalent UK exemptions are introduced. However, insurers should look at the scenario as an opportunity to lobby UK policy makers to apply new exemptions that provide greater leeway on the types of agreements they can enter into than which apply under the EU legislation.
Companies are generally prohibited from entering into agreements, decisions or practices with others that have as their object or effect the prevention, restriction or distortion of competition under EU competition rules. Organisations engaged in activities which breach these provisions can be fined up to 10% of their global turnover.
However, a range of exemptions have been established to permit agreements between companies that might otherwise be deemed to be in breach of the EU rules. Those EU block exemptions are specifically accounted for in UK law at the moment.
Under section 10 of the UK's Competition Act, agreements are deemed to comply with competition laws if they meet the criteria of an EU block exemption, such as the Vertical Restraints Block Exemption Regulation.
If the UK leaves the EU and is no longer tied to rules governing access to the EU's single market, which includes the EU's competition rules, then section 10 could be repealed and agreements benefiting from the exemption under that provision could be subject to antitrust enforcement in the UK.
However, in those circumstances it would be unlikely that the Competition and Markets Authority (CMA) or Financial Conduct Authority would take immediate enforcement action in relation to any agreements, such as exclusive distribution arrangements that include non-compete provisions, that previously met the criteria on an EU block exemption unless and until there was a UK equivalent put in place.
There would also be scope for the UK to introduce new and different block exemptions and therefore an opportunity for businesses and trade associations to lobby for this.
For example, insurers could lobby for an exemption to replace the current Insurance Block Exemption Regulation (IBER), which the European Commission has already indicated that it is unlikely to replace IBER when it expires on 31 March 2017. The Commission has suggested that it will issue sector-specific guidance after the IBER lapses.
It would be open to the CMA and FCA to depart from any EU guidance even while the UK is still a member of the EU, as Commission guidance is not legally binding. However, if the UK opts for a non-EEA type of exit from the EU, the UK authorities would be more likely to produce their own guidance to how UK competition law is applied in the insurance sector; and that application could then divert from how the Commission applies EU competition law..
Among the other competition law implications of Brexit for insurers would be potential parallel investigations and enforcement action by the UK authorities, whether the CMA or FCA, and the European Commission. This would be an additional burden for businesses but for complainants it potentially presents a greater opportunity to approach more than one authority, should, for example,one authority be reluctant to pursue a matter.
Total fine levels could also increase as an obvious result of parallel investigations with independent authorities imposing separate fines for the same conduct.
In addition, the 'one-stop shop' of the EU Merger Regulation would no longer apply to transactions which meet the criteria for consideration under the UK merger control rules if the UK leaves the EU single market. This means that some deals could be subject to investigations by both the European Commission and the CMA in the UK.
The number of parallel EU and UK merger notifications and decisions is likely to be low but those mergers that are subject to parallel investigation will be the ones that raise substantive competition issues.
This change might be welcome, as it would give the UK authorities the ability to investigate a merger which has a particular impact on the UK market. Although it is possible at the moment for the European Commission to refer a merger under its jurisdiction back to a national competition authority, it has refused to do so in a number of notable cases, including earlier this year in the context of the planned merger of the mobile network businesses Three and O2.
The change, however, raises the risk of conflicting decisions. For example, a merger cleared at EU level could be blocked in the UK. This is already a risk for companies which have to make multiple merger filings outside the EU.
Angelique Bret and Robert Eriksson are competition law experts at Pinsent Masons, the law firm behind Out-Law.com.