Competition law: legal implications of Brexit for your business


Written on 28 March 2017

The UK has its own well-established competition law regime, albeit one that is closely modelled on the EU regime. While the extent to which EU competition rules will continue to apply will depend on the terms of the new trading relationships agreed between the UK and the EU, UK competition law is itself unlikely to change fundamentally. We highlight below those areas of competition law that we anticipate will undergo some change:

  • Brexit may bring to an end the current one-stop-shop for large-scale mergers which fall under the EU Merger Regulation, so far as the UK is concerned. Mergers which fall within the jurisdiction of the UK’s Competition & Markets Authority might therefore need clearance from both the European Commission and CMA.
  • Following Brexit, EU jurisprudence will no longer be binding on UK courts, although court rulings and Commission decisions are likely to remain persuasive, given the similarity of the two regimes.
  • Subject to the terms of any future access agreement, the EU State aid rules and rules protecting cross-border trade may no longer apply to the UK.
  • Brexit may make the UK a less attractive forum for private enforcement, particularly for follow-on damages claimants. Indeed, depending on what deal is struck between the UK and the EU (and how ‘detached’ the UK becomes), claimants may no longer be able to bring follow-on damages actions in the UK in reliance on EU infringement decisions.
  • There may be an increase in the number of parallel competition and cartel investigations carried out by the CMA under UK competition law if the EU loses its competence to conduct investigations concerning the UK, which could result in divergence in decision-making.

These issues, and the wider consequences of Brexit for competition law, are considered in more detail below.

Merger control

  • Brexit may bring to an end the current one-stop-shop for large-scale mergers falling under the EU Merger Regulation (EUMR), so far as the UK is concerned.
  • In practical terms, this might mean:
    • businesses involved in large-scale M&A activity may be required to seek merger control clearance at both EU and UK level (instead of either EU or UK level), meaning increased costs (both financially and in terms of management time);
    • mergers with a strong UK element may no longer trigger EU merger control, with a corresponding increase in the number of mergers triggering UK merger control; and
    • additional strategic analysis when considering M&A involving a target with substantial UK operations.

Competition compliance

  • One of the main consequences of Brexit is that EU jurisprudence will no longer be binding on UK courts.
  • Over time, this may result in increasing divergence in the application of UK and EU competition rules.
  • In turn, this may increase the cost of competition law compliance for companies active in both the UK and EU markets.
  • EU competition rules are designed to remove, as far as possible, national barriers to cross-border trade (such as exclusive territorial protection and restrictions on purchasing parallel traded products). In the event of Brexit, businesses may have more scope to ring-fence the UK market from EU competition.

State aid

  • EU State aid rules target protectionism at a Member State level by limiting the circumstances in which public funds can be applied selectively to support national businesses.
  • Following Brexit, the UK government, public authorities and other publicly-funded bodies may have greater scope to provide grants, loans and other forms of support to specific businesses or sectors.
  • However, commentators such as the UK State Aid Law Association predict that the UK may be required to adopt the State aid regime (or put in place an equivalent national regime) if it wants to continue to trade freely with the Single Market (read more here).
  • Conversely, the UK government may lose its right to rely on EU State aid rules to challenge questionable aid provided to businesses in other EU Member States.

Enforcement

  • Companies might expect an increase in the number of parallel investigations at EU and UK level for competition law infringements with pan-European effects, potentially leading to a divergence in decision-making.
  • Brexit may also affect the ability of UK businesses to bring follow-on damages in the UK in reliance of an EU infringement decision.

Regulation

  • Over time, the current regulatory environment in the UK may start to diverge from its EU underpinnings.
  • This could increase the costs of regulatory compliance for UK businesses wishing to compete in the EU, and vice versa.
  • This may also affect – positively or negatively – the relative attractiveness of the UK market.

Competition investigations

  • It may become more difficult to withhold disclosure of UK legal advice in the event of an EU dawn raid.
  • EU inspectors cannot currently demand to see legal advice (which might reveal anti-competitive practices) prepared by EEA-qualified external lawyers. This would not extend to UK qualified lawyers if Brexit resulted in the UK also leaving the EEA.

Other consequences

  • There are likely to be other consequences arising from Brexit, the effects of which may not become apparent for some time:
    • additional enforcement activity is likely to stretch the current resources of the CMA;
    • the CMA may be excluded from the European Competition Network, the network of national competition regulators through which information on enforcement cases and best practice is shared; and
    • Brexit will necessitate a host of amendments to UK competition legislation and associated guidance.

Practical steps that businesses can be taking now

  • If you are taking, or are considering taking, private enforcement action for damages suffered as a result of anti-competitive agreements or behaviour, careful thought should be given to whether the UK would be the most appropriate forum to bring that action.
  •  Does your business lose margin to parallel trade of products into the UK from EU member states? If so, consider whether Brexit might pave the way to greater flexibility in your ability to limit and control these imports.
  • Do you operate in a sector that frequently benefits from (or might be a target for more) Government funding? If so, consider opportunities to get your voice heard in relation to the development of post-Brexit State aid regulation.
Our competition law experts can help you prepare for Brexit and understand the legal implications for your business.

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*This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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