The UK government launched a consultation in January on a package of proposed reforms to the UK competition regime. Framed as ‘fine‑tuning’ to deliver a faster, more predictable and ‘best‑in‑class’ system, the proposals are nevertheless far‑reaching and would significantly alter the architecture of CMA decision-making for mergers and markets cases. We summarised the proposals in an earlier blog post. Our full consultation response is available here. This post summarises our views on the most significant reforms proposed.
Goodbye to the Panel?
The proposal Replace independent Panel-led Inquiry Groups with sub-committees of the CMA Board for Phase 2 mergers and key markets decisions, to enhance Board accountability. The sub-committees would include non-staff ‘experts’ drawn from a new expert pool replacing the Panel, as well as senior CMA staff (Executive and Senior Directors) and non-executive Board members, with at least half of any sub-committee required to be non-executive or expert pool members. The model closely aligns with the Digital Markets Boards Committee model already in place for the UK’s digital markets regime.
Our view
High quality, predictable decision making requires that decisions are taken on an evidence-led basis against clear criteria. The proposed reforms present several risks to this:
- Risk 1: Quality of decision making. A single set of decision-makers could in theory drive greater consistency and predictability. But that depends on those decision-makers having the time to engage fully with the significant volume of complex factual economic and evidence which is generated in Phase 2 cases. Given existing demands on CMA leadership , we are concerned predictability would not always be achievable in practice.
- Risk 2: Loss of a ‘fresh pair of eyes’. The Panel system serves to bring external perspectives and diversity of thought but, critically, it also ensures a “fresh pair of eyes” at Phase 2. This is a vital safeguard against confirmation bias. While the proposal includes a role for some non-staff experts, the net effect would be the loss of a truly independent decision-making body. In addition, the time constraints on decision makers could lead to greater reliance on case teams who often transfer from Phase 1 to Phase 2.
- Risk 3: Potential for increased political influence. An expanded role for the CMA Board (whose members are ultimately appointed by the Secretary of State for Business and Trade) risks increasing the perceived influence of political considerations in fundamental CMA decision-making processes.
Checks and balances
If this reform is pursued, then the following additional safeguards will be needed to mitigate the above risks and ensure the UK remains in line with its “peer” regimes:
- Access to file & procedural protection: Access to file is a vital corrective to the limitations of the sub-committee model – this would promote transparency, reinforce robust decision-making and facilitate effective challenge. A hearing officer would also provide an important additional check and help compensate for the loss of the Panel’s independent oversight function.
- Sub-committee governance: should embed safeguards by design, for example through requirements for an independent expert chair and a minimum number of external experts.
- Appeal standard: appeal on the merits (instead of judicial review) would provide an important mechanism to address (potentially) ’wrong’ decisions. Merits review need not undermine pace (given it avoids the need for remittals), and the CAT, a highly specialist and knowledgeable body, is well-placed to take on this role.
While not a matter for legislation, in due course it should also be considered how checks and balances can be enhanced through the CMA’s internal processes / guidance.
Legislative limits on share of supply and material influence
The proposal Share of supply: The share of supply test would be limited to a defined set of criteria (value, cost, price, quantity, capacity, and number of workers employed), removing the current ability to consider “some other criterion, of whatever nature”. Material influence: A statutory list of factors would be established for the material influence test, including the level of shareholding and voting thresholds (for example, at least 15%, or any shareholding or voting rights in combination with other factors), board representation or appointment rights, veto rights over strategic decisions, access to confidential information, and commercial / financial / consultancy arrangements.
Our view
While these proposals are intended to improve predictability, they would not materially curtail the CMA’s discretion in practice, and therefore have only a marginal impact on predictability.
On share of supply, the CMA would retain wide latitude in defining the relevant “good” or “service”, and the statutory criteria remain expansive enough to capture even the most controversial cases in recent years.
On material influence, the core source of uncertainty for businesses is the indeterminate nature of the concept itself. That uncertainty would persist even with the proposed statutory list of factors, which are broad and would continue to afford the CMA significant discretion, absent a clearer materiality threshold.
Consider instead
We would invite the government to consider the following further reforms that we believe would meaningfully improve predictability for merging parties:
- Tie the share of supply test to economic market definition.
- Require a meaningful (rather than marginal or theoretical) increment in share of supply.
- Tighten the UK nexus requirement under the hybrid test – for example, to require UK supply or turnover.
- Replace material influence with de facto control as the lowest standard of control (in line with many other jurisdictions).
A single-phase market review tool
The proposalMerge market studies with market investigations, to create a single process that must be completed within 24 months (extendable by 6 months, in certain circumstances), with a single legal test of “adverse effect on consumers”.
Our view
- A welcome rationalisation, consistent with the CMA’s ‘4Ps’ framework. The current two stage process can extend well beyond three years, generating prolonged uncertainty for affected businesses and delaying the delivery of competition benefits. A single phase model has the potential to reduce the extended uncertainty businesses face in markets processes, but transparency and communication will be key to ensuring this delivers in practice.
- The “adverse effect on competition” test remains the right one. The existing market investigation test is supported by a well-developed body of case law and supports discipline that enhances predictability. The consultation does not identify any concrete evidence of an enforcement gap that would justify moving to a lower ‘adverse effect on consumers’ standard.
Ensuring the single-phase tool delivers the promised 4Ps
- Pace and proportionality must match the problems.
Markets cases come in all shapes and sizes and greater flexibility demands more planning from the outset about how deep the CMA needs to go to understand potential problems in a markets. The number of RFI questions in markets cases frequently runs into the hundreds and while this will be justified in some cases, it is disproportionate in others. To enhance pace, it will be necessary to reduce the evidence gathered in many cases otherwise the reforms risk imposing even more significant burdens on business than currently.
- Ensuring flexibility delivers a predictability dividend. In our experience, the single most important factor for businesses involved in a market investigation is the potential scope of remedies that might be imposed. It is therefore essential to ensure that businesses can understand as early as possible what the potential remedies position is (intrusive or not). This should be built into the new process as early as possible: for example, where it is clear from the outset of a review that highly interventionist remedies are not on the table, that should be specified from the launch of the process, not only six months in.
- Procedural safeguards are essential. Compressing two phases into one removes the intermediate checkpoint currently afforded by the market study phase, which provides parties with meaningful procedural protection. The new process must ensure that businesses retain genuine rights of defence and are given a real opportunity to engage with and challenge the CMA’s emerging analysis before any provisional adverse effect finding. The risk of early prejudgement must be actively guarded against, and the CMA should ensure that the individual responsible for initiating a review is not also the ultimate decision-maker on its outcome. With the CMA’s new fining powers now in force under the DMCC, the stakes of a market review are significantly higher. Greater procedural rigour is warranted to reflect that.
Final thoughts
Many of the consultation’s objectives are the right ones: faster processes, greater predictability and improved accountability. But reform must not come at the expense of the quality and independence of CMA decision making. If the government proceeds with its most far reaching proposal – to replace the current Panel system – robust safeguards will be essential to maintain confidence in the UK competition regime, with investor confidence fundamental to the government’s overriding objective of driving economic growth.
For further information, please contact:
Jonny Ford, Partner, Linklaters
jonathan.ford@linklaters.com
