Reform of UK competition law and consumer law regimes

On 20 April 2022, the Department for Business, Energy & Industrial Strategy ("BEIS") published a response to its July 2021 consultation "Reforming competition and consumer policy – Driving growth and delivering competitive markets that work for consumers" setting out its plan to introduce significant reforms to competition law and consumer law in the UK. Reforms are proposed in all areas of competition law from mergers to anticompetitive conduct and market investigations. In relation to consumer law, the government plans to fundamentally change the enforcement of consumer law by introducing an administrative enforcement model which will enable the Competition and Markets Authority ("CMA") to directly impose fines of up to 10% of global turnover on companies that break the law.  

Key takeaways

Competition law

• Updated merger control thresholds: (i) an increased turnover threshold for the acquired business of £100 million (up from £70 million); and (ii) a new jurisdictional threshold to target "killer acquisitions" which applies where at least one of the merging businesses has an existing share of supply in the UK of 33% and UK turnover of £350 million.
• The CMA will be granted enhanced powers to gather evidence and sanction companies for failing to comply with investigations (with fines of up to 1% of global turnover) and remedies (with fines of up to 5% of global turnover), including daily penalties for continued non-compliance.
• The CMA will have the power to revise, including by supplementing, remedies imposed following a market investigation, for a period of up to 10 years without having to re-open the investigation.
• The courts and the Competition Appeal Tribunal ("CAT") will be able to order exemplary damages in private competition law claims.

Consumer protection and enforcement

• Businesses should expect increased consumer law enforcement once the CMA has the power to enforce consumer law and to impose fines of up to 10% of global turnover for breaches.
• New laws will be introduced to tackle posting fake reviews and "subscription traps" to ensure customers can exit contracts in a straightforward, cost-effective and timely way.

Competition law

Following Brexit, the government has greater power to adopt a UK specific competition policy and law, and states that it is taking the "opportunity to implement regulations that work better for the UK" and "moving in a more agile way than the EU". 

Merger control – jurisdiction

As proposed in the July 2021 consultation, the government plans to amend the jurisdictional thresholds for merger control. To ensure that the merger control regime remains proportionate: 

• the target turnover threshold will be increased from £70 million to £100 million (in line with inflation); and
• a safe harbour will be introduced to exempt mergers from review where each party's UK turnover is less than £10 million.

Significantly, the government intends to introduce a new jurisdictional threshold designed to capture so-called "killer acquisitions" and vertical mergers. This new threshold will grant the CMA jurisdiction where at least one of the parties:

• has an existing share of supply of goods or services in the UK of 33%; and
• UK turnover of £350 million.

The share of supply and turnover thresholds for this new head of jurisdiction have been increased from 25% and £100 million (as initially proposed in the consultation) following feedback from stakeholders that the proposal could place a disproportionate burden on businesses and would capture a significant number of transactions that are unlikely to raise competition concerns. 

Notably, this new threshold can be satisfied by any party to the transaction and respondents to the consultation raised concerns that it will allow the CMA to review mergers where there is no UK nexus as the target does not need to have turnover or even activities in the UK. In its response, the government has indicated that there will also be a UK nexus criterion to ensure that only mergers with an appropriate link with the UK will fall within the CMA's jurisdiction. This will still result in a significant expansion of the CMA's jurisdiction and is consistent with recent case law where the CMA has taken a broad approach to jurisdiction to enable it to review mergers which, in its view, may give rise to competition concerns, such as Sabre/Farelogix (see our June 2021 newsletter). 

The introduction of a third jurisdictional threshold will add to the already increased administrative burden on merging parties in the UK following the removal of the UK from the EU one-stop shop post-Brexit and the new mandatory filing requirements under the National Security and Investment Act 2021 (see our Quickguide on the National Security and Investment Act).

For completeness, there are no current proposals to amend the jurisdictional threshold granting the CMA power to review transactions where a share of supply of 25% or more is created or enhanced. However, the government notes that it will continue to monitor how this is applied and may propose reforms in the future. 

Merger control – procedure 

The government continues to be of the view that the voluntary and non-suspensory regime is working well and reduces the burden on both companies and the CMA. A number of reforms have been proposed to improve the efficiency of the merger review process, including: 

• allowing the CMA to accept binding commitments earlier in a Phase 2 investigation;
• enhancing and streamlining the merger "fast-track" procedure by allowing parties to request a fast track referral at any stage during pre-notification discussions and Phase 1, and removing the requirement that parties accept that the merger may create a substantial lessening of competition; and
• updating how the CMA is required to publish its merger notice so that the CMA is only required to publish a notice on its website (rather than in the Gazettes).

In the July 2021 consultation, the government proposed limiting Phase 2 investigations to the issues identified at Phase 1. Following mixed feedback from stakeholders that it could result in a more efficient process for some mergers while having unintended consequences for others, the government is not pursuing this reform. 

Anti-competitive conduct – scope 

The government plans to expand the territorial scope of the Competition Act 1998 Chapter I prohibition on anticompetitive agreements to include agreements, concerted practices and decisions which are implemented outside the UK, depending on the effect within the UK.  This is consistent with the scope of Article 101 Treaty on the Functioning of the European Union. Currently, the government does not intend to alter the territorial scope of the Chapter II prohibition on abuse of a dominant position as, in its view, it is "less clear that a significant enforcement gap arises from the requirement that the business in question have a position of dominance within the UK". 

The turnover threshold for immunity from financial penalties under Chapter II of the Competition Act for conduct of minor significance has been reduced from £50 million to £20 million. As a result, the immunity thresholds for Chapter I and Chapter II will be aligned and, in the government's view, this will deter companies in smaller and local markets from abusing their dominant position. 

Anti-competitive conduct – process 

In Competition Act investigations, the CMA will be granted new evidence-gathering powers, including:

• the ability to interview any relevant person (e.g., beyond those employed by the company under investigation);
• powers to "seize and sift" evidence during inspections at domestic premises;
• introducing a duty to preserve evidence in all Competition Act investigations, analogous to the existing duty in the context of cartel investigations; and
• strengthening the CMA's powers to obtain information stored remotely when executing a warrant.

The government also plans to introduce a new statutory framework for confidentiality rings, which will include civil penalties for breaches. In the government's view, this will reduce the burden of access to the file for the CMA and the parties, as well as improving efficiency by establishing a more standardised approach to the use of confidentiality rings. 

To further incentivise compliance with investigations and remedies, the CMA will be granted additional powers to sanction companies for refusing to cooperate. Specifically, the CMA will be able to impose penalties of up to 1% of a company's global turnover for non-compliance with investigative measures (e.g., failing to comply with an information request) and up to 5% of global turnover for non-compliance with remedies, including commitments and undertakings. In addition, the CMA will have the power to impose daily penalties of up to 5% of daily global turnover for continued non-compliance. 

Anti-competitive conduct – jurisdiction of the courts 

Appeals against interim measures decisions in Competition Act investigations will no longer involve a full merits review: instead, they will be determined by reference to the principles of judicial review. Interim measures have been rarely used and the government considers that the current approach focuses too much on preventing interim measures being imposed erroneously to the detriment of ensuring that interim measures are applied when they are warranted. The rules governing access to file will also be amended to provide that the CMA only has to provide reasons for its decision and does not need to provide full access to underlying evidence. The combination of these two measures will make it much more difficult for companies to challenge the imposition of interim measures. 

Private competition law claims

Following support from stakeholders, the government will extend the jurisdiction of the CAT to enable it to grant declaratory relief. As a result, claimants will not need to bring their competition law claims as damages actions or applications for an injunction when the most helpful outcome would be a declaration as to how the law applies to the facts of the case. 

The courts and the CAT will also be granted the power to make exemplary damages awards in private competition law claims. Exemplary damages are prohibited by the EU Damages Directive (Directive 2014/104/EU) which requires that damages should provide full compensation but not overcompensation. Following Brexit, the government has decided to restore the courts' power to award exemplary damages in appropriate cases: exemplary damages will not be available in collective proceedings.

Market inquiry regime 

The government intends to pursue a number of reforms which it considers will make the market inquiry regime a more efficient and effective tool. Specifically, the reforms will:

• provide the CMA with greater flexibility to define the scope of market investigations and remove the requirement to consult on a market investigation reference within the first six months of a market study;
• introduce greater flexibility for the CMA to accept binding commitments at any stage of a market study or market investigation;
• enable the CMA to require businesses to trial remedies to determine the final format of certain remedies. This power will be limited to remedies concerning what, when and how information is presented to consumers; and
• enhance the CMA's ability to amend remedies in a ten year period following the finding of an adverse effect on competition in a market investigation. Importantly, this is not limited to removing obsolete remedies and will enable the CMA to supplement remedies "to achieve better outcomes". A mandatory two year "cooling off" period will apply from the end of a remedy review, which will prevent the CMA from conducting a further review of the same remedy on its own volition.

Enhanced consumer protection laws

In its consultation, the government noted that the rise in online shopping (further accelerated by the Covid-19 pandemic) and the increase in subscription contracts prompted a review of consumer protection laws. For further information on the current consumer law protections, see the UK chapter of ICLG.

Key changes relate to:

• Subscription traps: The government will introduce new rules to tackle subscription traps (in which companies make it difficult for consumers to exit a contract). These will include a requirement on companies to provide clear information to consumers, send consumers reminders before roll-overs and ensure that consumers have a straightforward, cost-effective and timely mechanisms for exiting a subscription contract.
• Fake reviews: A new law will be enacted to address fake reviews by adding to the current "blacklist" of automatically unfair practices in Schedule 1 of the Consumer Protection from Unfair Trading Regulations 2008. This will prohibit companies from commissioning fake reviews or hosting consumer reviews without making reasonable and proportionate checks that they are genuine. The CMA is continuing to take enforcement action against Amazon and Google following concerns that they have not been doing enough to tackle fake reviews on their sites.
• Saving schemes: The government also plans to strengthen protections for consumers using "saving schemes" (such as Christmas Savings Clubs) by requiring such schemes to fully safeguard customers money, and to update and simplify the regulations and protections relating to package travel.

Enhanced consumer law enforcement

In a long-awaited but significant change, the CMA will be given the power to directly enforce consumer law, including new powers to fine companies up to 10% of their global annual turnover and individuals up to £300,000 for breaches of consumer law. This administrative enforcement model will enable the CMA to impose directions and/or fines on companies found to have infringed core consumer law (including unfair commercial practices and unfair contract terms), rather than being limited to obtaining undertakings from companies to change their behaviour or having to go through the courts. which can be a lengthy process.  The CMA will also be able to directly enforce undertakings given by enforcement subjects, with the possibility of fines for breaches of undertakings or directions imposed by the CMA. 

In addition, the government has indicated that:

• the CMA will be required to consult on its rules of procedure and guidance for these administrative investigations;
• parties will be able to seek a full merits review to the High Court in England and Wales and Court of Session in Scotland against any decisions of the CMA; and
• it intends to improve Alternative Dispute Resolution (ADR) services in consumer markets, in order to encourage consumers and traders to resolve more disputes without court action.

Comment

Many of these reforms will require legislation and the timing of implementation is therefore uncertain. Legislation and further guidance will also provide more detail on the precise scope of some of the proposed reforms, in particular in relation to consumer law enforcement. Companies will need to monitor the progress of these changes and consider how best to adapt their internal compliance policies and procedures. Further reforms are also possible as the government has identified a number of areas (in particular, the operation of the share of supply test in merger control and the impact of private damages claims on leniency programmes) where it is not currently proposing to make changes but where it intends to monitor future developments and may enact reforms. 

Once in force, the strengthened consumer law enforcement powers will have a significant impact on the consumer law landscape in the UK. The measures will bring consumer enforcement alongside competition law in the CMA's toolkit and will likely lead to a substantial increase in the number of CMA investigations into consumer law breaches. For the first time, the CMA will be able to impose fines, while the prospect of the CMA taking administrative decisions is likely to open up the risk of follow-on damages actions from consumer groups. As noted, the precise procedures for these investigations are still to be determined and will be the subject of further consultation. However, the existing administrative competition regime is likely to provide the reference point to develop a consumer law enforcement framework which provides for robust decision making whilst protecting the rights of defence.

In addition to these reforms, the government consulted on "A new pro-competition regime for digital markets" in July 2021 (see our September newsletter) which set out proposals for an enforceable code of conduct and a bespoke merger control process (including a requirement to report all mergers to the CMA and a mandatory merger control regime for the largest transactions) for firms designated as holding Strategic Market Status. The Government published its response to this consultation on 6 May 2022, which we will cover in a separate briefing.