Michael Grenfell: The CMA in turbulent times - where we are and where we're going

11 May 2022 10:54 AM

A speech delivered by Michael Grenfell, Executive Director of Enforcement at the CMA, at the Pinsent Masons annual competition conference.

When I was invited to speak at this conference, I was told that I should set out my views on the priorities and challenges for the CMA over the coming 12 to 24 months. That’s a perfectly reasonable request, but I’m afraid that I might be a bit of a disappointment. Because, the way things are going, it’s hard to predict with confidence what’s going to happen next week, let alone over the next couple of years.

Turbulent times

Let’s just look at where we are, and where we’ve been. The CMA was launched in April 2014. We knew that there’d be a bit of uncertainty for the first year or 2 as we amalgamated the functions and personnel of our 2 venerable predecessors, the Office of Fair Trading and the Competition Commission, into a single unified authority. But after that, we confidently predicted, we’d be fully operational in what we naively looked forward to as ‘steady state’.

Few, if any, of us in April 2014 foresaw that, less than 2.5 years later, Britain would have voted to leave the EU – with all that that entailed for UK competition and consumer protection law enforcement, our regime having been so tightly entangled with that of the EU. We would acquire new functions – taking over the big cross-border mergers and competition prohibition cases that had previously been reserved to the European Commission – and so become bigger. And what of other matters? Block exemptions? Cooperation with the European Commission and EU national competition authorities on investigations? The duty to align our rulings with EU jurisprudence under section 60 of the Competition Act? Everything that had seemed so certain, and so fundamental, was suddenly up in the air.

And then there was fresh uncertainty in that weird period of British politics between the referendum and our actually leaving the EU – when it was uncertain when, how, or even whether, we would leave. For a CMA planning to take on major new functions – the bigger mergers and competition prohibition cases and (the Government told us) some form of brand-new state aid function – we had to plan for all contingencies and to be ready to take on these new functions very quickly if there were to be exit without an agreed withdrawal agreement, the so-called ‘cliff edge’ that so many foresaw but which did not, in the end, materialise. And all the time, carrying on business as usual with our normal caseload.

We finally left the EU on 31 January 2020, with an implementation period until the UK took on full sovereignty, and we acquired our full new powers, scheduled (though not absolutely certain) to last 11 months.

Yet when, after all the debates and uncertainty, we reached 31 January 2020 – the day the UK left the EU – it didn’t herald a new ‘steady state’. For it was also the day of the first confirmed cases in Europe of the coronavirus (COVID-19) – 2 Chinese tourists in Italy. Within a few short weeks, the virus had spread rapidly, with huge economic and social consequences that were unprecedented and unpredicted. People locked down in their homes; offices and schools and shops closed; swathes of the economy shut down or dramatically reduced in scope – and thousands of deaths – and no certainty when it would all end. It still isn’t over, as we all know, but after 2 years of lockdowns and semi-lockdowns and travel restrictions and all the rest of it – and, more positively, the successful development and then roll-out of effective vaccines, enabling the virus to move from epidemic to endemic, and all of us learning to ‘live with it’ as we do with other infections – on 24 February this year all remaining restrictions were removed in England, and most have been removed in other parts of the UK. So ‘steady state’ at last?

Well, I don’t need to remind you, 24 February 2022 was not only the day COVID-19 restrictions were lifted; it was also the day Russia launched its full-scale invasion of Ukraine. A seismic and shocking geopolitical event, a humanitarian catastrophe – and, from the perspective of the CMA, another economic hammer-blow – globally, in Europe and in the UK – and one which is likely to impose enormous hardships on millions of consumers whose interests we exist to protect. As one grim chapter draws to a close, another one begins, and who can know how it will end?

Turbulent times, indeed – and an extraordinary environment for the CMA to operate in.

So let’s take a brief look at what these extraordinary events have meant for the CMA, its approach and its practices.

Where we are

Brexit

Brexit has fundamentally changed the nature of UK competition enforcement – and therefore of the CMA. The basic framework of our laws hasn’t changed: we still have competition prohibitions on anti-competitive agreements and abuse of market dominance that are modelled on the EU’s Articles 101 and 102. Our merger control regime was always a bit different, and it is unchanged. We have always had a market studies and market investigation system, and a criminal cartel offence – all absent from the EU regime – and these, too, remain unchanged.

But everything else is different from – and bigger than – what we had before.

First, we have a big new role in competition cases:

• our merger control regime now extends to all mergers and acquisitions that were previously in the sole jurisdiction of the European Commission where they affect UK markets. So we can, and do, examine some of the big global mergers like Nvidia / Arm, Cargotec / Konecranes, Veolia / Suez. Often we will reach the same conclusions as the European Commission; occasionally not. That is no more and no less than you’d expect of mature, independent-minded competition authorities, whether it’s the European Commission or the United States DoJ or the Japanese FTC or South Africa’s Competition Commission, or us
• technically the European Commission never had exclusive jurisdiction over any category of case under the competition prohibitions on anti-competitive agreements and abuse of market dominance. But under the EU’s Regulation 1/2003 it could, and did, reserve to itself certain investigations, precluding Member States’ national competition authorities from investigating the same case. Typically, and understandably, it did this when the case had significant cross-border aspects or raised material legal or economic points of general interest. Now, the CMA is no longer subject to this constraint and we can now – for better or worse – examine global cartels and cross-border anti-competitive practices affecting UK markets, and, taking account of resource prioritisation, we will do so where we cannot rely on other authorities to protect UK customers or businesses from the practice causing concern. You will have noticed that, for example, we have lately looked at data practices by Meta (formerly Facebook) and at Apple’s mobile payment systems under our domestic Competition Act prohibitions. You can expect more of the same in the coming months and years, across a wide range of sectors
• I am not saying whether this bigger CMA role is a good or a bad thing, any more than as a civil servant I would presume to express a view on whether Brexit was a good or a bad thing. But it’s a fact, the new reality in which we’re operating, and it’s very different from what went before
• in applying the prohibitions, we – and the courts and the Competition Appeal Tribunal – are subject to a new provision in the Competition Act 1998: section 60A, replacing the old section 60. This allows for a greater, but not an unlimited, degree of divergence from pre-Brexit EU jurisprudence and, in doing so, strikes a judicious balance between, on the one hand, the benefits of divergence if precedent is outdated or if market conditions have changed or differ from those in the EU and, on the other, the desirability of not having to reinvent case law from scratch (giving us – and businesses - a helpful body of precedent) and also the desirability of a degree of consistency between the UK and EU interpretations of the prohibitions for the sake of business confidence and (relative) legal certainty
• it has been the same with the new UK block exemptions. These need to be introduced as the old EU ones, which were ‘rolled over’ into UK law on our exit from the EU, reach their expiry dates. It is for the CMA to make recommendations to the Secretary of State on these. You’ll have seen that this process has already begun, initially with proposals for a new UK block exemption for vertical agreements. Again, we need to strike a balance. We recognise that there is benefit for business in a degree of consistency between the UK and EU regimes; too much divergence and things can get very difficult for businesses, particularly those which have (say) distribution networks covering both the UK and countries within the EU. But, on the other hand, where we think that, on a particular issue, the EU’s approach doesn’t work for UK markets, we will take a different view, and you may have seen that, for example, in the different treatment of parity clauses between the 2 jurisdictions: the UK block exemptions will not merely be photocopies of the EU ones with a Union Jack slapped on
• in case anyone should think this is all a bit antagonistic, in fact working relations between us and our competition colleagues at the European Commission are good – and effective. In the past year alone, we have launched 3 competition enforcement cases in coordination with the European Commission, 2 of them investigating global tech giants – Apple and Google – and the third looking at Europe-wide collusion by motor manufacturers. Any future EU / UK competition cooperation agreement will therefore build on an existing relationship that is open and effective, with benefits to consumers in both jurisdictions

Second, we have some altogether new functions:

• leaving the EU has entailed that the Single Market rules no longer apply in the UK, including those preventing regulatory barriers to inter-state trade. But in the UK there are devolved governments in Scotland, Wales and Northern Ireland, with the consequent possibility of regulatory divergences between the 4 territories of the UK. What if those regulatory divergences were to impede trade, and distort competition, between the territories of the UK’s internal market? The United Kingdom Internal Market Act 2020 was designed to address this issue, in the absence of the EU Single Market’s ‘free movement’ rules. Under the Act, a new entity, the Office for the Internal Market (OIM), has been established to report on the implications of regulatory divergences
• Brexit has also, of course, resulted in the disapplication in Britain of the EU’ss state aid rules (albeit with special rules for Northern Ireland under the Protocol). As you will know, the free trade deal agreed between the EU and the UK just before Christmas 2020 requires the UK to have an equivalent – a precondition of the EU allowing us trade access to its Single Market. A couple of weeks ago, Parliament passed the legislation to give effect to this – a new UK subsidy control regime. As part of that, a new Subsidy Advice Unit is to be established, also within the CMA, which will have a role in the new regime, providing advice on the effects of new subsidy grants. It is likely to take effect in the autumn
• it is widely recognised that these new functions are politically contentious. But the new bodies will operate in the best traditions of CMA practice: producing advice based purely on rigorous analysis, evidence-based, and wholly independent and impartial

And thirdly, there is another new function coming. In the EU, a new Digital Markets Act has been agreed, to apply direct regulation to address market power in digital sectors. Because of Brexit, this EU legislation will not apply to markets in the UK, but a similar policy approach is being taken in the UK (and in many other jurisdictions). The UK Government has announced plans for a pro-competition regulatory regime in the UK, as recommended in 2020 by the CMA Digital Task Force and affirmed by the Government on 6 May, with yesterday’s Queen’s Speech indicating that a draft measures setting this out will be published in the coming year, although actual legislation to give effect to it is not scheduled for this new Parliamentary year. The regime, once in place, will be enforced by a new Digital Markets Unit (DMU) which the Government wants located within the CMA.

Coronavirus (COVID-19)

The pandemic, disruptive to all parts of society and the economy, raises a number of new competition and consumer protection issues that we choose to deal with as a matter of urgency.

• in the early days of the first lockdown, when the entire economy suddenly shut down and there were concerns about medical supplies and food supplies – a sense of a real emergency – we needed to reassure businesses that our approach to competition law enforcement would not constrain cooperation between companies that was necessary to address health issues and to ensure security of essential supplies
  • on 25 March 2020 – 2 days after the UK’s lockdown began and all but the most essential shops were ordered to close – we issued a guidance document on the CMA approach to business cooperation in response to coronavirus. We gave the assurance that the CMA would not take action against coordination undertaken solely to address concerns arising from the crisis, provided that the coordination did not go further or last longer than necessary for that purpose – but warned that the CMA would not tolerate conduct which opportunistically sought to exploit the crisis
  • we augmented this by assisting the Government to issue sector-specific ‘exclusion orders’, which gave legal certainty by disapplying the competition prohibitions altogether for the most critical sectors, for a limited period, broadly in accordance with the principles set out in our guidance
• as well as reassuring businesses needing to cooperate to provide essential supplies, we also needed to protect consumers from unlawful bad practices arising out of the pandemic and the consequent lockdowns
  • exploitative retailers were rapidly raising the prices of essential products, whether food or over-the-counter medicines or hand sanitisers which the public were being advised to use. We suspected that this was unlawful excessive pricing, abusing the market power arising from, for example, the practical inability of customers in lockdown to shop around. So we opened 4 cases under the Competition Act and ran swift investigations; within a short time, our concerns had been resolved as, in part because of our investigations, the retailers’ prices were now at reasonable levels
  • another set of abuses related to cancellations of holidays, weddings and other events for which people had paid, as a result of lockdown restrictions. Not all providers were paying refunds to the consumers, sometimes fobbing them off with vouchers for future use. Although we sympathised with the difficulties facing many of the businesses concerned, we also felt strongly that consumers, who had lost the holidays or wedding parties they had looked forward to, should not lose their money too. That would be adding insult to injury, and it was our responsibility to protect those consumers. Applying consumer protection law, we issued guidance to the sectors concerned, launched some investigations and in some cases secured formal commitments from major businesses with household names to refund their customers. And this February the CMA successfully obtained from the High Court a declaration that Teletext Holidays, in failing to give full refunds for cancelled holidays, was in breach of the law – a judicial endorsement of the stance we had taken

The pandemic was of course internally disruptive for the CMA too, as it was for pretty much every workplace in the country, and indeed worldwide. But despite the need to work from home, and the staff absences through sickness and through people increased childcare responsibilities when schools were closed, to a remarkable extent we were able to conduct business as usual. Only 2 Competition Act investigations were paused, in the pharmaceutical sector, and these have now been completed. Nor was it a particularly fallow period. In 2020, we issued 10 infringement decisions under the Competition Act, among the highest ever. And in 2021, our Competition Act decisions involved the imposition of record fines of £367 million (these are currently under appeal).

Of course, with people working from home and social distancing laws, for a while we weren’t able to conduct unannounced inspections on premises – so-called ‘dawn raids’ – to uncover covert anti-competitive practices. But in the past few months in a number of different cases, we have launched investigations by way of unannounced inspections. Cartelists need to understand that the days of the CMA having to refrain from dawn raids are over.

Ukraine and the cost-of-living crisis

It is of course hard to know how the Ukraine crisis will pan out. But who can doubt that the combination of the global economy’s shutters coming down during the pandemic, along with disrupted trade relations following Russia’s invasion of Ukraine, will have a hugely significant impact on our economy here in the UK – and indeed on economies worldwide - including making cost of living much harder? The impact on consumers will be huge.

Addressing cost-of-living concerns is central to our mission:

• vigorous and effective competition exerts a downward pressure on price
• we will tackle anti-competitive practices and transactions that unnecessarily raise prices. We will not allow cartelists to treat the current economic circumstances as an excuse for anti-competitive collusion that makes things worse for consumers. The dawn raids we have launched already this year should serve as a signal of our intent
• and we will tackle unfair trading practices that make things worse. We have already used our consumer protection law powers to address the practice of subscription traps – the way suppliers make it harder for consumers who have signed up to a subscription subsequently to be free of it, especially as prices rise – and have secured improvements in the terms and conditions for subscriptions to anti-virus software and to online video games. We welcome the Government’s proposals, announced last month, to strengthen the statutory basis for tackling these practices

So that’s where we are now. Looking ahead, and having proper regard to what we’ve learned recently about the unpredictability of major events - what does the future hold?

Where we’re going

Let me turn to what I see as the major challenges that, in the months and years ahead, facing us at the CMA, along with many competition authorities around the world:

• dealing with the digital economy
• ensuring that competition and consumer policy work in ways that promote rather than hamper environmental sustainability
• and, perhaps most fundamentally, the existential question of how we ensure that what we do matters – for consumers, for the economy, for society as a whole

Digitalisation

The importance of digital markets cannot be overstated. It is a huge and growing sector in its own right. To give a flavour of that, it was reported earlier this year that Amazon, which receives much of its revenue from retail sales, also has a revenue from advertising which is similar in size to the advertising revenue of the entire newspaper industry in the world, and yet still smaller than the advertising revenues of Google and of Meta (the former Facebook). But more than that, digital services underpin pretty much all other activity across the economy – think of any industry or service and its reliance on digital – as well as being a major component of our leisure activities.

So it really matters to make sure that digital markets are working effectively – with vigorous competition that does all the things that competition typically delivers: downward pressure on price, upward pressure on quality, a spur to innovation – all of which benefit consumers. Plus of course incentives to be efficient, which is good for productivity, and hence ultimately growth across the economy, to the benefit of all in our society.

A narrative has built up in some quarters that competition authorities are ‘out to get’ the tech sector. So let me scotch that at once by saying that digitalisation has brought immense benefits – to competition and, hence, to consumers – and that the CMA fully recognises and celebrates this. Online retailing might represent a lower-cost alternative to traditional ‘bricks-and-mortar’ stores, which is good for consumers in itself, and intensifies competitive pressures across all retailing. Digitalisation facilitates competition by making it easier to shop around, to move between suppliers at the click of a mouse or touch of a screen. And this is reinforced as consumers can more easily make comparisons by way of price comparison websites and online reviews, intensifying competitive pressures. These are real gains, which we want to preserve and protect.

Over and above that, businesses in the tech sector have often acted as ‘disruptors’ – which in competition-speak is a good thing, meaning that they have shaken up vast swathes of the economy, and of life, by bringing innovation.

So what’s the problem, then? In reality competition concerns about digital markets are many and varied but, at the risk of oversimplifying, in essence they boil down to a worry that a number of corporations in the sector, particularly those with significant market power and those with presence across a vertical chain or a portfolio of related markets, can – and often do – engage in practices that foreclose and exclude rivals, squeezing out competition, and creating or reinforcing barriers to new market entry. That makes it harder for the next generation of innovators to emerge, which risks ultimately stifling competition, to the long-term detriment of consumers and of the economy. In other words, the risk is that the innovation and ‘disruption’ that has brought these immense benefits – to competition, to consumers, to the economy and society as a whole –risks being stifled in the next generation by the structure and practices of some of the current incumbents.

Competition authorities therefore see the need to intervene, not because we fail to see the benefits that digitalisation has brought, but, rather, precisely because we do see and value them, and we are determined to ensure that similar benefits, through future new entry and innovation, are not lost for future generations.

So how are we addressing these concerns? As I’ve already mentioned, the Government has proposed that a Digital Markets Unit (DMU) within the CMA should have direct regulatory powers under a future pro-competition regulatory regime for the sector. It is intended that rules will be set out in enforceable codes of conduct applicable to those businesses designated as having ‘strategic market status’ arising out of substantial and entrenched market power, and enforcement of those regulatory rules will be quicker than under the traditional competition tools of a Competition Act investigation or a market investigation – a critical consideration in markets that are so fast-moving. There will, in addition, be scope for ad hoc ‘pro-competition interventions’ by the DMU to address structural concerns about markets where there are operators with strategic market status.

But until the proposed new regime comes into force there are concerns about digital markets which need to be addressed now. In these fast-moving markets, we cannot wait for legislation to be introduced to address concerns in the sector. We are using our merger control powers to reduce the risk of new M&A transactions establishing or reinforcing market power – and, as we said in the revised Merger Assessment Guidelines which we issued last year, we will very much bear in mind that ‘in dynamic markets, firms that may not compete head-to-head today might do so in the future’.

We have followed our July 2020 market study into online platforms and digital advertising, whose insights formed much of the basis of the proposed new pro-competition regulatory regime, with a market study into ‘mobile ecosytems’ – that is, the collectivity of mobile devices, operating systems, browsers and apps, and the dynamics of competition within and between them – which is due to report next month.

You will see that we have, in the past 18 months, launched Competition Act investigations into practices by some of the tech giants: into Google’s proposed ‘Privacy Sandbox’; into the use by Meta (formerly Facebook) of data and whether this gives it competitive advantages over downstream competitors; Apple’s AppStore and whether it works to disadvantage competing app developers which use it; and, in March this year, the so-called ‘Jedi Blue’ alleged arrangements between Google and Meta regarding header bidding. In the Google Privacy Sandbox case, the CMA, liaising closely with the Information Commissioner’s Office, achieved a resolution just over a year after the investigation started by securing from Google binding commitments that aim to ensure privacy protections without unduly weakening competition.

And we have used our consumer protection powers too. I said earlier than online reviews intensify competitive pressures, to the benefit of consumers, by enabling people to make more informed choices as they shop around. But that only works if the online reviews are honest and can be trusted. We have been concerned by reports of fake reviews appearing on some sites, and of critical or negative reviews being suppressed. In June last year we opened formal enforcement cases against Amazon and Google in relation to possible breaches of consumer protection law, with the suspicion that the 2 companies have not been doing enough to tackle fake reviews on their sites.

Obviously much of this will be easier, quicker and more effective once the new regulatory regime is in force. But until then we cannot afford to let anti-competitive and unfair trading practices in the sector go on unchecked, with potentially harmful effects for consumers, businesses and the economy. So we are using our existing powers to address concerns, and will continue to do so.

Environmental sustainability

Concerns about climate change, and about environmental sustainability, are widely and deeply felt. Naturally, a competition authority is never going to be the primary vehicle for addressing the issues, but we can ensure that we don’t unnecessarily impede progress and that environmental initiatives are pursued consistently with competition and informed choice for consumers.

In our annual plan for this year – 2022 to 2023 – we identify as one of our top 5 strategic objectives:

Supporting the transition to low carbon growth, including through the development of healthy competitive markets in sustainable products and services.

What does this mean in practice? Let me give you some examples. We very much support the roll-out of charging