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Consumer protection and competition law: what are the UK Government's proposed reforms?

Posted on 13 May 2022

Reforms to strengthen competition laws and enhance consumer protection have been on the UK Government's agenda for the last couple of years. This is partly as a result of the Government's post-Brexit strategy and its 'Building Back Better' plan to deliver growth and reduce "red tape" for businesses. Additionally, it is also guided by the extraordinary changes to UK consumers' shopping habits hastened by the COVID-19 pandemic, and technological innovation in online commerce.

In July 2021, the  Department for Business, Energy and Industrial Strategy (BEIS) launched a consultation "Reforming Competition and Consumer Policy: Driving growth and delivering competitive markets that work for consumers" (which we considered in detail here). Following the consultation, BEIS published its response on 20 April 2022, setting out its proposals for reform in order to strengthen competition in the UK markets and for changes to ensure the UK creates the best possible environment for competitive and dynamic growth, whilst at the same time ensuring consumers are protected to the highest standard.

The Secretary of State for BEIS, Kwasi Kwarteng MP, stated that "Now that we have left the EU, we have an opportunity to implement regulations that work better for the UK. We are moving in a more agile way than the EU, whilst maintaining high standards. We can forge our own path to deliver growth, innovation, and competition while minimising burdens on business.

By refining and implementing our reform programme, we will build our competition and consumer policies on these foundations to make them best in class. Under this new vision we will bolster the Competition and Markets Authority, enhance consumers’ rights, and ensure those rights are robustly enforced."

Details of the proposed reforms are discussed below. 

Whilst these reforms seek to benefit small businesses and consumers, if enacted, the proposals will increase the regulatory burden on businesses who should be aware of the changes that lie ahead (especially those that are consumer facing). For example, one particularly notable proposal is the power for the Competition and Markets Authority (CMA) to directly address certain breaches of consumer law and to issue fines for such breaches up to 10% of global annual turnover.

Following the BEIS consultation, and the consultation in relation to a new pro-competition regime for digital markets, the Queen's Speech on 10 May 2022 announced the UK Government's intention to publish a draft Digital Markets, Competition and Consumer Bill. The devil will be in the detail, and it will be interesting to see how the reforms shape up once the final legislation is enacted and how businesses adapt in practice.  

A further point to note, for those businesses that also sell goods and services to EU consumers, the Enforcement and Modernisation Directive ((EU) 2019/2161) (EMD), which will come into effect on 28 May 2022, deals with broadly similar consumer protection reforms. As such, businesses should consider their compliance and preparations for the EMD alongside the suite of reforms that BEIS has proposed.

Reforms to competition law and the CMA

Despite the UK having a mature competition law regime, regulated by the CMA, the pace of change since the last major update to competition legislation in 1998 has arguably reduced the effectiveness of the existing framework.

With greater competition to drive market efficiencies, productivity, innovation and enterprise, the push to enhance and modernise the UK's competition framework has resulted in BEIS proposing a number of important reforms:

Investigative and enforcement powers
  • The CMA's investigative and enforcement powers are to be strengthened through a number of proposed measures, which include:
    • Penalties for businesses that fail to comply with investigative measures of up to 1% of annual worldwide turnover, and up to 5% of annual worldwide turnover for failure to comply with enforcement measures (such as undertakings or commitments). Additionally, each will attract additional daily penalties of up to 5% of daily worldwide turnover for the duration of non-compliance.
    • For the first time the CMA will be able to enforce certain consumer laws directly (details of which laws have yet to be confirmed) – for example, the CMA may issue fines of up to 10% of global turnover if a business breaches such laws.
    • Enhanced international co-operation between the CMA and its equivalent overseas authorities by updating the rules governing information sharing and the use of compulsory information gathering powers.
    • When determining whether the algorithms used by companies comply with competition law, the CMA will have greater powers to test and verify this.
Illegal anticompetitive conduct
  • As part of the UK Government's intention to improve the CMA's enforcement capabilities, a number of policies are proposed:
    • Agreements, concerted practices and decisions that are implemented outside of the UK can be caught by the Chapter 1 prohibition in the Competition Act 1998, depending on the effect of the agreement or conduct in the UK.
    • The CMA will be granted a range of new evidence gathering powers.
    • If a business abuses its market position, the minimum turnover threshold for immunity from financial penalties has reduced from £50 million to £20 million.
Market inquiry process
  • A number of reforms are proposed to create a more efficient, flexible and proportionate market inquiry process:
    • Increased opportunity for binding commitments to resolve competition issues faster.
    • Providing the CMA with enhanced flexibility to define the scope of market investigations.
    • Greater flexibility and versatility to apply remedies in market investigations – such as enhancing the CMA's ability to amend remedies in a 10-year period after an adverse effect on competition finding. 
Merger control
  • In order to create a more efficient and proportionate merger control system, a number of important changes are to be implemented:
    • The current turnover threshold applicable to the target of an acquisition or merger will increase from £70 million to £100 million.
    • For mergers or other transactions between small businesses where each has less than £10million UK turnover, merger control will not apply.
    • The investigation procedure is to be reformed to improve the effectiveness and efficiency of the CMA's investigations. This includes allowing binding commitments to be agreed earlier during Phase 2 and implementing an enhanced and streamlined automatic fast-track referral procedure.
"Killer acquisitions"
  • As a way to protect smaller, and often more innovative, companies from being acquired in the developmental stage of their business by larger, prospective competitors, the CMA will have enhanced jurisdiction to review these acquisitions.
  • The CMA will be able to review such acquisitions where at least one of the merging businesses has an existing share of supply of goods or services of 33% in the UK (or a substantial part of the UK), and a UK turnover of £350m.

 

Reforms to consumer protection policy

The second aspect of the proposed reforms is to UK consumer protection. This is driven by the extraordinary pace of development and innovation seen in recent years – with a particular need for reform in digital markets – to ensure that the best interests of consumers are at the heart of consumer protection.

In line with this goal, BEIS has proposed the following reforms to consumer protection policy:

CMA enforcement
  • If a business breaches certain consumer laws, the CMA will have the power to directly impose financial penalties upon those businesses and award compensation to consumers (this is a new power for the CMA, see 'Investigative and enforcement powers' above for further details). The CMA will continue to be able to use its current enforcement powers via the civil and criminal courts. Where a CMA first-instance direct enforcement decision directly or indirectly leads to the imposition of a monetary penalty, the Government intends to legislate for appeals of such decisions to be heard by the courts.
Subscription traps
  • The proposals are to strengthen and clarify the law to require businesses to provide clearer pre-contractual information to consumers; remind consumers before a subscription automatically renews as well as when a free or low cost subscription is nearing the end, and allow consumers to easily exit their subscription in a timely, simple and cost-effective manner. 
Fake reviews
  • To address the exploitation of online consumers with sham reviews and ratings, a consultation will be launched to consider adding the following practices to the list of unfair commercial practices in Schedule 1 of the Consumer Protection from Unfair Trading Regulations 2008: commissioning or incentivising someone to write a fake review of goods and services; to host a consumer review without taking reasonable and proportionate steps to check it is genuine; and offer or advertise the submission, commission or facilitation of fake reviews.
Pre-payment schemes
  • Where customers pre-pay (such as Christmas savings clubs), they face the risk that the supplier becomes insolvent. To address this risk, those businesses will have to safeguard the consumers' money through insurance or trust accounts.
ADR in consumer disputes
  • In order to support and encourage consumers and traders to resolve more of their disputes without going to court, there will be improvements to the alternative dispute resolution (ADR) services such as arbitration and mediation in consumer disputes.
  • To improve the quality and oversight of ADR services, the ADR Regulations 2015 will be amended and those businesses offering consumers ADR services will need to be accredited.
Group claims
  • BEIS confirmed that it does not propose immediate action to strengthen the UK's collective redress regime, which would make it easier for individuals to bring a group claim. Changes in this area could help protect consumers' rights, particularly in light of the judgment of the Supreme Court in Lloyd v Google in 2021 UKSC 50 (which we consider here).

 

What next?

As noted, the UK Government will now publish a draft Digital Markets, Competition and Consumer Bill. Additionally, the Government intends that the CMA will launch a consultation on its rules of procedure (which will need to be approved by Government and Parliament) and guidance for administrative investigations and hearings.

We will continue to monitor developments in this space and will provide supplementary commentary as and when further information is released.  

If you would like support or would otherwise like to discuss the implications of these proposed reforms, please contact Neil Baylis or your usual Mishcon contact.

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