The new UK competition authority within a changing European context

Speech given by CMA chief executive Alex Chisholm to the Association of Corporate Counsel Europe

Alex Chisholm

Good morning and thank you for the opportunity to talk to you today. This is obviously an exciting and busy time for us at the CMA: we are now only days away from assuming our new statutory duties and powers. And as you will have seen from yesterday’s announcements about banking, the transfer of challenging casework is well underway. Preparations for the launch of the new organisation are all but complete and we are looking forward to starting our work in earnest from 1 April.

I know you have sessions later in the day on the new UK regime and what the institutional changes arising from the creation of the CMA will involve. I don’t therefore propose to talk at length about these now.

I will though talk briefly about the recent consultation on our annual plan and strategy as this provides a useful context for the morning ahead. I will then devote the rest of my time to the substantive issue: the challenges and opportunities offered by developments in Europe. In considering some specific developments, I will draw on cases from recent history at the legacy organisations, the CC and OFT, and illustrate both how we in the UK have learned from our international counterparts in some areas and provided inspiration and example in others. These are both themes which I expect to continue at the CMA.

I want to touch on our annual plan and vision, values and strategy documents because they will be at the heart of what the CMA will do. In these documents, we have set ourselves an overall ambition to be a world-leading competition and consumer agency, at the forefront of delivering important results and innovation. We have set ourselves 5 strategic goals which we will need to achieve in order to have the impact that we want as an organisation:

  1. effective enforcement of the law, protecting consumers and deterring anti-competitive behaviour - this will be the bedrock of our credibility as an organisation and the most obvious measure by which we will be judged

  2. extending the frontiers of competition into new areas, whether that’s new or rapidly changing markets, new ways of looking at consumer behaviour, or areas where competition and markets have not previously been fully used - including public services

  3. refocusing consumer protection following the Government’s reforms to this part of our policy responsibility

  4. achieving professional excellence across all our work, whether in legal and economic analysis, case management or any other area, and ensuring that we do not impose unnecessary burdens on business

  5. integrating our performance - internally, through combining different professional approaches and backgrounds and through careful selection and combination of our tools for intervening in markets, and externally, by working effectively with the full range of bodies with whom we share powers and interest

These goals and ambitions will not be achieved in isolation. Looking beyond the UK, our statutory remit charges us with promoting competition, both within and outside the United Kingdom. How our work interacts with and is affected by what is happening outside the UK, and specifically Europe, is what I want to devote the rest of my time to this morning.

As you will all be very aware, in increasingly globalised markets, businesses are operating within multiple jurisdictions and need to be up to speed on developments within those jurisdictions. This applies equally to developments within individual EU member states and across the EU as a whole.

As a new national competition authority charged with making markets work well for business, as well as consumers and the economy, we also need to respond to such developments. We need to help facilitate an environment in which markets can develop efficiently across borders and in which UK business can compete effectively. By continuing to promote cooperation and consistency between national competition authorities, and with the European Commission, we can play a role in creating such an environment.

In practice, of course, cooperation can mean different things to different people at the same time. Similarly, consistency is important for businesses operating in different countries but only valuable, in itself, if it is the most appropriate approach that is consistently being applied. And consistency of approach, for example in terms of procedure, is very different from consistency of outcomes.

Recent history has some good examples though of how cooperation with others across Europe has had beneficial effects on competition. At an EU level, this has mainly been through the European Competition Network (ECN). As many of you will know, the ECN was formed in 2004 to facilitate the changes introduced by Regulation 1/2003, to foster cooperation and to ensure the coherent application of the competition rules across the Single Market.

This involves mechanisms for case allocation, fora for pursuing policy and procedural convergence, and powers for the exchange of information.

On both policy issues and casework, officials in national competition authorities and in the Commission are in touch on a daily basis. In particular, the Article 12 powers that allow authorities to exchange confidential information for the purposes of applying EU law are as unusual (in a wider international context) as they are valuable.

More recently, the ECN has contributed some very helpful recommendations on issues such as interim measures and commitment procedures. Although not binding these published recommendations provide a very useful advocacy tool for promoting consistency and dealing with approaches by national competition authorities that are out of kilter with those pursued in other countries where companies may operate. They could also help authorities with weaker powers to seek to gain the tools their counterparts in the EU already have. The OFT has provided valuable input to these recommendations to help ensure they set a high minimum bar across Europe, raising the lower toward the best.

Important and positive outcomes for competition have also come from bilateral cooperation. For example, vertical agreements in online markets has been an area of interest to a number of European authorities lately. In considering possible new risks to competition in this field, the UK has taken a lead role. As I noted earlier, the desire to extend the frontiers of competition will be an important aspiration for the CMA as well. The OFT’s work with the Bundeskartellamt and DG Comp on the Amazon and hotels online booking cases demonstrates that, here as elsewhere, cooperation and dialogue are essential for achieving consistent outcomes, clarity for businesses and benefits for consumers across the EU.

These are just some examples of how we and other European authorities have cooperated very successfully and derived a lot of value from the formal ECN network, and indeed from less formal bilateral relationships. From the discussions CMA Chairman David Currie and I have already had with counterparts outside of Europe, it’s clear that cooperation fostered by the ECN is in many cases the envy of the world.

As well as cooperation between the authorities, there is also the large and growing benefit of having a rich record of administrative cases and related court judgments involving the EU institutions and European NCAs’ actions under Articles 101 and 102 and EUMR. There are now over 700 enforcement decisions under Articles 101 and 102 and over 150 phase II decisions under the EUMR. NCAs like ourselves can draw from these cases clear guidance on the economic and legal frameworks to apply in future cases, plus a lot of useful data and insight into particular markets. Firms and their legal advisers can do likewise.

But competition policy does not stand still and there are developments within the EU which are going to need some careful consideration by the CMA over the next 12 months.

Specifically I would like to cover 3 current policy issues which raise questions for the CMA going forward: private actions and access to file in relation to leniency applications; proposed changes to the merger regime in relation to minority shareholdings; and debates about common principles on fines. Finally, I want to take some time to reflect on the 10 years since Regulation 1 was introduced and to look to the future as well.

So, to begin with private actions and, in particular the consequences of Pfleiderer and Gas Insulated Switchgear. The question of how national courts handle access to file requests in follow-on damages actions is one that has been exercising judges, practitioners, enforcers and legislators for some time now. As you will also know, the EU directive on antitrust damages actions is currently proceeding through the co-decision procedure.

Of course, it is the Department for Business, Innovation and Skills that is responsible for the overall UK position on this, but the OFT has been actively involved in giving them the enforcer’s perspective. And, as you would expect, national competition authorities in all the Member States have been discussing the Directive with one another and the Commission team in detail.

From what I understand of the discussions in Brussels and Strasbourg, we have reason to believe that a reasonable outcome can be achieved which can protect leniency incentives (and the overall public interest that they represent) while ensuring that third parties who have suffered harm can still be compensated. We should also remember that the Directive also aims to ensure that redress is a reality in all member states. That is an objective I’m sure we can all support.

I will now turn to the merger regime. The EC is proposing to extend the scope of its merger control rules to deal with the anti-competitive effects stemming from certain acquisitions of non-controlling minority shareholdings. The UK is relatively unusual among EU national competition authorities in that we already have the power to examine minority shareholdings, and indeed have fairly recently exercised this power in the case of Ryan Air and Aer Lingus.

I think the ability to investigate minority shareholdings has been a useful tool in practice and helped the UK authorities to identify competition problems.

That said, it should not be used indiscriminately and we do not want to encourage a system that puts unreasonable barriers in the way of minor acquisitions that do not raise competition concerns or that imposes disproportionate burdens on business.

It is very important to implement the new system in such a way that it catches only the relatively few, yet problematic, cases. We have therefore broadly welcomed the reforms but we have also highlighted some reservations to the current proposals and suggested changes.

For example, unlike some of our counterparts in Europe we favour a voluntary notification system for minority shareholdings. Our experience of analysing minority interests indicates that a voluntary regime is more appropriate in light of the nuanced analysis that is required and the overall concern not to impose excessive burdens.

We are also keen that our own ability to investigate cases remains if the Commission decides against opening an investigation.

And, significantly, we have reservations about the introduction of safe harbours based on the size of a shareholding: this is on the basis that, from our experience, the ability to materially influence can come not just from the size of the shareholding but special rights that might be granted to the acquirer. It could also expose the system to ‘gaming’, for instance by acquiring 24 per cent of shares combined with other rights in circumstances where a safe harbour was set at below 25 per cent. There is no safe harbour in the UK system: we apply a material influence test on a case by case basis.

So what at first sight appears a measure which might bring about consistency and have real merit, can carry risks and introduce problems. So how the measure is introduced matters a lot.

You may also be aware of calls for greater convergence across Europe on the principles adopted when imposing fines for competition law infringements. In principle, we support the exchange of experience in setting the level of fines. Fines should be proportionate but should be set at a level which provides a deterrent. And clearly they need to take account of the seriousness and duration of any infringements.

The UK has already taken lessons from elsewhere in the EU on this issue. In developing its CA98 penalties guidance in 2011/12, the OFT drew on international best practice. OFT officials spoke to their counterparts in other Member States and took account of their guidance and experience of setting fines. The CMA has recently adopted the OFT’s penalties guidance which drew on this work.

Going forward I expect the CMA to continue to liaise with our ECN partners sharing experience and ideas in relation to fining approaches. This type of collaboration helps create better systems from which businesses ultimately benefit.

I should also point out that as the designated UK competition authority, the CMA, like the OFT before it, will have the opportunity to have input in relation to fines imposed by DG Comp in EU antitrust cases. This will be through the advisory committee of experts with which DG Comp must consult on draft infringement and penalties decisions. This will be a further opportunity for us to provide value-added input based on our own experiences – and indeed to learn from the experience of others.

These are the challenges we face. Many of these will be addressed through the changes I have described or through ongoing cooperation – be it bilaterally or within the ECN. But others have asked whether more fundamental changes to the way that Regulation 1 and the ECN work are necessary. After 10 years, this is certainly the right time to be thinking about these questions. I will pose just 2 for now.

First, can antitrust case allocation be made more efficient, with better prioritisation and early-stage coordination?

There is no formal mechanism for multiple NCAs which are investigating similar issues to petition the Commission to take a case. This stands in contrast to arrangements under the EUMR. There may be circumstances in which NCAs feel the Commission is better placed to take a case forward, and where multiple cases are an unduly burdensome means of addressing a competition problem.

It could also be beneficial to examine means by which staff could be reallocated between authorities along with cases. This could allow for the creation of a multinational ‘task force’ for cases affecting several national markets and where expertise is spread among different NCAs.

And more could be done to ensure that enforcement is prioritised effectively among NCAs and DG Comp. While it would not be desirable to align NCAs’ priorities, further exchanges would be informative and could help avoid duplication. This could apply both to antitrust enforcement and to market studies and sector inquiries.

This brings me to my second question. Can authorities do more to cooperate in looking at cross-border markets where competition is not working as well as it might be? This is a job for the Commission, but not only the Commission.

My distinguished colleague Bruno Lasserre at the French Autorité de la Concurrence has been an advocate for national authorities being more involved in working together on ‘non-enforcement’ matters. Clearer rules and procedures to encourage the exchange of complaints data would help inform priorities and case allocation alike, and could also identify areas where single market interests are affected. We regard this as a promising area for future work.

These are just some initial thoughts on ways we can strengthen European cooperation. I consider it an open question at this stage as to whether incremental fine-tuning is required, or whether broader changes are needed. But either way, the CMA will be positively engaged in the debate.

So I hope what I have been able to illustrate in talking to you briefly this morning is that there are a number of significant developments in Europe which have implications for the CMA in the coming months. I can assure you that we will be rigorous in scrutinising these developments and seeking to influence them in ways that ensure they promote competition without imposing disproportionate costs on UK businesses.

I hope I have also been able to show that recent history shows the UK authorities have been able to exercise positive influence through the formal network provided by the ECN and bilateral cooperation and discussions. We have led where we have experience and skills to offer; and we have also shown we can learn from others.

I would like to leave you with a firm commitment: the CMA will continue to build on the excellent work of its legacy organisations in responding effectively to developments in Europe. As a single unitary authority, with the reforms that you will be discussing this morning, I think we are in a position to be even better at promoting competition for businesses operating across Europe, and ensuring a consistent and effective application of the law.

Published 13 March 2014