In recent years, there has been a significant increase in competition enforcement against financial services firms active in the UK, much of which has been carried out by the European Commission (Commission) rather than the UK’s Competition and Markets Authority (CMA) or Financial Conduct Authority (FCA). In this article, we consider how the landscape may change post-Brexit and the consequences for firms.
Development 1 – parallel investigations following Brexit
The UK competition authorities (including the CMA and the FCA) are prohibited from applying competition law to cases over which the Commission has chosen to exercise its jurisdiction. By way of example, when the Commission launched an investigation into insurance and reinsurance brokers in the aviation and aerospace sector in late 2017, the FCA had to close the similar investigation it had launched in April that year.
After Brexit, subject to the application of any transitional measures on competition law procedure which may emerge, the CMA and the FCA will be allowed to investigate any perceived anti-competitive practice affecting the UK, irrespective of whether the Commission is also conducting its own investigation in respect of conduct affecting trade in the EU.
Where conduct affects both the UK and EU, firms may face parallel EU and UK investigations, and infringing firms could be fined up to 10% of worldwide group turnover by the authorities in both jurisdictions. With no formal UK role in the EU institutions post-Brexit, UK firms involved in an EU investigation with any concerns about the approach taken by the Commission will not be able to rely on the UK to make representations on their behalf directly to the EU institutions.
Development 2 – possible divergence of approach and increased compliance burden
At present, UK competition law is substantively the same as EU competition law. Indeed, the UK competition authorities and courts must deal with questions under UK competition law in a manner consistent with the equivalent EU rules.
It is not clear whether a similar duty will apply post-Brexit. The Government has stated that it intends to preserve the EU’s so-called block exemption regulations, which provide a “safe harbour” for certain types of common agreements which meet prescribed criteria. Firms who rely, for example, on the specialisation block exemption when supplying goods or services jointly with competitors (for example, in the context of co-insurance or syndicated lending) may welcome this.
However, if a broader obligation for UK competition law to remain consistent with EU law ceases to apply, although the broad tenets of UK competition law are unlikely to change, firms may find that important differences start to develop between the EU and UK rules and that the application of UK competition law becomes less predictable.
It is possible, as part of this post-Brexit divergence, that additional or alternative considerations may be introduced to the UK competition regime, a regime which has historically been based on widely accepted and objective legal and economic analysis. New considerations could include, for example, national security, vulnerable consumers and the environment.
Irrespective of whether the UK regime is amended post-Brexit, potential divergence in enforcement practices and outcomes may make it more risky for firms to apply a one-size-fits-all approach to competition law compliance across the EU and UK. Consequently, compliance costs may increase.
Development 3 – heightened expectations but stretched resources
Many expect that, post-Brexit, the UK authorities will take on a greater number of cases, (including more complex cases) which tend at present to be handled by the Commission. The CMA has increased its annual target for new competition enforcement investigations from six in 2017-18 to ten in 2018-19, and both the CMA and FCA will be under some pressure to ensure there is no “enforcement gap” in the UK post-Brexit.
However, there will be other demands on the authorities’ resources post-Brexit. The FCA must balance conduct regulation and competition enforcement, and the CMA anticipates reviewing around 50 additional merger cases each year. The CMA will also be taking on a new State aid role following Brexit. While the CMA has been allocated an additional £23.6 million to meet these challenges, the FCA’s budget will remain flat.
Moreover, on 25 February 2019, the Chair of the CMA, Lord Tyrie, announced in a letter addressed to the Business Secretary Greg Clark, a set of preliminary proposals to radically revamp competition enforcement powers. The CMA is seeking changes designed to strengthen its ability to tackle consumer detriment, including through: stronger consumer law enforcement tools; a move to a mandatory merger notification regime; transferring the power to bring criminal cartel cases against individuals to another authority; revising its market inquiry and market study tools; and streamlining appeals at the Competition Appeal Tribunal.
It remains to be seen how the CMA (which may be the subject of significant reforms in due course) and the FCA will prioritise the cases they investigate both in the short and longer term. It may be that, to the extent that there is either overlap or divergence as between EU and UK investigations post-Brexit, UK authorities focus on cases which are likely to produce the greatest benefit to UK consumers. Filtering resource allocation through the lens of “consumer interest” would be in line with both the CMA and FCA’s statutory duties to promote competition for the benefit of consumers. Empowered
Despite continued uncertainty around the final shape of Brexit, competition enforcement could change. Parallel enforcement cases and merger reviews seem likely, as UK regulators pick-up the domestic aspects of investigations that would previously have stayed in Brussels. Ultimately, the risk of divergence on substance could create an increased compliance burden for firms operating in both the UK and remaining EU post-Brexit.
This article was first published in Bryan Cave Leighton Paisner’s Emerging Themes in Financial Regulation 2019: New Perspectives publication – an extensive collection of articles around the themes of investigations, financial crime, digital, markets, supervision and governance. You can download the full publication here.