New authority must deliver the goods

THE announced government merger of the Office of Fair Trading (OFT) and Competition Commission (CC) into a single Competition and Markets Authority (CMA) is part of a root-and-branch reform aimed at creating an effective regulator with powers fit to help support competitive markets.

That changes are deemed necessary is no surprise. The existing competition framework – initially heralded as “a world-class competition regime” – has in recent years been subject to considerable criticism. The OFT has been roundly condemned for disastrous errors of judgment and procedure. Its first contested criminal prosecution, the high-profile case brought against BA executives, collapsed because of procedural issues. Meanwhile, vast resources had been tied up on a mammoth case against construction companies, whose fines were then slashed on appeal. These and a number of other unfortunate, or misjudged, cases have brought the regulator’s reputation into question.

The CC has had its own share of flak, conducting wide-ranging market investigations only to give the market in question a clean bill of health. While these are hazards all public bodies experience from time to time, it is unusual for such bodies to find themselves overhauled to form a completely new institution.

The institutional powers are also to be reformed. Market investigations, carried out where markets do not appear to be functioning effectively, will have to be completed within 18 months, rather than the current two years. This cut ought to discipline the institutions. The CMA will be able to extend investigations to reach across markets in the hope that this will allow damaging practices which previously went untouched to be identified.

In the context of merger control, the government has confirmed it will remain up to businesses to decide whether a pre-merger notification is required. At present, and in future, businesses can decide to take the risk of implementing a merger without having obtained a clearance. If the competition authorities have any concerns, they have the power to stop the merger in its tracks.

Businesses find this light-touch regime attractive because in completely unproblematic transactions there is no wasted cost incurred in making a notification. If they are advised that there are competition concerns then, in practice, it is prudent to pre-notify. A statutory timetable under the new regime will help businesses know where they stand. The availability of a new exemption for small mergers will be music to the ears of businesses.

However, the proposal to toughen up the CMA’s powers to, at its discretion, suspend steps taken towards implementing a merger is less likely to be welcomed.

Cartels are the most serious illegal conduct in competition law. Such activity has for some years been a criminal, not just civil, offence.

At present, a cartel offence is committed only where there is a serious anticompetitive agreement, such as price fixing or bid rigging, and the individual acted dishonestly.

This has proved a well-nigh insurmountable hurdle for the OFT since the offence came into existence some years ago. Understandably, regulators would like the hurdle reduced in height. The new proposal is that if the agreement is made public, the offence will not be committed. This is likely to mean that there is little difference between the civil wrong committed by companies, and the criminal offence by individuals, a concern raised right at the outset when the criminalisation was first considered.

The OFT has already openly stated its intention to more readily disqualify directors; now we expect to see it become easier to convict individuals and send them to prison. The message to businesses is clear: dust off your compliance programme and make sure it is fit for purpose.

Ultimately, the aim of any reform of the regime should be to support and encourage a competitive economy, one where the consumer gets the best product or service for the lowest price and where strong businesses are able to thrive. The framework of rules is a means to that end, not an end in itself.

To achieve this goal, a competition authority needs its decision making to be speedy and well reasoned, otherwise drawn-out appeals are inevitable. If both can be achieved, the new streamlined regime could be the world-class system it aspires to be.

• Catriona Munro is a partner in the EU, competition and regulatory team at Maclay Murray & Spens LLP