The article below was written by Pauline Guénot, a member of WA’s Investor Services practice.
The Covid-19 pandemic has had a profound impact on every part of the UK economy, and this has generated an ever-more complex raft of challenges to which the Competition and Markets Authority has had to respond. The watchdog has had to address, at short notice, new issues facing consumers and businesses in response to restrictions and new ways of working. It reported this year that its increased casework volume had gained “refunds for thousands of holidaymakers, secured landmark changes for leaseholders and given increased protection to people arranging funerals for loved ones”. As businesses and regulators begin to focus on the post-pandemic environment, attention has turned to ensuring that the CMA remains fit for purpose in the longer term.
As the UK’s competition regulator, the CMA already has a wide-ranging role. Its powers include investigating mergers that may reduce competition, studying entire markets or sectors where consumer problems have arisen, and sanctioning businesses and individuals which it finds taking part in cartels or other anti-competitive practices. Proposals currently being considered by the government may expand and enhance its remit further.
Among the most significant proposals focus on digitisation. The pandemic has increased the CMA’s emphasis on digital markets, with consumers spending more and more time online. Since the beginning of 2021, it has targeted all but one of the Big Five tech giants, opening different investigations into suspected breaches of competition law in digital markets: into Amazon and Google over the numbers of fake reviews on their sites; into Facebook over its collection and use of advertising and single sign-on data; and into Apple and Google for their privacy settings.
In April 2021, the government launched a new digital regulator within the CMA, the Digital Markets Unit. It is initially operating in “shadow form”, on a non-statutory footing, but the government has committed to introducing legislation when parliamentary time allows to formalise its authority. The DMU will be responsible for overseeing the UK’s digital regulatory regime; it will have a duty to promote competition and innovation, holding powers to regulate, investigate and ensure compliance from digital firms. The government has launched a consultation that will remain open until October 2021 to seek external input on its proposals for the new regime. These include proposals that would designate companies with “substantial market power” as having “strategic market status”. Such companies would be subject to an enforceable code of conduct, and to potentially greater interventions in their M&A activities. Investors in such companies will want to monitor these developments closely to understand the precise implications on their portfolios.
Alongside a focus on digital markets, the growth in the number and value of private equity funded buyouts in the UK more generally has spurred debate as to the CMA’s overall ability to protect consumers and employees.
There has been speculation over possible CMA interventions in a number of markets with a significant private-equity presence. Concerns about private equity interest in UK supermarkets including Morrisons and Asda, for example, prompted the chairman of the Business, Energy and Industrial Strategy Committee, Darren Jones MP (Labour, Bristol North West) to write to the CMA’s Chief Executive, Dr Andrea Coscelli, questioning whether it had “insufficient oversight or powers to intervene when new owners act irresponsibly”, particularly in relation to private-equity owned businesses acquiring significant debt.
Dr Coscelli’s response stated that the CMA’s statutory functions covered merger control and market studies/investigations, and that its powers of intervention on the basis that an asset is highly leveraged is very limited. He did, however, add that a study can be launched if the status of providers appears to affect the price and quality of their services, or their financial resilience. While this reply did not itself outline his stance on possible reform, the CMA has already suggested that a stronger and more flexible competition and consumer protection regime would make its work more efficient.
In July 2021, the government announced that enhancing the CMA’s powers to tackle anti-competition business practices was under consideration and opened the consultation “Reforming competition and consumer policy”. The government’s proposals would enable the CMA to conclude investigations faster and impose stronger penalties for non-compliance. Breach of consumer law could entail a fine of up to 10% of the firm’s turnover; civil fines could be given to businesses that refuse to collaborate or that give misleading information to the regulators and penalties could be imposed for companies that do not comply with the CMA’s investigations equating to up to 5% of annual turnover, plus daily penalties of up to 5% of daily turnover while any non-compliance goes on. The length of court processes would also be reduced as the CMA could accept binding, voluntary commitments from businesses at any stage of its investigations, aiming at delivering quicker results and lower costs.
While these proposals signal stronger powers for the CMA, the government has also proposed removing mergers between small businesses with a turnover of less than £10 million from the CMA’s control. The government envisages that this change will allow the CMA to focus its efforts on larger players, and it aligns with its desire to remove some of the bureaucracy within which smaller businesses must operate more widely. Dr Coscelli has welcomed this balanced approach suggesting that the plans “take forward many of the CMA’s suggestions for a swifter, stronger and more flexible competition and consumer protection regime, which will protect consumers and enable businesses to grow and thrive.”
The government consultation is open until 1 October 2021, and, while legislation is unlikely before 2022, investors will want to pay close attention to the development of the government’s approach and prepare their portfolios for any changes in the regulatory landscape, as well as to identify those areas which the government is most enthusiastic to see grow.