Wide ranging reforms to UK competition and consumer protection regimes unveiled

On 20 April 2022 the UK government published its response to the consultation launched in July 2021, proposing a wide range of far-reaching changes to the UK competition and consumer protection regimes (see our blog post on the consultation here). Taking into account the feedback received from stakeholders on the various proposals, the government has now decided which of these measures it will take forward. The package of measures, which covers both competition and consumer protection law, will strengthen the CMA's evidence gathering powers, with higher fines for failure to comply with a range of investigative measures. The current voluntary and non-suspensory merger control regime will be retained, but a new additional jurisdictional threshold will be created in order to capture so-called 'killer acquisitions'. A new small merger safe harbour will be introduced, exempting mergers from review where each party's UK turnover is less than £10 million, and the current turnover threshold for the target will be raised from £70 million to £100 million to adjust for inflation.

Important changes will be made to the consumer protection regime in order to ensure consumer rights are keeping pace with market developments, in particular the trend towards online retail and advertising. Consumers will benefit from greater protection from unscrupulous practices such as fake reviews and subscription traps. The CMA will have direct enforcement powers under an administrative model similar to that for competition enforcement, for the 'core' pieces of consumer protection legislation such as the legislation relating to unfair commercial practices and unfair contract terms. Stronger sanctions will be available to all public consumer law enforcers for breach of the rules, including non-compliance with their information gathering powers and breach of undertakings.

Legislative measures implementing the changes will be set out in a new Consumer and Competition bill expected to be included in the Queen's speech on 10^th of May and adopted when parliamentary time allows. We have set out below a summary of the key measures.

Competition policy

A new pro-competition strategy

In order to achieve a more active pro-competition strategy and address concerns that competition in the UK has weakened over the past 20 years, the CMA will continue to publish further State of Competition reports which assess the strength of competition in the UK economy. The first such report was published by the CMA in November 2020 in order to better measure and understand the state of competition in the UK.

In addition the government will provide clearer and more regular non-binding strategic steers to the CMA setting out the government's economic priorities and its expectations from the CMA.

A new statutory duty of expedition for the CMA will be introduced, making it clear that the CMA is under a duty of expedition in relation to its competition and consumer law functions (including functions relation to the new digital competition regime).

More effective market inquiries

The current structural framework for market inquiries under which the CMA can conduct market studies and market investigations will be retained, but the government is introducing a number of procedural reforms in order to improve the regime. These reforms include:

• More opportunity for binding commitments to be accepted during market studies and market investigations.
• Greater flexibility for the CMA to define the scope of market investigations.
• Removing the requirement to consult on a market investigation reference within the first six months of a market study.

The government also encourages the CMA to use the flexibility of its market study and market investigation tools as efficiently as possible for the benefit of consumers and businesses.

In order to ensure the CMA has the benefit of effective and versatile remedies under its market inquiry powers, it will be able to require businesses to conduct trials to determine the final format of certain remedies. Where the CMA believes that a remedy is not achieving its intended effects, it will have the power to adopt an improved remedy, for a period of 10 years from the CMA's finding of an adverse effect on competition. The CMA will be required to consult affected businesses before adopting a revised remedy. In the interest of legal certainty for businesses there will be a two-year cooling off period during which the CMA cannot conduct a further review of the same remedy.

Rebalanced merger control regime

The government has decided to retain the current voluntary and non-suspensory merger control regime but has decided to make a number of changes to the jurisdictional thresholds and to the merger investigation procedures.

Jurisdictional thresholds

• The current turnover-based threshold for the target of a merger will be raised from the current £70 million to £100 million, to adjust for inflation and maintain the balance intended when the UK merger regime was created.
• The share of supply test will be retained as a complement to the turnover test, but the government will continue to monitor the operation of the test and may consider further proposals on how to reform it. There is currently a lack of clarity on how the share of supply test should be reformed and the government considers it would therefore be premature to set out proposals for reform of the test at this stage.
• A new additional threshold will be created in order to capture certain vertical and conglomerate mergers, in particular so-called 'killer acquisitions' that risk the development of new products or services. Under the new threshold the CMA will have jurisdiction where the acquirer has both an existing share of supply of goods or services of 33% in the UK or a substantial part of it, and a UK turnover of £350 million. Greater clarity should also be achieved through the addition of a UK nexus criterion to ensure that only mergers with an appropriate link to the UK will be captured. The new acquirer-focused jurisdictional threshold will complement the reforms of merger control with Strategic Market Status under the proposed new pro-competition regime for digital markets.
• In order to reduce the burden on small and micro businesses, a new small merger safe harbour will be introduced, exempting mergers from review where each party's UK turnover is less than £10 million.

Merger investigation procedures

In order to ensure that merger investigations are carried out as quickly and efficiently as possible, thereby reducing unnecessary burdens on businesses, the government is proposing the following procedural changes:

• A more flexible phase 2 commitments procedure allowing the CMA and the merging parties to resolve a merger investigation at any stage of the phase 2 process.
• An enhanced and streamlined fast track route, allowing the parties to request a fast track referral at any stage of pre-notification and phase 1, with final discretion for the CMA on whether or not to accept the fast track referral request. In order to ensure there is sufficient time for a full phase 2 investigation, including the type of information gathering normally conducted at phase 1, the CMA will be able to extend the timetable for up to 11 weeks (as opposed to the usual 8 week extension during a normal phase 2 investigation preceded by a full phase1).

The government also encourages the CMA to keep its merger control procedures under review to make sure they remain proportionate and appropriate to the cases under consideration, in particular regarding non-statutory pre-notification procedures and when dealing with small and medium-sized businesses.

Streamlining CMA panel decision making

The government has decided not to make any statutory changes to the CMA panel's size or its role in market and merger investigations at this time, but will work with the CMA where appropriate to consider potential non-legislative changes around recruitment process, future members' terms and conditions and CMA processes and procedures.

Stronger and faster enforcement against illegal anticompetitive conduct

In order to address the government's concerns that timeframes for Competition Act investigations are too long, with one third of investigations taking longer than three years, it is proposing a range of reforms to the CMA's powers and processes to support it in conducting its investigations more quickly and efficiently. The main reforms the government has decided to take forward are:

• Extending the territorial scope of the Chapter I prohibition so that it applies to agreements that are implemented outside the UK but have an effect within the UK. The government is at this stage not proposing to make a similar amendment to the Chapter II prohibition and the requirement for the undertaking to have a dominant position within the UK remains unchanged.
• The government does not intend, at this stage, to introduce a new immunity from damages claims for cartel whistle blowers, but it will keep the effect of the private damages regime on leniency programmes under review, as part of its commitment to prioritise effective enforcement against cartel activity.
• In order to strengthen the CMA's interim measures powers, appeals against the CMA's interim measures decisions will be determined by reference to the principles of judicial review rather than the current full merits appeal standard. The rules on access to file in relation to interim measures will also be changed, so that the CMA will provide an affected party with the reasons for its decision but without necessarily providing access to all underlying documentation and other evidence.
• Stronger evidence gathering powers for the CMA, including wider powers to interview individuals as part of Competition Act investigations, extending the legal duty to preserve evidence, more flexible dawn raid powers for domestic premises (including powers to seize-and-sift evidence) and strengthening the CMA's powers to obtain information stored remotely.
• Government intends to introduce a new statutory framework for confidentiality rings in Competition Act cases, including civil penalties to ensure the CMA has the tools necessary to protect confidential information disclosed into the confidentiality ring.
• Government does not intend to change the standard of appeal before the CAT in Competition Act infringement decision cases. Appeals against decisions imposing penalties for non-compliance with the CMA's investigative measures and remedies are also determined on the merits.

Stronger investigative and enforcement powers across competition tools

The government is proposing a range of reforms that will apply across the CMA's competition tools and are intended to remedy harm more quickly. It considers that the current package of sanctions for non-compliance with the CMA's investigative measures does not provide an effective deterrence, and the government therefore intends to proceed with the following reforms:

• Tougher penalties for companies that slow down or obstruct investigations. The CMA can currently fine a business £30,000 and/or a daily rate of £15,000 if it fails to comply with its information gathering powers. This level of penalties is significantly lower than that imposed by other competition authorities in Europe. These penalties will now be increased to a fixed penalty of up to 1% of a business' annual worldwide turnover for failure to comply with an investigative measure, including failing to comply with an information request, concealing, falsifying or destroying evidence and providing false or misleading information. An additional daily penalty of up to 5% of daily worldwide turnover will be imposed where non-compliance continues.
• Fixed penalties of up to £30,000 for natural persons who conceal, falsify or destroy evidence or provide false or misleading information, as well as an additional daily penalty of up to £15,000 while non-compliance continues.
• Civil penalties for companies that fail to comply with the CMA's directions, orders or undertakings or commitments the company has given to the CMA, capped at 5% of annual turnover with an additional penalty of up to 5% of daily turnover where non-compliance continues.
• The government will ensure that the UK competition and consumer protection authorities are able to share information more flexibly with international partners, while ensuring that confidential business information is protected. The authorities will also be able to use their compulsory information gathering powers to obtain information on behalf of overseas authorities, subject to reciprocity and ministerial consent and other public interest safeguards.

Other reforms to UK competition law

• The government intends to proceed with the proposal to extend the CAT's jurisdiction to grant declaratory relief, which will avoid the need for parties to formulate their competition claims as damages claims or applications for an injunction, when what would be most useful is a declaration of how the law applies to the facts of the case.
• The CAT will be given discretion to award exemplary damages for breaches of competition law, in order to create additional deterrence for breaching competition law. Under the EU Damages Directive the award of exemplary damages for breach of competition law is prohibited. Now the UK has left the EU, the UK government intends to return to the courts and the CAT the discretion to award exemplary damages in competition law claims, depending on the particular features of the case.
• The government will consider further reforms to the CAT's processes following its recent call for evidence on the 2015 CAT Rules and will launch a further consultation before adopting any reforms.

Consumer rights

The government has also decided to make a number of changes to consumer protection legislation, in order to improve and modernise consumer rights, ensuring they keep pace with market developments, in particular the trend towards online retail and advertising.

Tackling subscription traps

The government is making changes to subscription rules and will introduce legislation in order to:

• Clarify and improve existing pre-contract information requirements for subscription contracts.
• Require traders to send reminders to consumers before a contract rolls over or auto-renews.
• Require traders to remind consumers that a free trial or a low-cost introductory offer is coming to an end.
• Ensure consumers are able to exit a contract in a straightforward and timely manner.

Fake reviews

The Consumer Protection from Unfair Trading Regulations 2008 (CPRs) contain a general prohibition of unfair commercial practices, in particular prohibitions of misleading and aggressive commercial practices. A commercial practice is unfair if it is not professionally diligent and it materially distorts, or is likely to, the economic behaviour of the average consumer. Schedule 1 to the CPRs list a range of specific commercial practices which are considered unfair in all circumstances and which are prohibited outright.

Respondents to the consultation considered that commercial practices of offering or advertising to submit, commission or facilitate fake reviews should be added to the list of automatically unfair practices in Schedule 1 of the CPRs. The government has decided to take a delegated legislative power to amend Schedule 1 (subject to Parliamentary approval) and will consult, in due course, on the power to add to following practices to the Schedule:

• Commissioning or incentivising a person to write and/or submit a fake consumer review for goods or services.
• Hosting consumer reviews without taking reasonable and proportionate steps to check they are genuine.
• Offering or advertising to submit, commission or facilitate fake reviews.

Strengthening prepayment protections for consumers

Government will legislate to ensure that consumer prepayment schemes marketed as a savings mechanism, or generally understood to be for that purpose, and which are not within the scope of existing financial protections, must fully protect consumer payments by way of a trust or insurance.

Package travel

The Package Travel and Linked Travel Arrangements Regulations 2018 (PTRs) offer additional protection for consumers who book package trips as opposed to stand-alone travel services. They require for example that consumers are refunded within 14 days of a cancelled trip, or require organisers of packages to set aside funds to ensure consumers can be refunded and where necessary repatriated. Respondents to the consultation agreed that the PTRs are too complex, with a low level of consumer understanding.

The government has decided to simplify the definition of a Linked Travel Arrangement (LTA) and clarify when a minor tourist service is classified as part of a package or LTA. It plans to improve the flexibility of insolvency protection provisions (for non-flight packages) and enable BEIS to make changes to the information requirements of the PTRs. BEIS will also publish a consumer-focused PTR guidance document.

Consumer law enforcement

Strengthening the CMA's powers to enforce consumer law directly

The government will introduce legislation to strengthen the CMA's consumer law enforcement powers and bring them more closely in line with its competition law powers. Instead of having to apply to the courts for an enforcement order against companies in breach of consumer protection law, it will be up to the CMA to determine when a company infringes the rules and it will be able to impose fines of up to 10% of annual worldwide turnover for infringing business or fines of up to £300,000 where an individual breaks the law.

Under this new administrative enforcement model the CMA will also be able to impose fines of up to 1% of annual worldwide turnover for failure to comply with statutory information requests, providing false or misleading information or destroying or concealing information, with an additional penalty of up to 5% of daily worldwide turnover where non-compliance continues. Where an individual fails to comply the CMA would be able to impose fixed penalties of up to £30,000 with an additional daily penalty of up to £15,000 while non-compliance continues.

Breach of an undertaking given or a direction imposed by the CMA will be subject to a fine of up to 5% of annual worldwide turnover with an additional penalty of up to 5% of daily worldwide turnover while non-compliance continues. For similar breaches by an individual the CMA would be able to impose fixed penalties of up to £150,000 and a daily penalty of up to £15,000 while non-compliance continues.

Scope of the administrative model

These new powers of direct enforcement for the CMA will not extend to the full range of consumer protection laws but will be limited to the 'core' pieces of consumer protection legislation (such as the legislation relating to unfair commercial practices and unfair contract terms) and other legislation that deals with closely related subject matter and where the CMA has relevant experience, to be further specified by the government in the new legislation.

Decision-making process

Government will ensure appropriate separation between those investigating potential breaches of consumer law and those making decisions within the CMA's internal process. Those suspected of breaching the law will be able to see the case against them and have the opportunity to make written and oral representations in order to ensure a fair process.

Appeals

The CMA's enforcement decisions under the new administrative model which can directly or indirectly lead to a monetary penalty will be subject to a full merits appeal. All other non-fining decisions, actions or omissions taken by the CMA in the course of the administrative enforcement process will be subject to a judicial review standard on appeal.

Appeals from the CMA's direct enforcement decisions will be before the High Court in England and Wales and the Court of Session in Scotland. Appeals for non-fining decisions or actions or omissions by the CMA in the course of the administrative enforcement process will be before the Administrative Court in England and Wales and the Outer House of the Court of Session in Scotland.

At this stage these direct administrative enforcement powers will not be extended to the sector regulators with consumer enforcement powers under Part 8 of the Enterprise Act 2002.

Strengthening sanctions for breaking the rules

Non-compliance with information gathering powers

The government wants to ensure that all public consumer law enforcers, including the CMA, sector regulators and local authority trading standards services are able to perform their consumer protection functions based on information that is accurate and complete, and can be gathered as quickly as possible.

Where a person, without reasonable excuse, has not complied with an information request under Part 3 of Schedule 5 of the Consumer Rights Act, has provided false or misleading information in response to an information request or has destroyed, concealed or falsified information, a fine of up to 1% of annual worldwide turnover will be imposed on a business, with an additional penalty of up to 5% of daily worldwide turnover while non-compliance continues. Where an individual fails to comply, a fixed penalty of up to £30,000 can be imposed with an additional daily penalty of up to £15,000 while non-compliance continues.

The CMA, as newly established administrative enforcer, will be able to impose these penalties directly. All other public consumer enforcers, including sector regulators and local authority trading standards services, will be able to apply to the civil courts to impose these penalties.

Breaches of undertakings

Whereas undertakings result in a faster case resolution, the government considers that the current means of securing compliance with consumer enforcement undertakings do not provide a sufficient deterrent or proportionate sanction for non-compliance with such undertakings. It therefore intends to introduce penalties for breach of undertakings as follows:

Where a business breaches, without reasonable excuse, an undertaking given to a public consumer enforcer, a penalty of up to 5% of annual worldwide turnover will be imposed, with an additional penalty of up to 5% of daily worldwide turnover while non-compliance continues. Where an individual breaches, without reasonable excuse, such an undertaking, a fixed penalty of up to £150,000 can be imposed with and additional daily penalty of up to £15,000 while non-compliance continues. The same penalties can be imposed for breaches of an undertaking given to a court.

The CMA will be able to impose these penalties directly. All other public consumer enforcers, including sector regulators and local authority trading standards services, will be able to apply to the civil courts to impose these penalties.

Breaches of consumer protection law

Turnover-based or fixed penalties can be imposed for breaches of consumer protection legislation. Where a business is in breach of consumer law, a fine of up to 10% of annual worldwide turnover can be imposed. Where an individual breaches consumer law, a fixed penalty of up to £300,000 can be imposed.

The CMA will be able to impose these penalties directly, but only in relation to breaches of legislation for which it has direct enforcement powers. All other public consumer enforcers (and the CMA for other consumer protection legislation) will be able to apply to the civil courts to impose these penalties for breaches of any of the legislation in Part 8 of the Enterprise Act 2002.

Supporting consumers enforcing their rights independently

The government is supporting consumers and traders to resolve more disputes without court action by improving Alternative Dispute Resolution (ADR) services in consumer markets. This includes amending the ADR Regulations 2015 to improve the quality and oversight of ADR services, and requiring businesses offering consumer dispute resolution services to be accredited against these Regulations.

The consultation also considered whether there is a case for strengthening the collective redress regime to make it easier to bring class actions for consumer claims, but the government is not proposing to take such action at this stage, in light of the mixed responses it received from stakeholders.

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