Government proposes boost to post-Brexit competition and consumer policy
The Government yesterday unveiled a package of proposed reforms to competition and consumer policy which include streamlined and strengthened powers for the Competition and Markets Authority (CMA). Under the proposals, the Government is proposing that the CMA gains new, direct fining powers for breaches of consumer law – similar to its existing powers in respect of competition law breaches - as well as the introduction of swifter enforcement processes, mandatory merger thresholds and greater protections for emerging businesses against so-called “killer acquisitions”.
The proposals are a welcome development for consumers, and for the competition and consumer law enforcement landscape more broadly. The proposed reforms are also a further indicator of the CMA’s increased role and responsibilities as a global competition and consumer protection authority outside of the European Union, and in the wake of the COVID-19 pandemic.
The Government is now consulting on this package of reforms, entitled ‘Reforming Competition and Consumer Policy’, alongside a further consultation on a pro-competitive regime for digital markets.
It is fair to say that certain of these proposed reforms have been in contemplation for some time. In particular, the introduction of fining powers for breaches of consumer law was supported in the CMA’s response to the Government’s Green Paper on Modernising Consumer Markets back in July 2018. Later, in February 2019, the CMA’s then Chairman Andrew Tyrie submitted proposals for reform to the Department for Business, Energy and Industrial Strategy (BEIS) which called for, amongst other things, aligning the CMA’s powers to enforce consumer law with its competition law powers. Lord Tyrie’s proposals noted that that the "central challenge" for the UK regulator in the digital age is the UK’s “analogue system of competition and consumer law" which prevents the CMA from acting quickly to prevent harm to consumers in fast-moving markets such as online markets.
Indeed, under its current powers, the CMA can investigate breaches of consumer law but must seek an order from a civil court to put a stop to infringements. In its 2021/2022 Annual Plan (see here for Hausfeld’s response to the consultation on the Plan) the CMA reiterated its view that stronger consumer protection powers are needed in particular to address harmful practices that might arise as the economy recovers from the pandemic. Most recently, this view was supported by John Penrose MP in his February 2021 report to the Government on the UK’s competition regime, wherein he recommended that the CMA should be given the power to directly issue decisions and impose fines for breach of consumer protection law, in addition to wider powers more broadly and the ability to issue higher fines.
The CMA steps up to the plate
The fact of the CMA’s increased workload of late is undeniable - this is down to a number of factors.
Take the impact of Brexit on merger reviews, for example. The CMA estimates that, following the UK exit from the EU, and the ‘one-stop shop’ case allocation mechanism falling away, its merger clearance caseload will increase by 40-50% since its creation, meaning 30 to 50 additional Phase 1 cases per year and around half a dozen Phase 2 cases per year, in particular due to many more 'multi-jurisdictional' deals expected to be notified.
Similarly, in terms of antitrust enforcement, the restriction on the CMA and European Commission pursuing parallel proceedings in relation to the same conduct will cease, which will undoubtedly result in the CMA stepping up its activity as it takes on investigations into anticompetitive conduct that impacts the UK which may previously have fallen to the Commission.
On top of this Brexit-induced workload, the CMA needs to step up to address the concerns that are being echoed globally about the ability of competition law (and indeed competition law alone) to adequately protect consumers in an age of increasing digitalization. The effectiveness of the competition law regime to deal appropriately with mergers of companies with valuable data holdings, for example, or its ability to allow for quick intervention to deal with abuses in fast-moving markets, have been highlighted. The CMA’s work in this area is set to intensify following the establishment earlier this year of its new Digital Markets Unit (DMU) which will have duties to address the market power of the most powerful digital firms, promoting competition and innovation and protecting digital markets participants from unfair practices (see here and here for Hausfeld’s recent perspectives on the DMU).
The pandemic has of course accelerated the growth of online markets even further, and has highlighted weaknesses in UK consumer protections that have allowed unscrupulous businesses to exploit customers. The CMA has already been doing some good work in this sphere, such as taking decisive action in relation to cancellations and refunds in the package holidays and holiday lets sectors, .
The proposed new powers
Under the proposals, the CMA will be granted powers to fine companies directly for breaches of consumer law without going through the courts. Companies that exploit customers with misleading claims, unfair terms and conditions or hard-to-exit contracts can therefore expect to be faced with fines from the CMA of up to 10% of their global turnover.
In parallel, the Government will make changes to existing consumer protection legislation to further clamp down on harmful and now widespread practices such as subscription traps, bogus online ratings and reviews, ‘dark patterns’ that manipulate consumers into spending more than they wanted to, and ‘sludges’ – negative nudges whereby businesses pay to have their product feature highly on a trader’s website while hiding that they paid for it.
With regard to competition policy , the Government proposes that mergers between small businesses – where each party’s turnover is less than £10 million – be removed from the CMA’s merger control regime altogether. This is aimed at keeping the burden on smaller businesses to a minimum and is likely to alleviate the post-Brexit workload on the CMA at least to some extent. At the same time however, it is proposed that the CMA be given further powers to block a wider range of harmful mergers, including “killer acquisitions” wherein dominant companies gobble up prospective rivals before they can launch new products and services. The main targets of these new powers are the gatekeepers of the digital economy (the likes of Facebook) whose practices of acquiring would-be rivals with early promise stifle competition and innovation.
As for the CMA’s enforcement processes more generally, the Government’s proposals set out enhanced powers and streamlined procedures for the CMA aimed to help drive innovation, productivity and growth. The plans would allow the CMA to:
- impose stronger penalties for companies that don’t comply with its investigations or orders, with new powers for fixed penalties of up to 5% of annual turnover and additional daily penalties up to 5% of daily turnover while non-compliance continues;
- disqualify company directors who make false declarations to the regulator; and
- accept voluntary binding commitments from businesses at any stage in its investigations, rather than having to wait until the end - leading to quicker outcomes and reduced costs for both sides.
The Government’s publication of its full plans in relation to both Reforming Competition and Consumer Policy and a pro-competition regime for digital markets indicate a desire to see improved competition, and in turn improved outcomes for consumers, in the decade ahead. Interested parties, ourselves included, will study the proposals in depth and respond to the Government’s consultations (responses are due by 1 October 2021). The key from the Government’s point of view will be ensuring that the laudable aims described above can be achieved with genuinely transformative reforms and the resources to make those reforms truly effective.