The implications of a UK vote to leave the EU, or 'Brexit', would be largely dependent upon the outcome of the exit negotiations following Britain's notice to leave. At one end of the spectrum, Britain may elect to join the European Free Trade Association (EFTA), as a signatory to the European Economic Area ('EEA') agreement, which replicates EU rules on competition law. In these circumstances, it is likely that competition law in the UK would remain broadly identical following Brexit (the 'EFTA Scenario').
At the other end of the spectrum, post-Brexit negotiations may lead to the UK leaving the EU without any free trade agreement in place, meaning that the UK would be forced to rely on rights and obligations of the UK and EU as members of the World Trade Organisation (the 'WTO Scenario'). As this would result in a sharper split from the EU competition regime, this briefing considers the likely implications of the WTO Scenario.
At present, UK businesses in breach of Articles 101 and 102 TFEU are subject to the regulatory authority of either the Competition and Markets Authority ('CMA') in the UK or the European Commission (the 'Commission'), depending on the extent to which the conduct is considered to have an EU dimension.
Post-Brexit, the European Commission would still have jurisdiction to investigate UK businesses in cases where EU markets are affected (without having the authority to conduct dawn raids on their premises), although it is unclear whether UK businesses would also be subject to scrutiny from the CMA. There is a risk of jurisdictional disputes and that businesses in breach of competition law may find themselves subject to fines from both regulators.
In our view, it is likely that the CMA would coordinate its enforcement activities with the Commission in line with its current coordination with non-EU agencies.
Currently, mergers that meet certain EU thresholds must be notified to the Commission and are generally not required to be notified with national authorities (unless they seek to have national aspects of mergers referred back to them).
Post-Brexit, mergers with UK and EU dimensions would likely face scrutiny from both regulators, resulting in an increased administrative burden and transactional costs. The CMA would not be able to seek a reference back from the Commission, and would be forced to apply its merger control rules in parallel with the Commission. In practice, risk of parallel reviews means that a merger may be blocked by one authority and permitted by another, or that different remedies may be ordered by each authority.
EU competition law prohibits EU member states from distorting competition by granting aid to specific businesses. However, no such rule exists within UK competition law. In addition, UK businesses would be prohibited from opposing a grant of unlawful aid by other Member States, which they are currently entitled to do under the EU rules.
The UK is currently viewed as the leading claimant-friendly jurisdiction for private follow-on damages actions based on liability findings in decisions of the EU Commission. In a post-Brexit WTO scenario, whilst it is unlikely that Commission liability findings would be binding on UK Courts, they would likely find such decisions to be very persuasive authority. The main reasons the UK is likely to remain attractive to claimants (disclosure in particular) would continue to apply.
The CMA has generally been less active in enforcement action than the Commission. Between 2007 and 2012, the UK authorities made seven decisions and imposed fines of around £0.5 billion while the Commission made 42 decisions imposing fines of approximately €15 billion in the same period. Following Brexit, the CMA would face a substantial increase in case-load which may lead to slower decision-making.
The UK would also no longer be able to input into shaping EU competition law nor be able to contribute to the decision-making process for Commission cases, even those involving UK businesses.
The future for competition law in the UK
Under an EFTA Scenario, the remaining EU Member States would most likely insist that the UK implements certain measures under national law to prevent market distortion. Even in a WTO Scenario, it is unlikely that the scope and nature of UK competition law would change substantially. In its Review of the Balance of Competences, the UK government noted that “the UK has generally taken a position closely allied to the Commission on competition issues, so it ought not to be assumed that the UK would take a different view on the points, were it to have competence”.
The main areas of concern for UK businesses are therefore:
- the risk of increased administrative and transactional costs;
- the potential difficulties of parallel investigations between the EU and UK regulators;
- the lack of input into EU decision making;
- less effective enforcement of competition in the UK.
If you have any questions arising from this, please contact Gwen Ballin-Reeler, 020 3321 7818