New UK Competition Regime Enters Into Force

New UK Competition Regime Enters Into Force

On 1 April 2014, the changes to UK competition law brought about by the Enterprise and Regulatory Reform Act 2013 take effect. Companies need to be aware of the heightened regulatory risk as a result of the changes in a number of areas. These include stronger investigative powers, possible earlier intervention in mergers raising substantive issues, the likelihood of increased antitrust enforcement in regulated sectors, and potentially greater exposure to personal liability.

The key reforms are: 

     A new competition regulator, the Competition and Markets Authority (“CMA”);

     Procedural changes to antitrust enforcement (but no substantive changes);

     New powers in market investigations;

     Statutory time limit for Phase 1 merger reviews, stronger powers to make interim orders in respect of anticipated and completed mergers;

     Sectoral regulators to make greater use of their competition law powers; and

     A new test for the criminal cartel offence, along with new statutory exclusions and defenses.

The New CMA

The Office of Fair Trading (“OFT”) and the Competition Commission (“CC”) have been integrated to form a single body – the CMA. This body is now responsible for antitrust enforcement, merger control, and sector-wide market investigations in the UK. The benefits of having a single authority should be more efficient processes, greater coherence in decision-making, and more flexible and efficient use of resources.


Essentially, the CMA will function in much the same way as the OFT and the CC. The CMA Board will be responsible for the overall strategy and performance of the CMA, as well as for Phase 1 reviews of mergers and market investigations. Independent panels of experts (similar to the senior lawyers, economists, accountants and business professionals who were at the Competition Commission) within the CMA will be responsible for Phase 2 reviews. This division of responsibility should ensure that there continues to be an independent “fresh pair of eyes” approach to Phase 2 investigations. Some members of the Phase 1 case team will transfer to the Phase 2 case team to ensure continuity, but the presence of the panel plus new case team members brought in at Phase 2 should minimise the risk of confirmation bias, as the majority of Phase 2 decision-makers will be distinct from the Phase 1 decision-makers.


Effective enforcement will be a key priority for the CMA – it has indicated that it intends to launch at least four new antitrust investigations in 2014/15, on top of focusing on the cases that it has inherited from the OFT and CC. The CMA has also indicated that a key goal will be to apply competition law more effectively in regulated sectors, which is reflected in the changes to the concurrency regime described below. It has identified markets for public services as target areas for enforcement, such as the health and education sectors, and markets which impact on particularly vulnerable consumers. Online markets will also continue to be on the radar of the authority.

Stronger Antitrust Enforcement

Two-tier approach retained: the decision-making structure introduced by the OFT in October 2012 will remain the same for antitrust cases, with a separate investigating team and a Case Decision Group made up of senior officials who will be responsible for final decisions. It is possible that the independent CMA panels may play a role in deciding on antitrust cases, but it is not yet clear how this is expected to work in practice and under what circumstances. Hopefully the CMA will find a way of involving panel members at an early stage – their wealth of experience and expertise should lead to robust, high quality decision-making.

Stronger powers of investigation: the CMA has a new power to require individuals connected to the company under investigation (including directors, current and former employees, consultants, contract staff, volunteers, and professional advisers to the business) to answer questions about the suspected infringement at any point during the investigation, including during a dawn raid. The CMA must give notice to the individual it wishes to interview, and will give a copy of the notice to the company if the individual has a current connection with the company – but a company will not be notified if the CMA wishes to interview an ex-employee. This will make it more difficult for former employers to control the disclosure of information to the CMA. The interviewee may request the presence of a lawyer, but the CMA considers that it will generally be inappropriate for a legal adviser acting only for the company to be present at the interview – despite the fact that it is the company that is under investigation rather than the individual. It considers that in certain circumstances there may be a risk that the presence of the company’s lawyer could prejudice its investigation, for example by reducing the incentive of the interviewee to be open and honest. If this is the case, the individual may wish to consider getting separate legal representation.


The CMA has the power to impose heavy civil financial penalties on parties who do not comply with certain formal requirements during antitrust investigations (e.g. failure to respond to an information request or to answer questions in a compulsory interview). Criminal sanctions remain for intentionally obstructing entry to premises and for falsifying or destroying documents.


Lower threshold for interim measures: the CMA can intervene earlier and more often to prevent certain conduct pending the outcome of an investigation. Previously, interim measures could only be imposed where the conduct would cause “serious, irreparable damage” to another business. The threshold has now been considerably lowered – the CMA can apply interim measures where continuing the conduct would merely cause “significant damage” to another business. Examples of “significant damage” include financial or reputational damage.

Market Investigations

Shorter timescales: new time limits have been introduced for market investigations, supported by wider information gathering powers at all stages of the markets regime. At Phase 1, the CMA will have to consult on making a market investigation reference within 6 months of launching a market study, and it cannot take more than 12 months to make a market investigation reference. All market studies must be concluded within 12 months of being launched. The Phase 2 time limits are reduced from 24 months to 18 months, with the possibility of a 6 month extension in special circumstances. There is also a 6 month time limit for the CMA to implement remedies in Phase 2, with the possibility of a 4 month extension. The tighter timescales and stronger information gathering powers may lead to more compressed investigations, with less flexibility on moving deadlines in respect of information requests.

Cross-market references: the CMA has a new power to conduct investigations of practices that impact on more than one market without the need to make multiple market investigation references. It remains to be seen how the CMA will handle in-depth investigations which will invariably involve a large number of parties in various markets within tighter timescales. There may be an increase in the number of market investigations, particularly in respect of sectors that are subject to negative media publicity.

Public interest: the CMA will also now be able to investigate issues of public interest, such as national security, alongside competition issues, if so directed by the Secretary of State.


Powers to intervene in proposed mergers and to unwind integration: merger filings remain voluntary in the UK, and the filing thresholds are unchanged (that is, where two or more enterprises cease to be distinct and either (i) UK turnover associated with the enterprise which is being acquired exceeds £70m (“turnover test”), or (ii) as a result of the merger a share of 25% or more in the supply or consumption of goods or services of a particular description in the UK (or in a substantial part of the UK) is created or enhanced (“share of supply test”)). The regime has nonetheless been strengthened by giving the CMA the discretion to suspend all integration steps in a proposed merger (previously the OFT could only make “hold separate” orders in respect of completed mergers). The CMA also has the ability to reverse integration steps that have already taken place. In some cases, it might impose a prohibition on completion, where the act of closing would itself prejudice the CMA’s ability to impose remedies for any competition concerns it subsequently identifies – for example, where a closing would automatically lead to the loss of key staff or management capability for the acquired business. The threshold for intervention is low: the CMA can impose interim orders as soon as it has reasonable grounds for suspecting that two or more enterprises have ceased to be distinct or that arrangements are in progress or in contemplation which, if carried into effect, will result in two or more enterprises ceasing to be distinct. There will be no need to establish that the other jurisdictional thresholds (turnover or share of supply test) are met.

These powers are to be backed up by hefty financial penalties – the CMA will be able to impose a penalty of up to 5% of group worldwide turnover of the acquirer and/or to seek a court order to ensure compliance with a hold separate order.

New statutory timetable and Merger Notice: a time limit of 40 working days for Phase 1 merger investigations has been introduced, and mergers must be notified using the prescribed statutory Merger Notice. While this should in principle make Phase 1 reviews shorter, it might also make pre-notification discussions with the CMA longer, as case teams will have considerable discretion to decide when the 40 working day period starts running. The new Merger Notice requires the parties to provide a large amount of information but the CMA has indicated that it will adopt a reasonable approach to assessing what information will be required in cases that do not raise substantive issues.

There are time limits on the undertakings in lieu (“UIL”) of a Phase 2 reference process: parties will have 5 working days from the date of the Phase 1 decision to agree UILs. The CMA has a further 50 working days in which to accept the UILS (extendable by a further 40 working days). The introduction of these statutory deadlines will place time pressure on the parties to agree on suitable undertakings, but on a positive note, the parties will have sight of the CMA’s reasoning and so will be able to design remedies to address the specific concerns identified.

In relation to Phase 2 cases, a 12 week statutory time limit from the publication of the final report is introduced for the implementation of remedies


Sectoral regulators (Ofgem, Ofcom, Ofwat, CAA, ORR) have had the power to enforce competition law for many years. However, in practice, the sectoral regulators have not used these competition powers very often, and the Government is concerned that competition law is not being enforced as proactively as it should be. The Government recently gave concurrent competition powers to Monitor, the health regulator, and the Financial Conduct Authority will also have concurrent powers from April 2015.

The new regime strengthens the primacy of competition law by requiring the sectoral regulators (except Monitor) to consider whether competition law enforcement is the most appropriate form of action in order to promote competition before using their sectoral powers. This could mean increased competition enforcement by the sectoral regulators, particularly given that the CMA has stated that it sees the regulated sectors as a target enforcement area.

The CMA will report annually on the use of concurrent powers in the regulated sectors. This will ensure greater visibility as to whether or not the sectoral regulators are indeed making use of their competition powers. The CMA will also have the power to decide whether it, or the appropriate sectoral regulator, should take the lead on a case. The CMA also has the power to take over a case from a sectoral regulator, even if an investigation has already begun. There will also be increased cooperation between the CMA and the regulators via the UK Competition Network (“UKCN”). The UKCN will serve as a forum to share best practice, identify opportunities to use competition or regulatory powers, and to cooperate with respect to competition law enforcement. This includes identifying cases and candidates for market studies, and sharing information about cases (subject to suitable disclosure barriers).

The Secretary of State has the power, following notification and consultation procedures, to remove concurrent powers of a regulator where he considers this appropriate in order to strengthen the promotion of competition in the interests of consumers. This should incentivize regulators to make use of their competition powers, or risk losing them.

A New Test for the Criminal Cartel Offence

Removal of the dishonesty requirement: the most controversial reform is the new test for the criminal cartel offence. Under the previous legislation, individuals involved in hard-core cartels (price-fixing, limiting output, bid-rigging or market-sharing) faced imprisonment if found guilty of breaking the law provided that their behavior was “dishonest”. The revised legislation has removed the ‘dishonesty’ element, which effectively means that any reciprocal agreement under which prices are agreed or markets shared between businesses operating at the same level of supply or production would be caught, irrespective of the effect on competition or any efficiency justifications. That is to say, agreements that are permissible under the civil competition regime because, for example, they benefit from an EU Block Exemption or from Article 101(3) of the Treaty on the Functioning of the European Union or the equivalent UK legal provision, could nonetheless violate the UK criminal cartel offence. The major concern here is that the offence could technically catch a vast number of perfectly legitimate commercial agreements, such as production joint ventures between competitors which involve joint distribution, R&D agreements between competitors which allocate territories or customers, and syndicated loan agreements, for example.


New exclusions from the offence: the cartel offence is not committed if customers are notified of relevant information (previously, such an exclusion only applied specifically to bid-rigging arrangements where the person requesting the bid was notified in advance). The offence will also not be committed if the relevant information is published in the London, Edinburgh or Belfast Gazette (“the publication exclusion”). “Relevant information” means the names of the undertakings to which the arrangement relate; a description of why it is, or might be, that the arrangement causes the cartel offence to apply; the products or services to which the arrangements relate; and any other information ordered by the Secretary of State. In addition, the new legislation provides that an individual will not commit an offence if the agreement is made in order to comply with a legal requirement.

New defenses: during the consultation process, there was strong opposition to the proposal to broaden the scope of the offence by removing the dishonesty requirement, and concerns as to how the exclusions would work in practice. To try and address these concerns, the legislation has introduced a number of defenses for the defendant to prove. A person will have a defense if s/he can show that they:


     did not intend that the nature of the arrangements concerned would be concealed from customers at all times before entering into the agreement in question; or

     did not intend, at the time of making the agreement, that the nature of the arrangements would be concealed from the CMA; or

     took reasonable steps to ensure that the nature of the arrangements would be disclosed to professional legal advisers for the purposes of obtaining advice before their making or their implementation.


There is considerable uncertainty as to how these defenses will operate. The legislation and the CMA’s prosecution guidance do not explain how an individual charged with the offence will prove that he/she did not intend to conceal the nature of the arrangements from customers, particularly in situations where there is a need to maintain commercial confidentiality. OFT officials have previously informally stated that it would be sufficient for a defendant to show an absence of intention to conceal the arrangements. So for example, a written agreement could indicate an absence of intention to conceal. Similarly, if the agreement is openly discussed in the company and in the presence of those responsible for competition compliance, this might indicate a lack of covert behavior. Unfortunately none of this is reflected in the prosecution guidance, and clarification is unlikely to be given until the defense is first tested before a jury.


As for the second defense, it is difficult to see how an intention not to conceal arrangements from the CMA can be proved, as there is no obligation on parties to disclose the arrangements to the CMA. Indeed, the prosecution guidance makes it clear that it is not the intention that parties should notify their agreements to the CMA, and it is worth bearing in mind that if agreements are disclosed to the CMA, this does not preclude the CMA from taking civil antitrust enforcement against them at a later date.


The third defense should be easier to apply in practice, as it is a positive obligation to seek legal advice, and it applies to advice from both in-house and external counsel. However, it is not clear whether parties are expected to seek advice specifically about the cartel offence. Surprisingly, this defense does not appear to require the legal advice to be correct or even provided, and it does not require the legal advice to be followed or even taken account of. It could therefore be a powerful defense, and is likely to relied on the most by defendants. It is difficult to see how the CMA will manage to successfully prosecute individuals, given that this defense seems to provide for such a low threshold in respect of legal advice.


New prosecution guidance: the CMA has published high-level guidance on the circumstances in which it will determine whether or not to prosecute an individual. Unfortunately, the guidance does not elaborate on the exclusions and defenses described above, and although it emphasizes that the offence is intended to capture hardcore cartels, it does not explicitly state that the CMA will not prosecute legitimate agreements that technically fall within the scope of the new offence, but are not anti-competitive and are permitted under the civil competition rules. The guidance does set out a number of public interest factors that the CMA will consider when deciding to bring a prosecution:


     seriousness of the cartel – the CMA will consider factors such as the degree of limitation on consumer choice created by the arrangements, and the potential for the cartel to raise prices or restrict the supply of goods or services, as well as issues such as the vulnerability of the customers affected or potentially affected by the cartel;

     cartels that have been carried on for a prolonged period are more likely to be prosecuted;

     culpability of the individuals: the CMA will consider the extent to which the individual was the instigator or ringleader in the cartel. It will also consider whether the individual is or was in a position of authority or trust within the undertaking. If an individual had a very limited role in the arrangements, for a short period of time and/or was in a vulnerable position acting under the direct instructions of others that will be a factor in deciding whether a prosecution of that individual will be required;

     the extent to which the individual’s purpose was to preserve or increase the profits of their organization or to profit personally, by overcharging customers or by depriving them of choices between products or services, and so harming their interests;

     whether an individual was acting openly or not is an important factor to be considered by the CMA – covert behavior is more likely to indicate evidence of a hardcore cartel;

     the CMA will also consider whether the individual breached the company’s compliance policy, as well as evidence of attempts by individuals to report arrangements to senior management within the undertaking. If an individual has previously been found by a competition authority or a court to have participated in a cartel, he or she is more likely to be prosecuted;

     the CMA will also consider the impact of the cartel on the wider community such as the stifling of innovation or an impact on public funds, and it will also consider whether prosecution is a proportionate response.




The changes are, in the words of the CMA leadership, a matter of evolution rather than a revolution, and the fundamental substantive laws have not changed, with the exception of the criminal cartel offence. Many of the procedural reforms, such as two-tier decision-making to avoid confirmation bias, and tighter timescales, will resonate with those following recent and ongoing discussions at international level (OECD, International Competition Network) in relation to the need for procedural fairness in competition law investigations. The need for due process becomes all the more pronounced when personal sanctions are introduced for competition law violations (as is increasingly the case in Europe) or where the threshold for criminal liability is lowered (which is happening here in the UK). It also remains to be seen whether calls for a more efficient process and shorter timelines will lead the CMA to regularly exercise its power to impose fines for failure to comply with procedural formalities e.g. failure to meet deadlines for responding to information requests.


In summary, companies should bear in the mind the following points when doing business in the UK:


     An increased focus on antitrust enforcement: particularly in respect of regulated sectors, online businesses, markets affecting vulnerable consumer groups, and industries that supply goods and services to public authorities. The CMA has identified these as target areas for enforcement. Companies active in these areas should be aware of the heightened risk of regulatory intervention.

     More intensive investigations (antitrust, merger, and markets): companies can expect investigations across the board to be more pressurized due to new shorter statutory deadlines and stronger information-gathering powers, including the threat of financial penalties for failure to comply. Businesses should therefore check that they have adequate procedures and processes in place to deal with investigations appropriately.

     Individuals to the fore: the changes to the cartel offence and the CMA’s new power to conduct compulsory interviews in civil investigations increase the risk of personal liability. Companies should be aware that this is likely to change the dynamics of the employer/employee relationship, and should consider how to address this, particularly in light of the potential conflicts of interest that may arise.

     Market investigations: these are set to increase, and are likely to be more complex, especially as the CMA now has the power to conduct cross-market investigations. It is possible the CMA will use market investigations as a tool for enforcement action (this was the case with OFT’s market study into mobility aids, which led to an infringement decision in respect of sales of mobility scooters).

     Mergers: during the consultation process, there was much debate over whether the UK should move to a mandatory notification regime. Notification remains voluntary, but companies should be aware that this does not mean that UK merger control can be easily ignored. Companies should carefully consider the implications of the CMA’s strengthened powers to impose interim orders when deciding whether or not to complete a merger without first notifying it to the CMA and receiving approval.


This legal alert keeps the clients of the firm “Baker & McKenzie” and other interested parties abreast of changes in legislation that may, to one degree or another, affect their activity or cater to their particular interests. The opinions and commentaries expressed in this legal alert are not legal opinions and cannot replace the necessity of receiving legal consultations or opinions in specific practical situations.






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