Correspondence

Summary of proposals from Andrew Tyrie, CMA Chair, to the Secretary of State for Business, Energy and Industrial Strategy

Published 25 February 2019

In brief

In August 2018, the Secretary of State for Business, Energy and Industrial Strategy asked Lord Tyrie, Chairman of the CMA, to make proposals on legislative and institutional reforms to safeguard the interests of consumers and to maintain and improve public confidence in markets^{[footnote 1]}. These proposals were sent to the Secretary of State on 21 February 2019 and have been published in full today.

The twin challenges posed by the growth of the digital economy, and declining public confidence in market competition, require reforms to competition and consumer protection law and policy.

The proposals create new duties and responsibilities on the CMA to enable it better to respond to these challenges. This includes an overriding statutory duty to treat the interests of consumers as paramount. The new duties would be backed by strengthened tools and powers to facilitate earlier and more robust intervention to address consumer detriment, and to deter wrongdoing.

It is also proposed that the CMA relinquish certain powers and functions, or its lead responsibility for them, including the review of certain decisions by economic regulators, and the prosecution of criminal cartels, enabling it to focus more effectively on its core responsibilities.

Changes are recommended to merger control to help the CMA work effectively with international counterparts after Brexit.

Consequential and supporting changes are proposed to the process of review of CMA decisions by the courts.

In detail

New duties and responsibilities

The CMA’s existing statutory duty is to “promote competition, both within and outside the United Kingdom, for the benefit of consumers”. It is proposed that this duty be changed so that the economic interests of consumers, and their protection from detriment, are paramount (page 9 in the letter).

It is also proposed that the duty apply to the courts (including the Competition Appeal Tribunal) that review the CMA’s decisions, so that both operate with a shared objective to put the consumer first.

Further duties are also proposed, including a statutory requirement on the CMA to conduct its investigations swiftly, while respecting parties’ rights of defence (page 31 in the letter).

It is expected that – backed by the new tools and powers described below – these new duties will increase the scope and speed at which the CMA can act to address new and emerging forms of consumer detriment, particularly in digital markets, and to protect vulnerable consumers. In particular, the overriding consumer interest duty would support existing and proposed powers for the CMA to act on an interim basis, to put a stop to (for instance) anti-competitive behaviour, unlawful trading practices or unfair contract terms, pending a final decision on whether the law has been broken.

New tools and powers

To support the CMA in meeting its proposed new duties and responsibilities, changes are proposed to its powers and functions, some of which are set out below.

Interim measures. To better enable the CMA to protect consumers in competition cases, reforms are proposed to “access to file” requirements, so that they are in line with corresponding evidence provision requirements in civil litigation (page 10 in the letter).

Market studies and investigations. The CMA can conduct studies and investigations in markets, and order legally-binding remedies to address adverse effects on competition. This framework has some significant defects. It can take over three years before the CMA is in a position to order binding remedies. And there is a difference in scope between market studies (which can look at any adverse effects on consumers) and market investigations (which must look in particular at adverse effects on competition). The proposals to reform the markets regime include:

• More closely aligning the scope of market investigations with that of market studies, so that they both consider adverse effects on consumers (including but not limited to those arising from adverse effects on competition, page 14 in the letter).
• Allowing the CMA to impose legally enforceable requirements (“remedies”) to address adverse effects on consumers, without having to show that they arise from adverse effects on competition (page 14 in the letter).
• Allowing the CMA to impose remedies on firms in a market at an earlier stage, on an interim basis, if necessary to protect consumers (page 15 in the letter).
• Fines for firms that fail to comply with remedies, in line with the fining powers available to other regulators for failure to comply with regulatory requirements (page 16 in the letter).

It is also proposed that the CMA be given a broader ability to accept undertakings and commitments from firms, and that compliance with them be supported by fines (page 15 in the letter).

With these reforms, the CMA could be expected to engage more with businesses and with the public prior to initiating “formal” markets work. There would also be a stronger incentive for firms to listen, engage and take steps to address concerns the CMA might have about market conduct, in advance of a formal market study or investigation. Legal protections may also be required for the CMA informally to communicate with business and with the public in this way (pages 16-17 in the letter).

Consumer protection. The CMA enforces consumer protection legislation to tackle practices and market conditions that make it difficult for consumers to exercise choice. The enforcement powers available to the CMA provide only weak deterrence to wrongdoing, both in comparison with competition enforcement, and by international standards. A principal deficiency is that – in contrast to its powers to enforce competition law – the CMA cannot order the cessation of practices it considers to be illegal, and must instead pursue businesses through the courts. Even when the CMA wins in court, no fines are available – a deficiency the Government has already proposed to remedy through legislation. It is proposed that the CMA:

• Should itself be able to decide whether consumer protection law has been broken; declare the fact publicly; direct businesses to bring infringements to an end; and impose fines. The CMA’s decisions would then be subject to appeal, just as they are in competition cases (pages 20-21 in the letter).
• Be able 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 (page 21 in the letter).

Both these changes would bring the CMA’s powers to enforce consumer law into line with those of competition law.

Individual responsibility. There is only limited personal responsibility for competition and consumer protection law compliance. The deterrent effect of enforcement could be enhanced through civil fines for individuals found to be involved in serious competition law infringements, but further work would be needed to assess the merits of such a change (page 23 in the letter). For the most serious breaches of consumer law, it is proposed that the CMA could be able to seek the disqualification of company directors, just as it can for competition law infringements (page 24 in the letter).

Changes to corporate governance are also proposed for public companies to improve board-level responsibility for compliance with the law. This could include requirements to appoint a board director with responsibility for assessing and reporting on compliance risks; and a requirement on auditors to report compliance risks identified during the course of their work (page 24 in the letter). Further work and consultation would be required on such changes.

Whistleblowing. Whistleblowers are important to the CMA’s work, and particularly its enforcement against cartels. Currently, they are inadequately compensated for the risks they incur to their livelihoods and careers, and insufficiently protected from having their identities disclosed. The fines imposed by the CMA are paid into the Consolidated Fund. There is merit in a framework to enable the CMA to raise the £100,000 cap on compensation to enable the CMA better to compensate whistleblowers, without budgetary consequences (page 27 in the letter). Work has not yet been initiated on this proposal. It is also proposed that consideration be given to changing the law to make it explicit that, when the courts decide whether a whistleblower’s identity should be revealed, they must give due weight to the importance of anonymous whistleblowing to competition law enforcement in the public interest (page 28 in the letter).

Auditors may also provide an important source of information to the CMA; but there is no duty on them to notify the CMA of competition or consumer law infringements that they identify during the course of their usual work. Such a requirement could provide useful information, and there may be merit in it being considered as part of Donald Brydon’s Review of UK Audit Standards (page 28 in the letter). An analogous requirement already exists in respect of breaches of FCA and PRA rules by financial services firms.

Investigatory and information-gathering powers. The CMA relies on information supplied by businesses to conduct its enforcement, mergers and markets work. But the sanctions on firms that refuse to provide information, or that supply false or misleading information are weak or non-existent. Turnover-based fines are proposed for firms that do not comply with the CMA’s requests (page 30 in the letter), or that provide false or misleading information (page 31 in the letter), bringing the CMA into line with a number of other competition authorities.

Proposals are also made to expand the scope of the CMA’s information-gathering powers. Currently, the CMA can only require information from companies as part of a formal investigation. A general power to require information may have merit, to enable the CMA to identify, monitor and respond to problems in fast-moving markets; but further work is required to consider the appropriate scope and limitations of such a power (page 32 in the letter). Further changes may also be required to keep pace with the way information is obtained, used and stored, and to ensure effective investigation of companies located outside the UK (page 33 in the letter).

Court review. It is vital that the CMA be subject to a judicial process by which those it considers to have breached the law can challenge the decision. But for competition cases in particular – that is, cases where firms are found to have abused a dominant position or participated in anti-competitive agreements – the appeal process has diverged from the original intentions for the Competition Appeal Tribunal (CAT), when it was created in 2003: namely, to avoid proceedings of inordinate duration, and keep oral hearings as short as possible. Changes are proposed to the standard of review of the CMA’s competition decisions, and to the rules of procedure of the CAT, with a view to improving the efficiency of the appeals process, and bringing the duration of proceedings more closely into line with the original intentions for the CAT, while respecting due process and protecting businesses’ proper rights of defence (page 36 in the letter). It is also proposed that, when the CAT decides to vary a fine imposed by the CMA, it be required to set out its reasons with reference to the penalties guidance drawn up by the CMA, and approved by the Secretary of State (pages 39-40 in the letter).

Merger control. Brexit could have important implications for merger control UK, in part because the CMA will need to review a larger number of multi-jurisdictional mergers that would previously have been considered by the European Commission. The existing rules, whereby firms notify the CMA of mergers on a voluntary basis, may need amendment, so that the CMA can work effectively with international counterparts. With this in mind, proposals are made to require mandatory notifications of mergers above a certain threshold, accompanied by a “standstill obligation” designed to prevent parties from proceeding with the transaction prior to the CMA’s approval (page 42 in the letter). It is also proposed that higher or full cost recovery from merging parties be reconsidered (the CMA currently recovers around half the cost of its mergers work from fees paid by merging parties, page 43 in the letter).

Reduction in legal responsibility or powers

The CMA handles references and appeals of certain decisions made by the sector regulators, concerning, among other things, licensing conditions, industry code modifications, tariff methodologies and price controls. Transferring this function from the CMA to the courts would simplify appeal arrangements across the regulatory landscape, and enable the CMA to put more resources into the investigation and remedy of consumer detriment (page 40 in the letter).

The CMA has primary responsibility for criminal prosecutions of those involved in “hard-core” cartel activity (a subset of competition law infringements). In practice, it has been difficult and costly to bring prosecutions. Because hard-core cartel prosecutions are only a small part of its overall enforcement work, the CMA does not maintain the scale of specialist expertise normally possessed by agencies with powers of prosecution. Primary responsibility for cartel prosecutions may sit more naturally with an agency that routinely brings criminal prosecutions, such as the Serious Fraud Office, and the case for this merits reconsideration (page 25 in the letter).

1. Section 7(2) of the Enterprise Act 2002 authorises Ministers to request the CMA “to make proposals or give other information or advice on any matter relating to any of its functions; and the CMA shall, so far as is reasonably practicable and consistent with its other functions, comply with the request”. Under section 7(1), the CMA has responsibility for making proposals, or giving information and advice, ‘‘on matters relating to any of its functions to any Minister of the Crown or other public authority (including proposals, information or advice as to any aspect of the law or a proposed change in the law).’’ ↩