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A New Competition And Markets Authority: But No New Dawn For Public Competition Law Enforcement In The UK

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With a certain amount of trumpeting, the new Competition and Markets Authority (“CMA”) came into existence on 1 April – thus merging the OFT and the Competition Commission. The CMA has the largest annual budget (£52m) of any competition law enforcement agency in Europe – so much will be expected of it. Unfortunately, any reform of competition law in the UK is painfully slow and piecemeal – as the decades it took for the anachronistic Restrictive Trade Practices Act to be replaced by the 1998 Competition Act illustrates. The reform which gave birth to the CMA is no exception to this English disease; it was a long time coming and it does not go far enough as we shall now see.

Public competition law enforcement through a regulatory body has three main goals which are not always harmonious. The first is to avoid “capture” by those that the regulator oversees; the second is to enable the regulator to reach speedy decisions with effective remedies and the third goal is to ensure that the regulator respects the rights of defence of those under investigation; this is particularly important where serious penalties can be imposed.

Most competition regulatory systems in Europe seek to attain these goals by having one body to enforce the rules across all industries – thus avoiding “capture” by sectoral interests (usually powerful oligopolies in specific sectors such as energy telecoms etc) with internal separation of functions within that body. Such internal separation seeks to achieve the third goal of respecting the rights of the defence (which can conflict with the need for speedy decisions). By ensuring that a fresh look is taken at positions taken initially by officials, it is hoped “confirmation bias” (or the marking of one’s own homework) will be avoided.

More controversially, most European legislatures (but not the UK.) appear to believe that the third goal is not compromised by light touch non-intrusive judicial review of decisions taken by the regulator. This is the system that the European Commission has followed since its inception which is based on the German model.

However, the first goal – the fundamental need to avoid regulatory “capture” is not achieved by the UK reforms. Ofcom, Ofwat, the CAA, the ORR and Monitor (hereafter “the sectoral regulators”) despite their recognised failure to avoid at least the appearance of “capture”, have been put on probation rather than simply being merged into the CMA. The outcome is virtually unique to the UK. Bearing in mind that it has been consistently demonstrated that sectoral regulators are more easily subject to “capture”, the UK reform is incomplete and thus fails to meet the first goal.

To the extent it is achieved, it is ironic that this European – style combination of investigative, prosecutorial and decisional functions (which was a much criticised feature of the EC Commission in the 80s by UK lawyers) has now come to be adopted in the UK. Thus, in merger investigations, some CMA personnel who are involved in the preliminary analysis (previously the OFT’s job) will be involved in the final decision (previously the Competition Commission’s role). This illustrates the tension between the second goal of speedy decision making and the third goal of respect for the rights of defence where obviously a fresh look is valuable. Whether greater speed of decision making will result from this small prioritisation of the second goal over the third, remains to be seen.

It is more likely however that the continued prioritisation of goal three in the appeal process will be more decisive. The Competition Appeal Tribunal (“CAT”) will continue to have the ability to intervene intensively in the decisions of the CMA (and the sectoral regulators). The CAT effectively reversed its position on the key procedural question of whether a file closure by a competition regulator is a decision subject to appeal essentially to avoid organisational sclerosis. However the risk of sclerosis is still there; it has proved an activist tribunal and will continue to be so. CAT decisions are subject to oversight by the Court of Appeal and beyond and appeals are very labour intensive indeed for regulators – as are their attempts to avoid taking obviously appealable decisions.

Whilst it is vital that there are rights of appeal, it is undeniable that they result in tying up a substantial amount of scarce (and not particularly well remunerated) regulatory human resources. To take just one example, after many years of battle, close observers will find it hard to recollect just where Ofcom’s premium sports right case against BSkyB has reached but it has still got some distance to run. Without some reform of the CAT remit and a telescoping of appeal mechanisms (similar to that currently proposed in planning law for example) it is difficult to see how the second goal will be achieved better than is currently the case. It follows that one cannot be optimistic about the CMA’s prospects of pushing out decisions quickly.

So what can be hoped for realistically from this typically piecemeal UK reform? In this connection, it is interesting to note that the departing Chairman of the OFT Philip Collins said last month that he is very concerned about how SMEs gain access to the market. At the moment he rightly says that market entry is blocked by incumbents in many important sectors. Now that the Government’s abolition of CFAs has made the prospects of freestanding private competition challenges virtually impossible for SMEs, their needs must be the CMA’s priority.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact Stephen Hornsby or call 020 7404 0606.