UK revamps competition and consumer regimes

CMA Chief Executive Sarah Cardell describes the Bill as “flagship” and a potential “watershed moment” in the way the CMA protects consumers in the UK. After calling for additional powers and abilities for a number of years, it is no surprise that she says the CMA stands ready to use its new powers.

When the new measures will come into force remains unclear. The government says the Bill will take effect as soon as possible following parliamentary approval. This could take a number of months, meaning it is unlikely we will see the rules make their way onto the statute book much before the end of 2023.

The Bill doesn’t just amend the existing competition and consumer rules. It also establishes a brand new digital markets regime, aimed at controlling the conduct of the largest tech firms and tackling the perceived causes of competition concerns in the sector. You can read more about this regime in our related alert.

Below we set out seven key things you need to know about the revamped competition and consumer reforms.

1. Updated merger control thresholds will allow more scrutiny of killer acquisitions

The government believes that overall the UK merger control regime works well. Crucially, it is not planning to move away from the current voluntary and non-suspensory merger review process. However, the Bill does set out a number of important updates to the merger control thresholds.

Most radically, it introduces a new “acquirer-focused” threshold which will give the CMA jurisdiction to investigate transactions where:

• one party has a share of supply of at least 33% of any goods or services in the UK (or a substantial part of it);
• that same party has a UK turnover of more than GBP350 million; and
• another party is a UK business or body, at least part of its activities are carried on in the UK or it supplies goods or services in the UK.

The government’s aim is to enable the CMA to more easily assert jurisdiction over vertical and conglomerate mergers, in particular so-called “killer acquisitions” (ie purchases by larger players of start-ups or potential new entrants that could be an important source of competition in the future).

A greater number of transactions will therefore fall within the CMA’s jurisdiction, although the government estimates only 2-5 additional phase 1 reviews per year. The new threshold is sector-agnostic but we anticipate that digital and pharma deals will come under particular scrutiny. This is consistent with changes to many global merger control regimes over the past few years, which have been adapted in various ways to capture deals that were feared to fall ‘below-threshold’ and therefore avoid scrutiny.

The CMA’s existing jurisdictional thresholds will also be tweaked:

• The target turnover threshold will increase from GBP70m to GBP100m (except for public interest interventions in media mergers) – to adjust for inflation.
• A new small merger safe harbour will apply where each party has UK turnover of less than GBP10m (again, this will not apply to public interest interventions in media mergers). The exemption is designed to give greater comfort to small businesses and parties to mergers that are less likely to raise antitrust concerns and somewhat rows back the CMA’s otherwise wide jurisdictional purview.

Importantly, the current share of supply test will remain unchanged. This gives the CMA jurisdiction over mergers that result in a share of supply of at least 25% of any goods or services in the UK (or a substantial part of it) and grants the CMA an incredibly broad discretion to assert jurisdiction over transactions. Concerns raised during the consultation process about the unpredictability of the test mean that the government will monitor its operation and may consider reforms at a later date. It remains to be seen whether the CMA’s new jurisdictional threshold, which allows it to claim jurisdiction over non-horizontal deals, will mean that there is less need for the authority to take a creative approach to the share of supply test in the future.

Merger control thresholds summary

2. Merger control processes will be more flexible with additional fast-track opportunities

The Bill introduces two new tools that will inject some flexibility into the review procedure.

(i) Fast-tracking cases into phase 2

With a view to enabling the CMA to deliver quicker and more efficient merger investigations, the Bill sets out a new statutory fast track route. This will allow the parties to request an automatic reference to phase 2 at any stage of pre-notification or the phase 1 review, potentially shaving months off the overall process.

The CMA will not have to determine whether the merger has resulted or will result in a substantial lessening of competition (SLC) before accepting the fast-track request (so no need to conduct a public consultation or issue a reasoned decision). Importantly, nor will parties be required to accept that the merger may create an SLC.

The CMA will be able to extend the phase 2 review period by up to 11 weeks (compared to the normal eight-week extension allowed in non-fast-tracked phase 2 investigations) for “special reasons”. This is to ensure the CMA can conduct a full investigation, given it will be unable to rely on information gathered and findings made at phase 1. 

(ii) Extending phase 2

The CMA and merging parties will have the ability to mutually agree an extension to the statutory phase 2 timetable.

This “stop the clock” provision will allow time for the consideration of remedies, which could be invaluable in complex cases. It could also be an important tool to help parties align parallel reviews in multi-jurisdictional mergers.

It will apply in addition to the CMA’s existing ability to unilaterally extend the phase 2 timetable, eg for special reasons or where a firm fails to comply with requirements in a formal notice to provide information or documents.

These process reforms are welcome. They should give some much-needed flexibility, enabling certain investigations to be completed more swiftly, while providing time for others to be resolved with remedies or in an efficient manner alongside merger control reviews in other jurisdictions. Updated CMA guidance could provide some helpful colour, for example on appropriate circumstances and timings for making fast track requests.

3. Anti-competitive conduct will face stronger and faster enforcement

Changes to the competition regime aim to implement the government’s objective of stronger enforcement which delivers faster and more flexible investigations.

In addition to encouraging the CMA to reach decisions (antitrust and otherwise) more quickly by the imposition of a new “duty of expedition”, the Bill:

• expands the territorial scope of the prohibition on anti-competitive agreements to capture agreements that are implemented outside the UK and that have (or are likely to have) “immediate, substantial and foreseeable” effects within the UK
• boosts the CMA’s evidence-gathering powers, including:

• a new duty – applying to individuals and businesses – to preserve evidence
• broader CMA powers to interview individuals unconnected to the company under investigation
• CMA powers to obtain any information stored electronically and accessible from the (business and domestic) premises (eg in the cloud) during raids executed under a warrant
• CMA seize and sift powers when carrying out dawn raids at domestic premises under warrant – with the increase in hybrid working patterns the government thinks it is more likely that relevant evidence will be located in private homes
• CMA powers to require the production of documents and information outside the UK where they are the subject of an enforcement investigation or are third parties with a sufficient UK connection (note that similar provisions have been introduced in relation to the CMA’s mergers, markets, consumer and digital markets functions) – this addresses an issue recently faced by the CMA where a court ruled that the authority does not currently have the ability to require the submission of information held overseas 

The Bill also gives the Competition Appeal Tribunal (CAT) enhanced enforcement powers:

• enabling it to grant declaratory relief in individual and collective claims, such as a statement on the interpretation of a contractual clause or a statutory provision, or on the validity of a patent
• giving it the discretion to award exemplary damages for breaches of competition law – crucially, exemplary damages will not be available in collective proceedings and immunity recipients can only be liable to pay exemplary damages to their direct or indirect customers and suppliers

4. Tougher sanctions for non-compliance with investigations and remedies

The Bill dramatically increases the upper limits for penalties that apply across the mergers, competition and markets regimes, bringing the UK in line with the sanctioning powers of the EU and other international equivalents:

• failure to comply with investigations: 1% annual turnover (plus 5% daily penalties) on companies and GBP30,000 (plus GBP15,000 daily penalty) on individuals – this is currently capped at GBP30,000 (plus GBP15,000 daily penalty) for companies
• failure to comply with remedies, including interim measures, commitments and orders: 5% annual turnover (plus 5% daily penalties) on companies and GBP30,000 (plus GBP15,000 daily penalty) on individuals

The CMA has been calling for tougher civil sanctioning powers for many years. We have seen the CMA hand out huge penalties for breaches of interim enforcement orders in merger control cases, where maximum fines are already 5% of global turnover. We expect it to be bold in its use of this new arsenal.

5. Market inquiry reforms focus on efficiencies and achieving effective remedies

The Bill aims to address the government’s concerns that the current market inquiry regime – which enables the CMA to remedy harmful practices and structural barriers to competition across entire markets – is cumbersome and underused.

The government has elected to retain the current two-stage framework for market inquiries, ie an initial market study potentially followed by an in-depth market investigation.

However, the Bill introduces a number of significant procedural changes designed to inject flexibility into the existing regime by:

• removing the requirement to consult on a market investigation reference within the first six months of a market study
• giving the CMA the option to narrow the scope of a market investigation to focus on “particular features” where competitive concerns arise (rather than needing to look at the market as a whole), so minimising the potential burden on businesses
• allowing the CMA to accept binding commitments from businesses at any stage during a market study or investigation, including to narrow the issues requiring further investigation, which could bring inquiries to a close more swiftly
• enabling the CMA to require businesses to conduct “implementation trials” of certain consumer information remedies before they are put into place to ensure they work as well as possible
• giving the CMA more powers to review and amend existing remedies for up to ten years after the finding of an adverse effect on competition – the CMA will be able to vary, release, revoke, or replace remedies that are not effectively tackling the problems they were designed to address, but there will be a two-year cooling off period during which no further amendments can be made

6. The CMA will (finally) be able to enforce consumer law directly and could issue fines of up to 10% of global turnover

Reforms to the UK’s consumer protection regime make up a substantial part of the Bill. The government is keen to ensure that consumer rights are properly safeguarded and that businesses are able to operate on a level playing field – especially in the digital sphere. In particular, it wishes to speed up enforcement action and provide for civil penalties to increase deterrence.

The most radical change is to allow the CMA to directly enforce consumer law, similar to the powers that the CMA already has to enforce competition law. To date, the CMA has only been able to seek enforcement of consumer laws through the courts (see our previous alert).

The Bill introduces a new administrative model”. This will give the CMA authority to decide if certain consumer laws have been breached, require compliance, impose “enhanced consumer measures” as compensation and impose monetary penalties. 

Possible penalties for infringements will rise dramatically:

The CMA will also have the ability to impose fixed penalties on individuals (of up to GBP300,000) for these infringements and will continue to be able to make use of its enforcement powers via civil and, in the most serious cases, criminal courts. 
In an important safeguard, decisions of the CMA which could directly or indirectly lead to the imposition of a monetary penalty will be the subject of a full merits appeal, and penalties or redress measures will be suspended during the appeal process.

7. CMA will have an enhanced toolkit to tackle unfair practices

The government plans to deal with areas of consumer harm particular to the digital age, to protect consumer cash online. Of most importance are new provisions on:

• Fake reviews: secondary legislation is planned to introduce bans on: (i) commissioning or incentivising someone to write or submit a fake review; (ii) hosting consumer reviews without taking reasonable steps to check they are genuine; and (iii) offering or advertising to submit, commission or facilitate fake reviews
• Subscription traps: rules will require businesses to, eg, (i) provide clear information to consumers before they enter a subscription contract; (ii) issue a reminder to consumers when a free trial or introductory offer is coming to an end, and a reminder before a contract auto-renews onto a new term; and (iii) ensure consumers can exit subscriptions in a straightforward, cost-effective, and timely way 

What next?

The Bill will now make its way through the parliamentary approvals process.

The CMA will meanwhile be busy getting to grips with the scope of its new powers and preparing to make full use of them when the Bill is enacted. In particular, it may be scoping out potential new market inquiries, and will no doubt be keen to make a mark with its bolstered consumer law enforcement powers, for example (as noted in its most recent Annual Plan), in areas of essential spending and where consumers are under particular financial pressure. 

Businesses should start preparing now, especially to ensure that their dealings with consumers fall on the right side of both current and prospective consumer protection rules.

We will keep you updated as matters develop. Please be in touch if you would like to discuss any aspects of the new rules.