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Refining the UK competition regime: proposals to change mergers and markets investigations
9 minute read
The Government has issued a consultation entitled "Refining Our Competition Regime" (the Consultation), on a package of proposed legislative changes to key aspects of the UK’s competition regime. Although the Consultation was expected, some of the proposals – particularly those in relation to market reviews – have come as a surprise. The Consultation runs until 31 March 2026.
The Consultation builds upon a series of earlier initiatives, reflecting the Government’s wider aim of addressing what it perceives as an excessive regulatory burden on UK businesses and investors. Key among these was a new Steer to the CMA to support the Government’s overriding priority of economic growth. This prompted the CMA to respond with a package of policy and operational reforms – most notably in the merger control sphere, with the CMA accelerating the pace of its Phase 1 investigations and adopting a more open-minded approach to merger remedies.
To support this program of reform, last summer the Government announced an intention to consult on minor legislative changes to the merger control regime. However, the scope of the Consultation, and the extent of the proposed reforms, go beyond what was previously indicated.
In this article, we unpack what we consider to be the most significant proposals, and consider their practical implications.
New decision-making bodies for in-depth merger and markets investigations
The CMA Panel is a group of approximately 30 independent members, appointed by the Secretary of State for Business to bring a fresh perspective and outside experience to CMA decision-making. At present, when a merger is referred for an in-depth Phase 2 investigation, or when a market investigation is launched, it is an Inquiry Group composed of members of this Panel - rather than CMA staff or leadership - that take the key decisions and manage the investigation from beginning to end.
Under the proposed new model, these decisions would instead be taken by the CMA Board or - more likely - by a new Mergers Board Committee or Markets Board Committee, or by sub-committees appointed by the CMA Board. At least half of the members of these Committees/sub-committees would be non-executive Board members or drawn from a new pool of external experts, but senior CMA staff would have a formal role in the decision making.
The rationale for the change is to ensure that the CMA's leadership would be directly responsible and accountable for its most significant decisions. The Government (and CMA) believe this addresses the idiosyncrasies of the present system, under which "the CMA's Chief Executive, Chair and Board are prevented by statute from having a role in some of the organisation's most important decisions, whilst being accountable to Parliament for them".
The new pool of external experts would serve as a Panel-equivalent, providing outside perspective and expertise. Nevertheless, the proposals would complete the transition away from a genuinely independent second look in Phase 2 mergers and markets cases, which began almost 12 years ago with the folding of the Competition Commission into the new CMA.
Whilst the proposals would align the mergers and markets decision-making processes with those under the new digital markets regime, this is undoubtedly a bold move, and it is questionable whether it would improve the predictability, consistency – and indeed robustness – of CMA decision-making, particularly given the digital markets regime is itself still largely untested. Abolishing the Panel would remove an important external check on the CMA’s approach to its most consequential decisions and a safeguard against potential “confirmation bias”. It is notable that there is no suggestion that appeals from those decisions should move to a full-merits standard, rather than the current judicial review standard, which requires there to be irrationality or an error of process or law for a decision to be overturned.
The Consultation notes that the aim of the proposals is to make the CMA more accountable to Government, whilst preserving its independence. However, this appears to discount the fact that such direct accountability brings with it a risk of CMA decision-making being more susceptible to Government pressure. Should its key decisions become more politicised, the CMA is likely to become more prone to lobbying efforts and, in the long run, less predictable in its decision-making. In that context, it is also notable that the Consultation proposes expanding the range of CMA guidance that must receive formal approval from the Secretary of State before publication, so as to include the Merger Assessment Guidelines, for example.
Merger control: amendments to the jurisdictional tests
Amendments to the concept of material influence
"Material influence" is the lowest level of control that can trigger the CMA’s jurisdiction over a transaction. It captures situations where an acquirer gains the ability materially to influence a target's policy, without acquiring a controlling stake.
At present, the CMA has a very broad discretion to look at whatever factors it considers relevant when assessing whether material influence has been acquired. The Government proposes to narrow that discretion by introducing a closed, statutory list of permitted factors. These factors are:
- shareholdings or voting rights (for example, 15% or more), or any such rights combined with other factors;
- board representation/appointment rights;
- strategic veto/voting rights;
- access to confidential strategic information; and
- commercial, financial or consultancy arrangements.
Notably, this proposed list of factors is broader than that in the CMA’s Mergers Guidance – which was itself recently expanded. Furthermore, the concept of "commercial, financial or consultancy arrangements" (which reflects the current guidance) is an extremely expansive category. On access to confidential strategic information, this is a novel concept, and many purely passive investors will wish to receive strategic information without necessarily exercising influence over the board of an investee company. As such, the proposals are unlikely to narrow the scope of the test or provide greater certainty in practice. For example, under the new proposals, the CMA would still have had grounds to carry out its high-profile series of merger inquiries into strategic partnerships in the AI sector.
Amended share of supply test
Where at least material influence is being (or has been) obtained, the CMA has jurisdiction to review a transaction if at least one of three tests is met: the turnover test; the share of supply test; or the so-called “hybrid” test. For the share of supply test to be met, the parties must, amongst other things, overlap in the supply or purchase of goods or services “of any description”, and after the merger their combined share of such supply/purchase in the UK (or a substantial part of it) must be at least 25%.
At present, when calculating shares of supply, the CMA can apply whatever criteria it considers appropriate. The Government proposes to provide more certainty as to the application of the share of supply test by removing the open-ended reference in the legislation to “some other criterion, of whatever nature”, and limiting the CMA’s assessment to a closed list, namely: value, cost, price, quantity, capacity and number of workers employed.
Once again, it is questionable how much additional certainty the proposed changes will provide. The CMA will continue to enjoy a great deal of flexibility when calculating shares of supply by reference to the express statutory metrics – particularly as it will retain full discretion as to which goods or services it looks at, and the concept of a “substantial part of the UK” is a loose one. Furthermore, the updated Mergers Guidance already states that the CMA will generally focus only on those express factors, so the scope for additional change is likely to be very limited.
Accordingly, in contrast to other merger control regimes, where the jurisdictional tests are more binary, the Government’s latest proposals provide very little in the way of additional comfort for businesses as to whether their transaction may fall within the CMA’s remit or not – continuing the need to seek expert merger control advice at an early stage of a transaction.
Extended period to agree Phase 1 remedies
One further proposal which does appear to provide tangible benefits to merger parties is to allow additional time for Phase 1 remedies (or “undertakings-in-lieu of reference”, as they are formally known) to be agreed in principle. This will double the available time to 20 working days from a decision finding a substantial lessening of competition (SLC) at Phase 1. If enacted, the CMA will have the discretion to extend the period for the parties to offer such remedies from five to 10 working days. The CMA will then be able to use the remaining time to assess whether to accept the proposal in principle, up to a maximum of 20 working days from the SLC decision.
However, it should be noted that the CMA is already encouraging parties to front-load remedy discussions to avoid time constraints, so it remains to be seen if this extra time will prove to be the deciding factor between a transaction being cleared at Phase 1 or referred to Phase 2.
Markets: consolidating and streamlining the regime
The Consultation proposes moving to a unitary markets regime – abolishing the current dual system of market studies and longer market investigations in favour of a single-phase "market review" tool.
The Government anticipates that the new process would take 18-24 months in most cases (as opposed to the combined 30 plus months under the current regime, if a market investigation is preceded by a market study). The proposed new timetable would be as follows:
- the CMA would conduct an initial investigation for up to six months;
- between months six and 12 it would publish either a final report with recommendations, or a provisional adverse effect decision with proposed remedies; and
- between months 12 and 24 it would consult on and finalise any remedies (with less intrusive remedies to be finalised by the 18-month mark).
The Consultation also proposes changing the substantive test for intervention from the previous separate tests (i.e. "adverse effect on consumers" for market studies, and "adverse effect on competition" for market investigations) to a single “adverse effect on consumers test” at all stages of a market review. This is intended to avoid uncertainty around whether there is a causal link between consumer harm and harm to competition.
The CMA would also have a duty to consider including sunset clauses (specifying a date or event beyond which the measures will no longer apply) when designing remedies, and all market remedies would need to be reviewed at least once every 10 years. This is likely to be seen as a positive development in reducing the compliance burden that can result from market investigations.
The Government believes a single-phase model will be more efficient for firms and the CMA, particularly by shortening the overall timetable (which in some cases has exceeded three years) and avoiding duplication. However, as there have been relatively few examples of the CMA running a market study and then a market investigation into the same sector, this may be of more limited practical benefit. The CMA’s recently published “approach to markets work” document also makes clear that it considers sequential market studies followed by investigations to be unnecessary and inappropriate in most cases1. Instead, it will conduct short, informal reviews before proceeding straight to a market investigation if it believes remedies will be required. Where a dual-phase process is necessary, the CMA will carry over findings from the market study where possible, to truncate the information-gathering process in the subsequent market investigation.
Accordingly, whether a single-phase process will materially reduce the end-to-end length of markets inquiries remains to be seen.
Conclusion
Overall, these proposals make clear that the Government believes that CMA policy changes alone are not enough to support its pro-growth agenda – despite, for example, the marked shifts in merger outcomes seen last year. The Consultation and the proposed legislative changes therein look to bolster or cement the CMA’s commitment to the agenda; in some cases, by formalising in law policy changes the CMA has already implemented through revised guidance. However, it remains to be seen whether this will deliver the desired certainty around the merger control process, and/or faster and more predictable outcomes under the mergers or market regimes, which are considered so important to foster growth.
Footnote
[1] It should be noted, however, that market investigation references from sectoral regulators after they have conducted their own market studies are more common and would remain a risk even under the proposed new system.
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