Out-Law / Your Daily Need-To-Know

Government presses ahead with plans for single competition authority

Out-Law News | 16 Mar 2012 | 11:53 am | 4 min. read

The Government is to press ahead with its plans to merge the competition functions of the Office of Fair Trading (OFT) with those of the Competition Commission (CC).

A new single Competition and Markets Authority (CMA) will now be formed and have the power to "investigate practices across markets". The CMA will also be obliged to investigate any "public interest issues alongside competition issues" that the Business Secretary asks it to.

The Department for Business, Innovation and Skills (BIS) said that benefits in the changed structure would transfer into benefits for consumers as well as improve productivity and growth.

The CMA will bring a more coherent practice in relation to competition issues and streamlined decision making "through strong oversight of the end-to-end case management process", BIS said.

The CMA will also be able to be more flexible in how it resources the way "competition problems of the day" are addressed, whilst "better incentives" will also be available to encourage "sector regulators" to use "antitrust and market tools" to address problems, it said.

Processes will also operate "faster" and be "less burdensome" for businesses, whilst the CMA will "provide leadership" on competition enforcement to sector regulators and be a "single authoritative voice" on the international stage, BIS said. The CMA will also ensure "increased accountability and transparency in public bodies and lead to savings in corporate governance and back office costs".

BIS made the announcement when outlining a range of other changes to the UK competition regime. The reforms were contained in a response (129-page / 606KB PDF) to a previous consultation the Government had held proposing changes to the framework.

Giles Warrington, expert in competition law at Pinsent Masons, the law firm behind Out-Law.com, said that businesses would generally welcome the decision to form the CMA.

"Apart from the merger of the institutions, this is not a major overhaul of the UK competition regime.  The changes are evolutionary rather than revolutionary," he said. "The merger of the OFT and CC was expected and it is therefore no great surprise to see it included in the report.

"There are inevitable concerns about the risk of not having a truly independent second phase review of complex cases, but any shortening of timescales and the burden on business, which some of the proposals on time limits  are driving at, is welcome," Warrington said. "But the retention of intensive second phase procedures in the case of market investigations will disappoint many."

The Government said it would "introduce statutory time limits and information gathering powers for all stages of the markets process".

The OFT is currently primarily responsible for investigating competition issues in the UK, although the likes of media watchdog Ofcom and other sector-specific regulators have the power to conduct their own investigations relating to those sectors.

Among the other changes the Government announced was that it would make amendments to the Enterprise Act in order to change the rules around criminal cartel offences. Under the Act a person can spend up to five years in jail and/or face unlimited fines if he "dishonestly agrees with one or more other persons to make or implement, or to cause to be made or implemented" certain "arrangements" in relation to "at least two undertakings".

The 'arrangements' can relate to price fixing, the limitation or prevention of supply or production, the carving up of supplies or customers between them or "bid-rigging". There are other rules that set when some of those arrangements constitute a criminal offence.

However, there have been only two criminal cartel offence convictions since 2003. The Government said establishing 'dishonesty' was too difficult and said it would change the legislation to omit that requirement.

"The Government considers that removing the ‘dishonesty’ element from the criminal cartel offence will improve enforceability, and increase deterrence, bringing levels closer to what was intended when the offence was introduced," BIS said.

"The Government recognises that without the ‘dishonesty’ element, the offence still needs a clear mental element which, in combination with the physical elements of the offence, is sufficiently serious to merit custodial sentences on conviction of up to the existing maximum of five years. As such, the offence will still require proof of the mental elements of intention to enter into an agreement and intention as to the operation of the arrangements in question," it said. The Government has also said that advance publication of any arrangement in a specified manner would take any arrangement outside the criminal offence.

Giles Warrington said that this proposal is the most notable of those announced.

"The civil sanctions for breach of competition law are severe already, in particular combined with the rules on directors' disqualification, which is an area the OFT appears keen to pursue more forcefully in future. So a lessening of the threshold for the criminal offence is potentially a significant change ,The Authorities will still, however, have to satisfy the criminal standard of proof, and the devil could well be in the detail of the new offence." he said.

The Government said it would introduce an exemption whereby small businesses will be able to complete mergers without being subject to UK merger control laws. The threshold for such cases is likely to be mergers where the acquiring company has a worldwide turnover of not more than £10 million and the "target" firm has a UK turnover of not more than £5 million. However, implementing this reform is not "a high priority at this time," BIS said.

The Government also announced that it has decided not to require all companies above those threshold figures to prior notify competition authorities about potential merger deals. Instead current "weaknesses" in the voluntary notification framework will be strengthened, it said.

The CMA will "have the discretion to trigger a power to suspend all integration steps" and legislation will be clarified to allow the CMA to "reverse integration steps that have already taken place," BIS said.

Warrington said the decision not to move to a mandatory notification regime was welcome as the voluntary regime "generally works well".

"Clearly, there are steps to strengthen the regime with mandatory information gathering and an enhancement to the existing powers to intervene to keep business separate when the CMA is looking at completed mergers – effectively making it less attractive to complete a merger without pre-notification," he said.

"However, having the 'de minimis' threshold  at the levels suggested feels like an opportunity lost as many small mergers will still be caught and the regime, considering the costs involved, could still have a chilling effect on smaller mergers," Warrington said.

BIS rejected views that called for a "broader exemption" to apply because it "would unduly increase the possibility that too many anti-competitive mergers would be exempt from scrutiny".