Organisational and regime changes to the UK competition regime
Speech
Introduction
Good afternoon ladies and gentlemen.
I am delighted to have been invited to address this year’s CRA Annual Brussels Conference, at a time when there are so many ‘live’ competition issues at play in both a European and international context. There is no question that this is an interesting period for competition law in Europe, as debate on private actions continues, mergers remain under the spotlight, and leniency and penalties continue to be hot topics within ECN. For the international competition community, critical issues under discussion remain due process and procedural fairness, improving cooperation between agencies and driving compliance, to name but a few. Today’s conference agenda reflects many of these debates and this morning many of you will have heard colleagues discuss merger policy, deterrence, sanctions and standards for economic evidence. I am pleased to be speaking at an event which attracts so many esteemed colleagues, both from Europe and across the globe, and that covers such important issues.
This conference is focused on the economic developments which are a fundamental part of the wider jigsaw of competition policy which must be based in evidenced, economic analysis. Another fundamental part of the competition policy jigsaw, is organisational design that allows for such economic analysis to be incorporated into fair and effective investigatory and decision-making processes. In the United Kingdom, the Government has set about a course of reforms to ensure that the competition regime makes full use of a wider and strengthened set of tools and to do so in a robust and timely manner in antitrust, cartels, mergers and market investigations. Part of those reforms includes the establishment of a new Competition and Markets Authority, the CMA, to replace the Office of Fair Trading and the Competition Commission. Ten year’s after becoming the founding Chairman of Ofcom, I have been asked to be the first Chairman of the new Competition Authority.
When I took on my new role, I knew just what a privilege and responsibility it represents. Few people have the opportunity to create a new organisation, and I have been given that privilege twice. The responsibility is considerable. The Office of Fair Trading and the Competition Commission have strong reputations, both at home and internationally, as highly effective competition authorities, and the UK competition regime is well regarded. Both organisations attract very professional and dedicated staff, and I have had that confirmed many times over in meetings at all levels of the two organisations in the past few months, since my appointment was announced.
The vision and the path to transition
There is a great deal to be managed over the next year or so before the new Authority assumes its powers in April 2014: to name but a few, the choice of location; the design of the new organisation; a complex job-matching process; IT systems; the negotiation of a realistic budget; and the revision of a large corpus of guidance in the light of the new legislation and new ways of working. Many of these issues are common to any public sector merger, so many of which are less than successful. Fortunately we have adequate time to get things right. We also have the benefit of the substantive case study of the Ofcom process, which provides a checklist of many of the things to watch out for. I commissioned Tony Stoller to write that study after the Ofcom merger because I felt that we had lacked any such roadmap and guide to the many pitfalls: in important ways we had been flying blind during the transition. I little imagined that I would be a direct beneficiary from this hard-earned experience.
Despite the complexity of task at hand and the additional challenge of creating a new organisation during an age of austerity, there are three high level objectives that will be paramount.
First, we need to ensure that the new Authority is a high performance organisation at least as effective as, if not more so than, the two organisations that it replaces. That is a high ambition because both the Office of Fair Trading and the Competition Commission are highly regarded, but it is entirely achievable. So I want to make sure that we transfer the expertise and experience to the new Authority. Above all, we need to make sure that the new Authority is established as a vibrant organisation with a fresh, dynamic culture that embodies both new elements and the best of the two legacy bodies and retains and integrates the talent of their staff.
Second, we need to ensure that the casework of both the Office of Fair Trading and the Competition Commission continues unimpeded and the transition of work in progress to the new Authority is seamless. We are establishing processes and guidance to ensure that.
Third, we need to ensure that all colleagues are treated fairly during the transition. We have established the legal principles for that transfer. All but a handful of positions in the new Authority will be filled from the existing bodies. Despite these reassurances, it is an unsettling period of transition for staff and we are working hard to communicate effectively through the process to keep uncertainty to the minimum.
The early processes for building the new Authority are underway, with my appointment, the search for the CEO designate, the formation of a transition team drawn from Department of Business Innovation and Skills, the Office of Fair Trading and the Competition Commission, and clarification of the legal basis for the transfer of staff from the existing authorities to the new Authority. Colleagues in the Office of Fair Trading and the Competition Commission have an understandable wish to engage with the complex transition process, and we will find ways of enabling that while not distracting them from their current roles.
Faster and more robust Decision-Making
In the Parliamentary debates, it has been questioned why reform of a recognised, world-leading competition regime was needed. My response is that the combined organisation will be able to deploy resources more effectively and flexibly to the different parts of its work; deliver decisions in a more timely way and provide a single, and therefore stronger, voice and advocacy, both at home and internationally, on competition issues. Vice President Almunia has mentioned the key role competition policy can play in restoring growth in Europe and defending the interests of European consumers. Indeed the European Commission was listed as one of the ‘elite’ competition agencies alongside the Competition Commission and the US authorities in the last Global Competition Review, but it too recognises the need to periodically revisit its existing arrangements and consider how to improve them. For example, DG Competition has recently announced that it is considering how to simplify its merger procedures.
In the UK, we need to rethink and re-engineer our processes to achieve greater timeliness with no diminution of the quality of analysis and decision-making.
The new Authority will have to adhere to tighter timetables: a 12 month statutory time limit for Phase I market studies, and an 18 month limit (down from 24) on Phase II market investigations, with a possible six-month extension in extenuating circumstances which I hope we won’t have to use. In an increasing number of fast-moving sectors, such as communications with which I am rather familiar, justice delayed is justice denied, so this tightening of the timetable is very welcome. We will need to put in place processes within the new Authority to ensure that these limits are met and preferably undershot. I firmly believe that the discipline provided by these time limits will reduce consumer detriment and increase business certainty.
I am aware of the concerns that moving away from two separate bodies responsible for investigations and decision-making in an array of competition enforcement areas will lead to less robust decisions and result in ‘confirmation-bias’. I believe that the legislative reforms will provide sufficient safeguards to prevent this. There will still be a clear separation of decision-making functions at Phase I and Phase II of the mergers and market investigations frameworks and a similar principle will apply with respect to antitrust enforcement. And we will be doing some hard thinking about other ways of enhancing the quality of decision-making.
In mergers and market investigations, decisions to initiate a case and Phase I decisions to refer – or not – for more detailed scrutiny will be taken by, or on behalf of, the Board of the new Authority. The Board has overall responsibility for strategy and performance, and will therefore need to consider which class of decisions it will wish to take itself and which to delegate, and under what delegation protocols. In Phase II, the Bill provides that a group of senior experts is retained within the decision making process to ensure a fresh pair of eyes reviews the evidence.
The Authority will also have new powers to make antitrust investigations more efficient and fair. For example, it will have new powers to ask questions that will assist the Competition and Markets Authority in establishing the facts of a case more quickly. New arrangements under the rules will also provide for those responsible for final decisions on a case to be independent of those responsible for the initial investigation. We will also consider ways of strengthening collective judgement in antitrust decisions and enhancing the dialogue between the Competition and Markets Authority and the parties, building on work the OFT has already done, drawing in part on experience here in Brussels.
Reform of the Cartel Offence
Another important reform is the proposed removal of the dishonesty test in the prosecution of possible cartels. This test has been the single most important reason why the Office of Fair Trading has been unable to bring more cases to trial. Hardcore cartels represent a barrier to dynamic, innovative markets and economic growth, and this change is greatly to be welcomed. I know that there are a number of questions in the legal community about how the new defence will work, and I intend that those questions are answered in a timely, effective and satisfactory way.
Leniency is another issue which is both common to the reform agendas in both Brussels and in London. The leniency regime is a vital tool and it is important that the incentives for a company to seek leniency are not reduced in the reform process. The UK Government has looked at a number of options, including protecting leniency documents from disclosure, and removing joint and several liability from immunity recipients. The European Commission is also considering this area.
Providing leadership to and working in partnership with the sector regulators
Unlike in most other EU Member States, a feature of the UK competition enforcement regime is that certain sector regulators have concurrent powers, with the Office of Fair Trading (OFT), to apply the competition rules in the sectors which they regulate. Such concurrent powers apply not only in relation to the application and enforcement of Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU), but also to market investigations under the UK Enterprise Act 2002. Under the proposed reforms, we will work more closely than ever with the sector regulators. The regulated sectors form some of the most important parts of the economy, and it is vital that competition works well within them, as Vice President Almunia has noted on a number of separate occasions.
In the United Kingdom, some have been critical of the sector regulators for using detailed sectoral regulatory powers rather than relying on their competition powers, while the Office of Fair Trading has been criticised for holding back from exercising its competition powers. This has led some to call for the sector regulators to be stripped of their competition powers if they fail to become more proactive in using them. The Enterprise and Regulatory Reform Bill includes measures to require the regulators explicitly consider using their antitrust powers and to give the Competition and Markets Authority a leadership position on competition enforcement. So, I believe that the best way to deliver stronger competition enforcement is to follow the path of enhanced cooperation, led by the new Authority, drawing on the sector expertise of the regulators and the competition expertise of the Authority. We will be reporting annually on the concurrency arrangements, and we should be clear: if greater cooperation does not work, the Authority must be willing and able to exercise its powers if sector regulators fail to do so.
A significant consumer protection role for the new Authority
So far, I have emphasised the enhanced nature of the reforms and how I will work to create a new, dynamic Authority with wider powers to deploy in the field of competition law. But the Competition and Markets Authority will also have the important and complementary role of consumer protection in the United Kingdom. Consumer protection and competition law work together: effective competition empowers consumers and well-informed and protected consumers make competition more effective.
Under the reforms, a new National Trading Standards Board will play a bigger role in the enforcement of consumer law, with the cooperation of the Competition and Markets Authority. The Authority will have a range of consumer enforcement powers and primary expertise and responsibility for the enforcement of unfair contract terms legislation, taking responsibility for high profile national cases, such as surcharges that stem from misleading advertising prices, as well as international cases. Mechanisms are being put in place to ensure enhanced cooperation between all the bodies involved, which include Trading Standards, the Citizens Advice charities, the Competition and Markets Authority and the new Financial Conduct Authority: sharing intelligence on consumer detriment and allocating enforcement action. This will be a critical area of the new Authority’s work and as an early signal of its importance I have already engaged with Trading Standards at both a national and local level and will continue to do so.
In Europe and internationally, the new Authority will have the principal expertise on Unfair Contract Terms legislation and an international consumer role both in terms of coordination and in with respect to advocacy.
Private Actions
As I touched on at the outset, the issue of private actions in competition law has been the subject of a great deal of attention in recent years. Here in Brussels in 2008, the European Commission published a White Paper on Private Actions. In the United Kingdom, the Government has initiated a reform process to complement the CMA reforms and in developing its proposals has worked loosely with DG Competition. At the moment the UK Government is considering the consultation responses and hopes to respond formally by the end of this year. This means that, realistically, the earliest that legislation could be introduced would be the Third Session of Parliament, with implementation not before summer 2014 after the CMA will already be operational.
Last year the European Commission also carried out a public consultation on collective redress, considering the merits of introducing a collective action across all areas of law. While the UK Government has responded to by stating that it is opposed to the introduction of a generic collective redress mechanism covering all sectors either in its domestic jurisdiction or at EU level. It instead favours an approach based on minimum standards of access to justice and an ability to combine individual claims with initiatives targeted at specific sectors, for example in competition law, on the basis of robust assessment of need.
The importance of the Authority’s advocacy role at home and abroad
The Office of Fair Trading is widely regarded as ‘punching above its weight’ on the international arena – there were calls for this to be replicated in the new Authority. I pledge that we will build on this success to make the Competition and Markets Authority a world class organisation renowned for its casework and advocacy.
As well as being an advocate, the Competition and Markets Authority will also provide practical advice and support to those bodies undertaking competition and market reform within the public sector in the UK and to overseas competition authorities.
Action and engagement internationally will take various forms, from competition advocacy through to enforcement. I think that on the latter, the Marine Hose case is a very visible example of international cooperation in the competition enforcement arena and underlines the close working relationships between the UK competition agencies and other competition enforcement agencies, most notably the European Commission and US Department of Justice, together with agencies from Japan and Australia. It is my firm aim that the Competition and Markets Authority will build on these relationships and that we continue to punch above our weight internationally.
Beyond cooperation in international investigations, the Authority will maintain the UK’s bilateral cooperation initiatives and the work carried out within multilateral fora including the the European Competition Network, International Competition Network, and the OECD with respect to competition advocacy, international enforcement and benefiting from knowledge about European and international best practice.
Conclusion
I have outlined to you this afternoon the complexities and challenges that we face in introducing a new competition authority and new competition regime in the United Kingdom. I have also outlined why I think there will be real benefits from the creation of a unitary Competition and Markets Authority. I have a simple test for success to apply, namely that when we look back in three year’s time that it has been all worthwhile. Obviously there will be more specific measures underlying that. The combined organisation will be able to deploy resources more effectively and flexibly. It will deliver decisions in a more timely way with no diminution of quality, to the benefit of consumers and businesses. It will provide a single, and therefore stronger, voice and advocacy, both at home and internationally, on competition and consumer issues. And for its staff it will provide a wider range of work, opportunity and experience. And in doing so, by strengthening competition through the economy, it will be fostering the growth, investment and innovation which is so needed in these straitened times. I look forward to engaging with you to ensure that all these benefits are realised and that the UK and the EU as a whole benefits from first class competition for decades to come.