Insights | Punter Southall Analytics | Red Flag to Remedy – The Journey of a CMA Competition Investigation

One of the principal tools of the Competition and Markets Authority (CMA) is the competition investigation, used to scrutinise potentially anti-competitive practices of a single business, or group of businesses, under the Competition Act 1998 (CA98). [1]

Briefly, Chapter I of the CA98 prohibits anti-competitive agreements between undertakings (e.g. cartel behaviour), while Chapter II prohibits the abuse of a dominant market position.

These focused competition investigations are narrower in scope than the regulator’s separate powers to conduct market-wide assessments (for example the market studies and market investigations initiated when entire markets are not working effectively for consumers).

Competition investigations follow a set process to ensure transparency and fairness.

Stages of a Competition Investigation

All CMA competition investigations will start with some kind of trigger, prompting the regulator to begin investigations. This trigger can take multiple forms, for example:

• A complaint made by a consumer / business
• Information submitted by a whistleblower
• Inhouse market intelligence and monitoring
• A referral from another UK or overseas regulator

The first thing the CMA needs to determine, at this stage, is whether there are reasonable grounds to suspect a breach of competition law.

(2) Preliminary Assessment

If the CMA identifies a potential breach, the regulator will then carry out an initial assessment to decide whether the conduct warrants the launch of a formal investigation.

This will include looking at:

• The availability of evidence
• The potential impact the conduct might have on competition (and therefore the impact on consumers)
• Confirming that any investigation falls within the CMA’s jurisdiction
• Assessing whether the matter falls under a civil or criminal investigation

In cases that do not pass this initial assessment to become formal investigations, the CMA can still choose to send an advisory or warning letter to the relevant company or companies, informing them that the regulator has been made aware of a possible breach of competition law.

(3) Initiation of the Formal Investigation

If the required threshold is met, where appropriate, the CMA issues a formal notice to any involved parties, setting out:

• The suspected infringement
• The legal basis for the investigation
• The scope of the investigation
• The anticipated timeline
• The key contact details for the case team

Issuing the formal notice as a first stage is not always appropriate if it would prejudice the investigation, for example when the regulator intends to carry out dawn raids.

(4) Evidence Gathering

As the formal process has now been initiated, the CMA are able to deploy their statutory powers to gather evidence.

These powers include issuing requests for information, conducting interviews, collecting witness statements and carrying out dawn raids (unannounced inspections) on business premises and employee residences.

(5) Detailed Assessment

Once any relevant information has been collected, the CMA analyses the evidence to determine whether there appears to have been a breach of competition law.

This includes testing the factual, legal and economic arguments relevant to the theory of harm, and continuously reviewing the scope of the investigation (i.e. could the evidence point to further theories of harm not previously considered?).

(6) Investigation Outcomes

There are a few possible outcomes once an investigation has been undertaken. Namely:

• The investigation is closed on the ground of administrative priorities. This is usually a result of a redistribution of resources due to a change in the regulator’s priorities, or a lack of evidence.
• The CMA issues a Statement of Objections (SO). This is where the CMA has reached a provisional view that the relevant conduct amounts to an infringement. The SO will set out the facts, the CMA’s legal / economic assessment and any actions the regulator proposes to take (e.g. imposing financial penalties, issuing directions).
• The CMA accepts commitments on future conduct. This is where the CMA accepts binding structural and / or behavioural commitments (i.e. promises) from an involved business. The regulator can accept commitments at any stage in the proceedings (i.e. before or after an SO has been issued) but warns companies that they are unlikely to accept commitments at a very late stage.
• The investigation is closed on the basis that there are no grounds for action. This is where the CMA has not found sufficient evidence of a competition infringement. Again, the CMA can reach this outcome at any stage of the investigation.

(7) Right to Reply

Once an SO has been issued, parties have the opportunity to inspect the evidence relied upon in the CMA’s file, submit written responses, enter settlement discussions, and make oral representations at a hearing.

Third parties are also sometimes given the chance to make written submissions at this stage (e.g. complainants, other affected parties etc.).

If a party decides to settle at this stage, it will admit that it has breached competition law in return for a reduced penalty.

(8) Final Decision

After all parties have had sufficient time to make submissions to the CMA, the regulator will assess the impact of these submissions and determine whether there remains sufficient evidence of an infringement.

The CMA will then either issue an infringement decision or a no ground for action decision. The infringement decision will explain what financial penalties are being applied, and / or explain any directions for remedies given (and the basis upon which they are being given) to bring the anti-competitive behaviour to an end.

A non-confidential version of the infringement decision is published publicly on the CMA website.

(9) Appeals

Parties have the right to appeal any infringement decisions to the Competition Appeal Tribunal.

(10) Knock-on Effects

Even after the CMA closes an investigation, this may not always represent the end of the matter.

Where the regulator has published an infringement decision, this can become the cause of action in follow-on private litigation.

As the UK’s collective proceedings regime develops, interested parties will be keeping a close eye on CMA decisions in case any represent a potential viable claim.

Timeline of a Competition Investigation

Competition investigations can take anywhere between months and years to complete. If going all the way to an announcing an infringement, the CMA will typically publish their decision within three years of initiating a formal investigation. However, if the investigation is straightforward, if commitments are received, or if settlement is reached, the case could be over much faster. Likewise, the lifespan can be a good deal longer when a case is very complicated, or has a large number of affected parties (for example multi-participant cartels).

A timeline of events in a standard competition investigation could look something like this:

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We hope you've found this article of interest.

If you'd like to discuss it, or any other matters where we may be able to assist you, please contact David Rankin on david.rankin@puntersouthallgroup.com.

[[1] Guidance on the CMA's investigation procedures in Competition Act 1998 cases: CMA8