COVID-19: FCA and PSR express support for the CMA’s guidance on competition law enforcement approach

SUMMARY

The Competition Markets Authority (“CMA”) has published guidance stating that it will focus on protecting UK consumers from the adverse consequences of the COVID-19 pandemic for the months following from 25 March 2020. The guidance set out details of the CMA’s approach to the prioritisation of its work and how it will apply the criteria for exemption from the competition law prohibition on agreements and arrangements restricting competition, during the ongoing pandemic.

The Financial Conduct Authority (“FCA”) and the Payment Systems Regulator (“PSR”) have both published statements on their websites clearly stating their support of the CMA’s guidance and have committed to taking a consistent approach as regulators in their competition law enforcement activity in the financial services sector. Whilst it remains to be seen if the FCA and PSR will publish further guidance themselves on the topic of enforcement within the financial sector in relation to the pandemic, this article summarises the key guidance issued by the CMA as supported by the FCA and PSR.

RECOGNITION OF SPECIAL CIRCUMSTANCE CAUSED BY THE PANDEMIC

The CMA is cognisant that businesses across the UK are doing their best to help tackle the consequences of the pandemic in the provision of goods and services to consumers and in ensuring key workers can carry out their work. The CMA is equally conscious that this may involve coordination between competing businesses and has reassured that it will not take action typically within the remit of its empowering legislation, against such coordination, provided that it is solely to aid in the crisis and does not extend beyond what is necessary in reach or timing for this purpose.

The CMA also highlighted that there may also be an evolution in the types of exploitative behaviour that cause consumer detriment and the CMA will monitor this, too, providing further guidance as and when necessary.

The guidance is strictly in relation to the COVID-19 pandemic and will be withdrawn once the CMA considers it no longer necessary.

HOW THE CMA WILL PRIORITISE CASES DURING THE COVID-19 OUTBREAK

The current situation may require companies to work together to facilitate the supply and fair distribution of scarce products and/or services to all consumers. Where temporary measures to coordinate action taken by businesses:

  • are appropriate and necessary in order to avoid a shortage, or ensure security, of supply;
  • are clearly in the public interest;
  • contribute to the benefit or wellbeing of consumers;
  • deal with critical issues that arise as a result of the COVID-19 pandemic; and
  • last no longer than is necessary to deal with these critical issues,

the CMA will not take enforcement action.

However, the CMA qualified that this does not give a ‘free pass’ to businesses to engage in conduct that could lead to harm to consumers in other ways. The CMA does not condone unscrupulous businesses exploiting the crisis as a cover for non-essential collusion, for instance:

  • businesses exchanging with their competitors commercially sensitive information on future pricing or business strategies, where this is not necessary to meet the needs of the current situation;
  • retailers excluding smaller rivals from any efforts to cooperate or collaborate in order to achieve security of supply, or denying rivals access to supplies or services;
  • a business abusing its dominant position in a market (which might be a dominant position conferred by the particular circumstances of this crisis) to raise prices significantly above normal competitive levels;
  • collusion between businesses that seeks to mitigate the commercial consequences of a fall in demand by artificially keeping prices high to the detriment of consumers; or
  • coordination between businesses that is wider in scope than what is actually needed to address the critical issue in question (for example, if the coordination extends to the distribution or provision of goods or services that are not affected by the COVID-19 pandemic).

In applying the above pandemic-specific enforcement approach, CMA’s key consideration will be whether the behaviour has potential to cause harm to consumers or to the wider economy.

EXEMPTIONS CRITERIA RELATING TO THE PROHIBITION ON AGREEMENTS AND ARRANGEMENTS RESTRICTIVE OF COMPETITION

Under section 9 of the Competition Act 1998, an agreement that restricts competition is exempt from the prohibition on agreements and arrangements restricting competition if it meets four stipulated criteria[1]. If all four criteria are fulfilled, the relevant agreement would be automatically exempt from the prohibition. Businesses need to conduct a self-assessment of whether the exemption criteria apply as the CMA does not make formal ‘clearance’ decisions on this.

To assist such self-assessment in the COVID-19 circumstances, the CMA has offered the following additional guidance:

  • Cooperation that ensures essential goods and services can be made available to the public or an important sub-set of the public such as key workers or vulnerable consumers will be considered efficiency-enhancing.
  • If without the cooperation there would have been significant shortages of a product, the cooperation will be likely to give consumers a fair share of the benefits if it avoids or mitigates those shortages.
  • In determining whether the cooperation is indispensable to achieve the efficiency, the key factor will be whether in the circumstances and limited time available to consider alternatives, the cooperation can reasonably be considered necessary. A further factor of importance is the extent to which the cooperation is temporary in nature. Businesses should not restrict competition in any area where such a restriction would be unnecessary for the achievement of the benefits or efficiencies for which the agreement is entered into in the first place.
  • It is important that competition remains wherever possible. For example, if it is necessary to share capacity information there may still be room for competition on price. Similarly, where the scope of a restriction can be limited to particular goods or geographical areas in order to address a particular issue, businesses should make efforts to limit the restriction in this way.

CONCLUSION

To summarise, in the context of the ongoing pandemic, so long as the actions do not go further in scope and timing than reasonably necessary, coordinated actions that:

  • avoid a shortage, or ensure security, of supply;
  • ensure a fair distribution of scarce products;
  • continue essential services; or
  • provide new services such as food delivery to vulnerable consumers,

would likely be inoffensive from the CMA’s perspective based on the exemption criteria.

Notwithstanding the CMA’s proffered guidance above on its enforcement approach during the crisis, the CMA also clarified that the guidance does not bind the European Commission in its application of EU competition law in the UK.

In critical cases where businesses and their legal advisors are uncertain about the legality of intended actions, the CMA may be prepared to offer additional, informal guidance about its enforcement priorities on a case-by-case basis.

NEXT STEPS

We remain watchful for any industry-specific guidance on the topic from the FCA or/or PSR.

To review the CMA’s guidance, please click here. To review the statements of support by the FCA and PSR of the CMA’s guidance, please click here and here, respectively.

For more information, and any guidance or advice on the topic in this article as it relates to the financial services sector, Cleveland & Co External in-house counselTM, your specialist outsourced legal team, are here to help.

 

[1] Under section 9 of the Competition Act 1998, an agreement that restricts competition is exempt from the prohibition on agreements and arrangements restricting competition if it meets all the following criteria:

  • it contributes to improving production or distribution, or promoting technical or economic progress;
  • it allows consumers a fair share of the resulting benefit;
  • it does not impose on the undertakings concerned restrictions which are not indispensable to the attainment of those objectives; and
  • it does not afford the undertakings concerned the possibility of eliminating competition in respect of a substantial part of the products or services in question.

 

 

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