In July 2021, the government (BEIS) published its proposals for reforming competition and consumer law.

Competition law

The competition law proposals cover competition enforcement, the markets regime and merger control.

Competition enforcement would be sped up and strengthened through changes to the immunity regime, protections for whistle blowers, stronger interim measures powers and enhanced evidence gathering powers (for example, extending compulsory interviews to individuals without a connection to the business being investigated and possible use of seize and sift powers on domestic premises). In addition, directors could be made personally accountable for providing complete and correct information to the CMA (with the possibility of director disqualification for flagrant breaches) and new fines may be introduced for providing false or misleading information in response to a voluntary request.

The markets regime proposals aim to make the market inquiry process more flexible and efficient, with one option to replace market studies and market investigations with a single market inquiry tool. Other proposed changes would give the CMA greater flexibility in defining the scope of market inquiries, powers to impose interim measures, to accept binding commitments at any stage of a market inquiry, and further powers in the design and review of remedies, including the ability for the CMA Board (not independent panel members) to impose behavioural remedies at the end of a market study (Phase 1).

The merger control proposals start with changes to the jurisdictional tests to focus the regime on acquisitions that are mostly likely to be harmful, with proposals to: i) increase the current turnover-based threshold for the target of a merger from £70 million to £100 million to adjust for inflation; ii) introduce a "safe harbour" threshold for transactions where each party's turnover is less than £10m; and iii) introduce a new threshold to catch "killer acquisitions" where at least one of the parties has a 25% or more share of supply of goods or services in the UK and a UK turnover exceeding £100million. This last threshold would make it easier for the CMA to investigate vertical mergers involving larger, established market players, mergers that might increase the concentration of market power across different products or services, and acquisitions by large companies of new start-ups where the acquisition would not qualify for investigation on current thresholds. Proposed changes to merger investigation procedures would give the CMA power to agree binding commitments at an earlier stage in the Phase 2 process and a new “fast track” route under which parties would be able to request an automatic Phase 2 reference without having to complete a Phase 1 investigation.

Consumer law

These proposals cover changes to the substantive requirements of consumer law and enforcement procedures.  The government is proposing that the CMA be given powers to enforce consumer law directly, as it does competition law, rather than going through the courts; it would be able impose fines of up to 10% of annual turnover on companies in breach of the substantive rules and up to 1% of annual turnover for failure to comply with requests for information (with further daily penalties of 5% of daily turnover for continued non-compliance). To address long-standing concerns over specific practices, the consultation document puts forward various changes to protect consumers from i) subscription traps and automatic renewals,  including through requirements that contracts should not auto-renew or rollover without the consumer's specific agreement and that the processes for exiting a contract is automated, clear and easy for consumers to find and use, and ii) fake or misleading reviews, by adding certain practices, such as commissioning or incentivising fake reviews, to the list of practices deemed to be unfair (and therefore prohibited) under the Consumer Protection from Unfair Trading Regulations 2008. 

The consumer law proposals have the potential to reshape consumer law enforcement and materially change the risk profile of breaches in this area.  They also form part of the suite of changes to grapple with a more digital economy, targeting specific practices that have developed alongside the rise in online shopping.

The competition reforms being proposed are incremental and more procedural than substantive, but if implemented in full would significantly ratchet up the CMA's powers to intervene and pursue investigations using its competition enforcement, markets and merger regime tools. Individuals and directors may feel the brunt of changes to competition law enforcement. 

The government is still considering the responses to its consultation (which ended on 1 October 2021) and has not set a timetable for announcing which proposals are to be taken forward or introducing the new legislation.

Businesses may need to review internal policies and procedures to ensure they are responsive to the changes that emerge from these proposals and protect the business and individuals from the risks of non-compliance with procedural requirements and of breaching substantive competition and consumer rules.  in particular, for some businesses, there may be value in thinking ahead to how they might adapt to a much tougher consumer enforcement landscape.

Alongside its consultation on competition and consumer law reform (see above) the government (BEIS and DCMS) also consulted on proposals for a new "pro-competition regime for digital markets" that would be overseen by the Digital Markets Unit (DMU). The proposals follow a number of policy developments and reports on the competition challenges posed by digital markets. These include the 2019 report of the Digital Competition Expert Panel, chaired by Professor Jason Furman and the CMA's 2020 report of its market study into online platforms and digital advertising. Following those earlier reports, the DMU was established within the CMA and has been carrying on, on a non-statutory, shadow basis, preparatory work for the new statutory regime.

The consultation sought views on:

• Identifying which firms fall within the scope of the new regime. 

The regime will apply to firms designated with Strategic Market Status (SMS) by the DMU. SMS designation would be based on demonstrating that the firm has substantial and entrenched market power in at least one digital activity, providing it with a strategic position; this would include where the effects of the firm's market power are likely to be widespread or significant.  

• The objectives for the DMU and how it will work with other relevant regulators. 

The statutory duty of the DMU, as proposed, is "to promote competition (which includes promoting competitive outcomes) in digital markets for the benefit of consumers". The DMU should also support innovation when promoting competition, but it is not currently proposed that this be expressed as a core duty. 

• A enforceable code of conduct  

Firms with SMS will be required to follow an enforceable code of conduct that will set out how they are expected to behave. The three overriding objectives of the Code -  fair trading, open choices, and trust and transparency - and high level principles derived from these would be set out in legislation, and the DMU would have powers to develop binding requirements and guidance based on those principles. It would issue code orders where the code is breached, specifying the behavioural changes required from firms in order to comply with the Code.

• Powers for the DMU to make pro-competition interventions (PCIs)  

The DMU will be able to impose a range of PCIs where the DMU establishes there exists an adverse effect on competition (AEC). This power is intended to go towards addressing the root causes of "substantial and entrenched market power". PCIs could include data-related remedies (such as action against an SMS firm which suddenly restricts a third party’s access to key data) and measures to enhance consumer choice. The DMU would have the flexibility to implement these remedies incrementally, for example by making smaller interventions and considering their effectiveness before making more interventionist remedies where needed to address an AEC. 

• Enforcement mechanisms

The DMU will have powers to monitor and enforce the new regime, including by the imposition of fines for code breaches and failure to comply with code or PCI orders, but with a focus on resolving concerns through constructive engagement with firms. Additional enforcement options, such as enabling the DMU to apply for court orders requiring compliance with a code order or a PCI, are also under consideration.

• A distinct merger regime for firms with SMS

Firms with SMS would be required to notify the CMA of all mergers and acquisitions before completion. The government is consulting on whether the largest transactions (based on transaction value and UK nexus test) should be subject to mandatory review and clearance prior to completion. An alternative would be for the SMS merger regime to operate as a voluntary regime with the CMA having the power to call in for review any mergers which met the jurisdictional test. The substantive test for clearing a merger at Phase 2 would be whether there is a ‘realistic prospect’ of a substantial lessening of competition as a result of the merger (a lower test than the Phase 2 "more likely than not" standard in the mainstream merger regime).

The UK is not alone in putting forward legislative proposals to deal with competition challenges in digital markets. The EU is progressing a Digital Markets Act which aims to address weak contestability and unfair practices in the digital sector by regulating the activities of large online platforms that serve as "gateways" for business users and end users, including: (i) online intermediation services (for example marketplaces, app stores) (ii) online search engines, (iii) social networking (iv) video sharing platform services, (v) number-independent interpersonal electronic communication services, (vi) operating systems, (vii) cloud services and (viii) advertising services, including advertising networks, advertising exchanges and any other advertising intermediation services related to one or more of the other core platform services. 

This is one of a number of initiatives, globally, to address rising concerns with increased importance of key digital platforms in our economy and in our lives.  The UK has taken a different approach from the EU, with the proposed UK regime having a wider potential reach. Because the new regime will apply to firms designated with SMS, and this may be established on the basis of one digital activity (rather than whether the firm is a "digital gatekeeper"), the DMU will have considerable flexibility to intervene against smaller operators as well as the so-called digital giants. Its interventions will have the potential to bring about changes in online behaviour that may affect online retail activities in as yet unforeseen ways. 

For Retail and Consumer businesses that rely on digital platforms for aspects of their business, whether as a route to market or for advertising, a key feature of the DMU proposals are tools to help "level the playing field" and may provide new options and remedies for issues that arise, much in the way that the Grocery Supply Chain Code of Conduct has done in supplier relations with grocery retailers.

As with the competition and consumer proposals, the government is still considering the consultation proposals and there is no formal timetable for next steps and introducing legislation.

The National Security and Investment Act 2021 (NSIA), which establishes a new stand-alone power to scrutinise investments/acquisitions on national security grounds, became fully operational on 4 January 2022. It applies to investments / acquisitions by investors from any country, including the UK.  

The NSIA contains a mandatory notification regime requiring prior notification and clearance of acquisitions of certain shares or voting rights in entities in the seventeen most sensitive areas of the economy. Failure to notify a transaction that is subject to the mandatory regime will render it void and may also give rise to civil and criminal penalties. Outside of the mandatory regime there is provision for voluntary notification to encourage notifications from parties who consider that their transaction may raise national security concerns. This is combined with a "call-in" power which the Secretary of State for BEIS may use to call in transactions for full national security assessment, whether or not they have been notified; this covers acquisitions of qualifying entities or assets, including land, tangible or moveable property, and ideas, information or techniques which have industrial, commercial or other economic value (such as trade secrets, databases, algorithms, designs, software). The national security assessment may result in clearance or final orders to prevent, remedy or mitigate the national security risk or, in the more extreme cases, the blocking of transactions or full unwinding and 'put back' to the seller. BEIS has published a body of guidance to assist in deciding whether a transaction needs to be notified or a voluntary notification should be made, together with other guidance on the new rules and legislation (see here).

Acquisitions affecting the retail sector are not a primary target of the new national security regime, but there may be circumstances where it may be relevant, for example where land adjacent to sensitive sites or critical infrastructure is acquired, or for the protection of critical supplies / supply chains during national emergencies. Because the NSIA is applicable to such a broad range of transactions and the consequences of falling foul of the new regime can be very serious, all acquisitions and investments should be regarded as potentially within its ambit and consideration given to whether notification is required or desirable. 

The UK kept the EU's key piece of competition legislation relating to supply and distribution agreements (so-called "vertical agreements) in place in the UK for the period immediately following Brexit. The Vertical Agreements Block Exemption Regulation (VABER) stipulates which restrictions included within vertical agreements can and cannot be exempted from competition law (subject to certain market share thresholds).

VABER will expire in both the UK and EU on 31 May 2022 and the Competition and Markets Authority (CMA) and the European Commission (EC) have published their proposals for new legislation – this will be a revised VABER in the EU, which will be relevant for UK businesses with operations and/or supply chains that extend to the EU, and a Vertical Agreements Block Exemption Order (VABEO) in the UK.  For the most part, both proposals retain the overall structure of VABER and the substantive provisions in many areas (e.g. the rules on restrictions on resale pricing and non-compete obligations) remain unchanged.  Some changes are being made, driven largely by objectives to provide stakeholders with up-to-date guidance on online restrictions and reduce compliance costs for business by clarifying certain provisions.  The EU and UK proposals are currently broadly the same though there are some areas of divergence and neither set of proposals is finalised.  Four key areas where changes are proposed are:

Dual distribution (where a supplier competes with its distributors for sales to end-consumers)

These arrangements are currently exempted despite the parties competing at the retail level. The UK proposes to retain this exemption. The EU, however, plans to remove the automatic exemption for online platforms selling goods or services to end users in competition with their online distributors and to impose further obligations for other dual distribution arrangements - where the combined retail market share of the supplier and distributor exceeds 10%, the exemption will only apply if any information sharing between supplier and distributor does not lead to coordination on the retail market.  Suppliers and distributors/resellers with activities within the EU will need to carefully consider information flows between supplier and distributor and whether any additional precautions are needed.

Restrictions on resale – shared exclusivity

Under current rules, it is possible to give some protection to a distributor with an exclusive territory or customer group, but VABER does not apply where a territory/customer group is allocated to more than one distributor (shared exclusivity). This will change under the UK and EU proposals which extend territorial protection to distributors who share a territory/customer group – suppliers will be able to restrict other buyers from actively competing within the shared territory or shared customer group. There is no formal limit on the number of distributors sharing a territory or customer group, although the EC's draft guidelines suggest the number should be proportionate to the size of the territory/group so that the level of business obtained preserves investment efforts.

Restrictions on online sales

Obligations on resellers that restrict online sales are currently prohibited. This includes charging higher prices for goods that are to be resold online than for those for resale offline. Recognising that online sales now function well as a sales channel, both the UK and EU propose exempting dual pricing. The EC's draft guidelines suggest any price differences should relate to differences in costs incurred by distributors on each sales channel.

Price parity / 'most-favoured-nation' clauses (MFNs) (where one party is required to offer goods/services to another party on terms which are no less favourable than terms offered to third parties)

Current rules distinguish between narrow MFNs (restricting buyers from re-selling at a better price on their own website) and wide MFNs (restricting buyers from selling their product at a better price on any other platform). Under the UK proposals, narrow MFNs will remain exempted, but wide MFNs will not be – and under the EU proposals, wide MFNs that specifically apply to "online intermediation services" will also not be exempted. The UK proposals will, additionally, mean that agreements with wide MFNs will fall outside the block exemption entirely, whereas under the EU proposal the wider agreement will still be able to benefit from block exemption provided the MFN clause is severable. 

The conditions for automatic exemption of vertical agreements are changing, with revised rules coming into force on I June 2022. Businesses that currently benefit from VABER exemption for their supply / distribution agreements will need to review their arrangements to ensure continuing compliance with the relevant exemption conditions. Both EU and UK proposals include a one year transitional period for bringing current agreements into line with the new exemption requirements. All businesses should take account of the revised conditions when negotiating new arrangements.