Speech

CMA update: changes to the UK competition regime

Speech reporting on the CMA's progress and changes to the UK competition regime brought in under the ERR Act.

Sir Alex Chisholm KCB

Good morning, and thank you for the opportunity to address this conference today. I accepted this invitation because I wanted to have the chance to communicate specifically with in-house counsel.

After 6 months in the job, this will be my final speaking engagement in my role as the Chief Executive Designate of the Competition and Markets Authority (CMA). As of next Tuesday, there will be no more ‘Designate’ about it, and I will be the Chief Executive of a legally constituted CMA under the Enterprise and Regulatory Reform Act.

With only 6 months left to go until the CMA takes on its new set of powers, tools and responsibilities as the UK’s single competition authority, this is therefore an excellent time for businesses to be gearing up to work with the CMA – and for me to be setting out how the CMA sees its relationship with business.

Today I’ll look firstly to give you an overview of where we are with the CMA and the institutional changes to the regime, and then set out some of the key legislative changes to the competition regime brought in under the ERR Act. In a third section, I’ll set out some thoughts on how we see the CMA working with business to preserve and enhance the kind of competition that we need to see in markets, and why it’s therefore so important for businesses of all kinds to make a priority of engaging with the new competition regime.

The rest of today’s programme looks to be full of opportunities to enhance and add to your knowledge and skills, and I’m hoping that I can also help you to make the case to your employers that they should be taking the fullest possible advantage of your advice and counsel about how to stay within the boundaries of competition law.

Progress towards the CMA

As you’d expect, with the CMA just days away from becoming a reality, a vast amount of work has been completed to get the organisation into the shape it needs to be in at this point. Much of this work has been about the kind of nuts-and-bolts, behind-the-scenes planning necessary to underpin the organisation itself – for example, making the best possible use of our accommodation at Victoria House, or giving our staff the IT tools necessary to enable them to work effectively. But we now also have in place some of the most crucial aspects of what the CMA will be and how it will achieve its aims.

The CMA Board, which will act as a key source of advice and guidance and will bring the highest standards of challenge and rigour to our decision-making, has been appointed and will shortly hold its first formal meeting. We have been able to attract former heads of the EU and US competition agencies as well as people with vast business and academic experience, also to retain expertise and knowledge from the current regime whilst bringing in important new voices and perspectives.

Similarly, the new executive leadership team for the CMA combines key experience from the current competition and markets regime with new appointments who will bring their own viewpoints and ideas.

Those of you who have dealt with the OFT in an enforcement context will need no introduction to Sonya Branch, for example; having joined the OFT from Clifford Chance, she has gained a wealth of experience across the OFT’s range of different activities, and will bring this to bear as well as implementing the CMA’s new powers and procedures as Executive Director of Enforcement.

We are also delighted to have appointed Sarah Cardell to be our General Counsel - some of you will doubtless know Sarah from her time at Ofgem, or as a partner at Slaughter and May, where she gained what I’m sure will be an invaluable understanding of what it is like to go up against the competition authorities.

And in Mike Walker and Andrea Coscelli we have 2 very expert and experienced competition economists to help give leadership and direction to our case work, ensuring that is as well informed by economic analysis as it is by legal advice.

At a more practical level, we are now consulting on our second tranche of guidance documents setting out the policies and procedures that will govern the CMA’s approach to its work. We have had a healthy response to our first guidance consultation - 60 responses from 24 different organisations - and we’re very grateful for this.

Given that tranche 2 covers issues around concurrency with other regulators, the CMA’s use of its consumer law enforcement powers and its approach to the revised criminal cartel offence, I’m expecting that the response to this latest set of documents may be even larger. I certainly hope so – whilst the draft guidance represents a lot of careful work from a range of people, we’re very keen to hear and to learn from those who have different perspectives on and experience of the competition regime.

There will be a launch event for the CMA next week - I hope to see some of you there – at which David Currie and I will be saying more about the organisation’s vision, its mission, and its strategy for achieving the aims we set for it. I won’t go too far into this today, but I am particularly looking forward to setting out our ambitions for the new authority.

In addition to the external expectations that the CMA will be looking to meet, we want to set ourselves some very testing targets, so that we can be sure that we are providing a significant step up in outcomes from what is already a world-class competition regime.

Changes to the competition regime

So that is where we stand with the new institution; but aside from the move to a single authority, how will the regime itself be different from the one you’re used to? Some of the headline changes and similarities to note are:

  • there will be an enhanced administrative approach to anti-trust cases, building on widely welcomed changes already implemented by the OFT, to improve the speed of the process and the robustness of decision-making. The CMA will have new powers to impose civil sanctions for failing to comply with investigations and to require individuals to answer questions.

  • there will be a new test for the criminal cartel offence, with the requirement on prosecutors to prove dishonesty in the offending conduct removed, and new defences and exemptions introduced. The government’s aim in this change was to make the offence less difficult to prove, leading to more successful prosecutions and therefore maximising the deterrent effect of the offence.

  • for market investigations, there will be more demanding time limits for all stages, the CMA will have stronger powers to gather information at phase 1, and it will be able to conduct cross-market inquiries into particular practices and to consider public interest issues alongside competition issues in reporting to the Secretary of State. Decisions at phase 1 will be taken by the CMA Board and at phase 2 by independent CMA Panel members.

  • in merger cases, the CMA will have stronger powers to suspend and reverse integration between firms, and to impose penalties for failure to comply with such interim measures, as well as enhanced information-gathering powers. There will be statutory timescales for all parts of the merger process, and also a time-limited period after the phase 1 decision where merging parties can offer and negotiate undertakings in lieu of a referral to phase 2. Phase 2 decisions will continue to be taken by an independent panel of experts, preserving the ‘fresh pair of eyes’ that is a highly valued feature of the current system.

  • and the CMA and sectoral regulators are to apply competition law more proactively in the regulated sectors and improve case management, following both changes set out in the ERR Act and the new Ministerial steer to the CMA setting out the government’s broad expectations for the competition regime and how its work should fit with the government’s wider economic priorities.

I’m aware that the introduction of the strategic steer to the CMA has raised some eyebrows and questions as to how it will affect the independence of the regime. I don’t share these concerns. The steer is high level, rather than based on detailed prescriptions, and is subject to public consultation.

Rather than any kind of threat, we feel the strategic steer is better understood as being driven by the increasing awareness in government of the importance of the competition regime as a part of its economic toolkit, and one that has much to contribute to the drive to return to sustainable growth in the UK.

There is indeed significant potential for the revamped competition regime to do more to bolster and enhance economic growth – a fact recognised by the government in its decision to make changes to what was already a very high-quality regime – and it is fully recognised that the CMA will need to maintain its independence in order to deliver on this potential.

Enforcement under the new regime

There are many things we will need to get right in order to achieve our objectives, but of all these, the most vital – at least in the initial stage – will be our enforcement work. Competition and consumer laws need to be effectively enforced to have the intended benefits for markets and consumers.

If as an agency one cannot manage effectively a portfolio of enforcement cases, one’s credibility, both in private negotiation and public advocacy, will inevitably be compromised.

And it is not only consumers that will suffer from this - so too will firms who are downstream customers of cartelists, and firms who want to challenge the existing order with new innovations and offerings. Or firms already in the market who play by the rules and therefore face disadvantages if rivals can break rules with impunity.

So I am expecting support from the firms and advisers represented here as we pursue our enforcement agenda, and try to build a strong deterrence and culture of compliance.

Whether we achieve our intended effects on markets through criminal or civil enforcement that ends in sanctions severe enough to provide effective deterrence, or through negotiating improvements in firms’ behaviour through undertakings or commitments, or by more informal measures that lead to improved outcomes for consumers, we need to make sure that we have a flow of timely and well-managed cases across our responsibilities and our range of tools.

This focus on more and better enforcement, building on the OFT’s efforts to improve through its Enforcement Academy, is something that we are working to hardwire into the CMA across all of our work on the design of the organisation. I mentioned earlier Sonya Branch’s appointment as Executive Director of Enforcement, and this will be a crucial role for the CMA, heading up our new Enforcement Directorate, bringing enhanced consistency and rigour to all of our enforcement work as well as ensuring that we are fully using the new powers granted to us, learning the lessons of the past and building on the significant procedural enhancements brought in by the OFT in 2012.

We are aiming to facilitate improved enforcement across the whole of the competition and consumer landscape, not just in the cases that fall to the CMA. On the consumer side, the drive to join up enforcement work is well underway with the introduction of new coordination mechanisms and some changes to the distribution of institutional responsibilities. The CMA will be an enforcer in this area, using its powers under consumer law to address market-wide problems.

It will also be an active participant in the drive to ensure that UK consumer enforcement is more than the sum of its parts, whether through leading on areas such as unfair contract terms or working to coordinate the activities of regulators with consumer powers.

It is equally vital that we and our enforcement partners act in a consistent and integrated manner across the competition regime, and the CMA has a greater degree of responsibility for ensuring that this happens. The government has set out a clear expectation that there will be a significant step up in the application of competition law and competition policy in the areas covered by sectoral regulators, and we will be working closely with those regulators to help them to achieve this, making the best possible use of our combined expertise and experience.

As well as collaborating more regularly on individual cases and projects, we are also putting in place with the sectoral regulators a UK Competition Network, through which we will come together to develop pro-competition regulatory frameworks and to drive up the capacity of enforcers to deliver competition work.

And there are a range of other bodies we will need to work effectively with – such as our international colleagues and partners, including DG-Comp who you will be hearing from shortly, enforcers in related areas such as the Serious Fraud Office, or the range of organisations that represent the consumer interest. We all recognise that we can deliver more, in the enforcement context and elsewhere, when we combine our efforts with others working to the same ends.

Implications for business

I haven’t yet mentioned working with the business community. But business will of course be a key partner for the CMA in delivering on its aim of promoting effective competition in markets. So I’ll conclude my remarks today by setting out my thoughts on the relationship between the CMA and business, and what the implications of the new competition regime for business might be.

It is of course crucial for the CMA to understand the world of business, and the CMA has been put together with this fully in mind. David Currie, as you know, brings appreciable business, as well as much other experience, to his role as Chairman. The CMA’s pool of independent panel members will include a range of people with business experience that they can bring to their work on CMA decisions, and its Board have between them held many senior positions in retail, media, banking, utilities, consulting and other areas.

I can also point to my own career in this regard, half of which has been spent in the private sector, where I have worked for companies small and large from start-ups to FTSE 100. And amongst the many dedicated professionals within the staff of the CC and OFT, there are many with first-hand experience of operating in a commercial environment, whether as financial advisers, consultants or business executives. I would hope that we can take full advantage of this great store of business experience and understanding going forward. One simple but key insight that we’ll be applying is that most firms do want to comply with the law. The trick for the competition authority, therefore, is to make that as easy as possible.

Given your expertise and the fact that your employers are able to devote significant and growing resources to compliance with competition law, I would expect that the shift to the new regime will not give you too much cause for concern in terms of achieving compliance. You will of course also have access to the CMA’s guidance as to how it interprets the law and will use its powers, and there is also a body of case law built up over the life of the current regime to provide further certainty – a significant benefit from the choice to enhance the existing regime rather than going with a full shift to a prosecutorial model.

We also hope to build on some of the OFT’s softer compliance tools such as videos and guides which I know have been very well received by businesses and advisors.

On top of all of this, the CMA will aim for the highest standards of transparency and predictability in its work, communicating its actions clearly and making firms under investigation fully aware of where they stand in our enforcement process.

An agency with our responsibilities cannot and should not expect all the companies we deal with to welcome our attentions or approve of all the actions we take. But we will aim to be very professional in our standards, clear and consistent in our analysis, and fair as well as firm in our judgements. And companies naturally will want us to manage our costs and our timeframes as efficiently as possible. Combining the authorities responsible for both phases of merger and market cases should allow us to eliminate duplication, for example in information requests, that exists in the system now. It also allows us to look again at how we do things to ensure that we place no greater burden on business than is necessary for us to do our job.

But whilst we’ll be working to help firms to achieve compliance across all of our work, that’s not all that we want from you.

Where competition law enforcement is not effective, the breaches of the law that ensue have wide-ranging and damaging effects – including, as noted earlier, on those who have played by the rules.

There are always victims to this type of economic crime, including businesses as well as consumers, so it is very much in the interests of business to actively support the kind of strong and effective competition enforcement regime that we want the CMA to deliver.

Whether that’s through your input into our consultations on policy and procedure, helping us to understand new and innovative markets or business models, providing us with intelligence on potential breaches of competition law by other firms, or steering your colleagues away from potentially illegal and dangerous conduct, I’m very much looking forward to working with you and the wider business community to achieve the economic impact that we all want the CMA to have.

Thank you very much.

Updates to this page

Published 26 September 2013