Regulatory Outlook | Competition | February 2020
Published on 26th Feb 2020
CMA set to receive new consumer protection powers in 2020
In February last year, the Competition and Markets Authority (CMA) published a series of proposed reforms designed to address its perceived difficulties in adequately protecting consumers under the current legal framework. Reports at the end of last year suggested the Department for Business, Energy and Industrial Strategy (BEIS) is supportive of the proposals and is in line to grant new powers to the CMA in 2020.
The proposals, which include a new statutory duty on the CMA and the courts to treat the protection of consumers as paramount – replacing its current duty to promote competition law – along with new enforcement powers, reflects wider debates about the adequacy of competition law to deal with consumer harms in fast-moving modern markets. With the proposals designed to strengthen the CMA's hand, both because they will enable the regulator to act more quickly and because of the relative ease of proving a consumer law breach compared to a competition law breach, any consumer facing businesses will need to stay alert to the developments.
Vertical Agreements under the spotlight
In recent years, we have seen increasing enforcement by competition authorities worldwide of vertical restraints - that is restrictions in agreements between companies at different levels of the supply chain. Restrictions are prevalent in online markets, as highlighted by the European Commission's e-commerce sector enquiry, including Resale Price Maintenance, "Most Favoured-Nation" clauses and online sales bans have been under attack by the regulators as competition law rules have come into conflict with brand owners seeking to protect their brand amidst the radical growth of online sales.
With the current Vertical Block Exemption Regulation (VBER) – which exempts certain restrictions which would otherwise infringe competition law – set to expire in 2022, the European Commission's ongoing review of the rules this year will ensure that these restrictions remain under scrutiny. The European Commission's final decision on whether to extend or change the existing rules will have a significant impact on brand owners and distributors, but, in the meantime, with vertical restrictions under the spotlight, businesses will need to ensure that any attempts to protect their brand online are done within the confines of competition law.
Government commissions CMA to publish a 'state of competition' report
The CMA has been commissioned by BEIS to publish a regular "state of competition" report, with a preliminary report expected by summer 2020. While the form of the reporting is yet to be confirmed, the scope is broad and designed to help BEIS gain clarity on "how well competition is working across the economy".
Beyond the significant workload this may result in for the CMA – which may limit its ability to take on discretionary work – the main take-away from the Commission, and the letter from BEIS to the CMA, is the Chancellor's expression that effective competition is "at the heart of this Government's vision for the economy". The Government appears to be setting out its stall as an interventionist force and we may expect it to try and make some significant changes to the regime, particularly post-Brexit.
Digital Markets under scrutiny worldwide with potential intervention
Competition authorities worldwide are increasing the pressure on "big tech" companies as a series of reviews of the sector are carried out. The announcement in February that digital platforms are to face an industry-wide probe by European regulators as they consider how to make sure competition rules are "fit for a digital age" follows the CMA releasing its interim report for its online platforms and digital advertising market study.
The studies have the potential to result in significant interventions and changes to the regulatory landscape for businesses active in these markets. Proposed interventions by the CMA include, for example, a new enforceable code of conduct for platforms of a certain size, and rules to force companies to provide access to data to competitors and give greater power to consumers over their data.
In Focus | Responsible business
Which aspects of responsible business are driving the regulatory agenda?
The main theme driving the regulatory agenda for competition authorities across the EU is protection of the vulnerable consumer and, in particular, protecting consumers that have suffered damage as a result of a perceived failure of competition law to regulate modern markets. The CMA has explicitly set out a significant change of direction in this respect, with its proposals to the Department for Business, Energy and Industrial Strategy (BEIS) last year suggesting a radical change in the regulator's priorities and enforcement approach. Similarly, the protection of consumers in fast-moving digital markets – where the effectiveness of competition law to tackle harm quickly enough to prevent abuses has been questioned – is a high priority for the European Commission and the national authorities, and changes to the way that these markets are regulated is expected to result.
Are responsible business considerations having an impact on the tools that regulators are using?
We are seeing a shift away from traditional rules-based regulation in an attempt to tackle harms in markets where "one size fits all" regulation is not appropriate due to a market's complexity. The CMA's market study into online platforms and digital advertising is illustrative of this; building on previous recommendations by an expert panel who carried out a study into digital market; central to the CMA's proposals at the interim report stage is to introduce an enforceable code of conduct for online players' with significant market power.
Which of the recent or upcoming developments are based on international consensus or agreements?
Given the global nature of the markets under scrutiny, there is significant international consensus in tackling the issues that competition authorities perceive to be harming consumers. The scrutiny of digital markets is truly international in scope; just as the European Commission will no doubt use the findings of the CMA as it embarks on its own probe of digital markets, the CMA has referred to the report of the Australian Competition and Consumer Commission which was produced in 2019.
However, despite this global consensus on the challenges of the digital economy, national divergences in actually tackling the issues are to be expected. In the UK for instance, the CMA's chief executive has an expressed a desire to more aggressively pursue anti-trust investigation – including large mergers – against US tech giants after Brexit.
What are the main challenges for businesses in complying with these developments?
A current difficulty for businesses seeking to ensure they stay on the right side of the competition regulators is that, while compliance with competition law may no longer be enough to satisfy the regulators, it is uncertain at this stage how the regulators intend to tackle consumer harm and who the targets will be. In the case of the CMA's potentially strengthened hand in relation to consumer law enforcement, the concept of unfair behaviour is potentially easier for the regulator to prove than, for instance, proving dominance. Similarly, while the scrutiny into digital markets continues, it is unclear what conduct will be tackled, and which players will be subject to the new regulation.
Dates for the diary
|Q1 2020||European Commission's digital strategy published|
|Q1 2020||BEIS expected to publish white paper including proposed legislation to reform competition rules and set to include details of a new "digital markets unit"|
|12 February 2020||CMA market study into online platforms and digital markets: deadline to submit comments on the CMA's Interim Report|
|Q2 2020||European Commission expected to report on its evaluation of Vertical Block Exemption Regulation|
|Q2 2020||CMA to publish preliminary "state of competition" report|
|2 July 2020||CMA market study into online platforms and digital markets: deadline for the CMA to publish its final report|