On 16 February, John Penrose MP published his long-awaited report into the UK’s competition regime.  Penrose was tasked by the UK Government with reviewing how the UK’s competition regime can:

  1. Play a central role in meeting the challenges of the post COVID-19 economy and in driving recovery.  The Government’s Policy Paper stated that “the pandemic is the biggest threat the UK has faced in decades and overcoming it will require all the dynamism and creativity that exists across all sectors and in all regions and nations of the UK“;
  2. Contribute to the Government’s aim of levelling up across all nations and regions of the UK;
  3. Increase consumer trust, including by meeting the Conservative Party’s 2019 Manifesto commitment to tackle bad business practices, and ensure the competition regime is strong, swift, flexible and proportionate;
  4. Support UK disruptors taking risks on new ideas and challenging incumbents; and
  5. Make best use of data, technology and digital skills which are vital to the modern economy.

Recommendations

The 70 page report, entitled “Power to the People”, finds that a new Competition Act is required to “update and modernise our institutions for the new digital economy”.  It makes multiple wide-ranging recommendations, from redesigning sector-specific regulatory regimes to streamlining competition appeals.

Penrose broadly supports granting increased powers to the Competition and Markets Authority (“CMA”).  He recommends widening the CMA’s ability to accept legally-binding undertakings to remedy competition concerns and empowering it to issue higher penalties  to encourage compliance during investigations.  He also echoes many of the repeated calls  of former CMA Chair Lord Andrew Tyrie to upgrade the CMA’s powers in relation to consumer law enforcement, particularly the ability to make decisions and impose fines for breach of consumer protection law.   On 24 February 2021, Lord Tyrie reaffirmed his view that the CMA should be “a more assertive, powerful and accountable regulator”, and his calls for the CMA to do more to prioritise cases with the “most visible” public benefit are particularly pronounced in light of the CMA’s proposed reforms to digital markets regulation.

Notwithstanding Penrose’s view that the UK regime needs reform to address the new digital economy, the report is less supportive of the level of regulation proposed by the CMA in relation to digital firms with Strategic Market Status (“SMS”).

In December 2020, following a number of interventions in, and reviews of, digital sectors, the CMA recommended the creation of a new ex-ante regulatory regime, governing the conduct of key aspects of firms with the SMS designation, to be administered by a Digital Markets Unit (“DMU”).  However, Penrose suggests that the firms subject to this regime should be more limited in scope than envisaged by the CMA. In particular, Penrose recommends that a “Network and Data Monopolies Unit” (“NDMU”) should design and enforce a pro-competitive code of conduct, oversee data portability schemes and allow access to key anonymised incumbent data sets.  The NDMU should only apply its powers where the CMA’s existing powers are inadequate to tackle the relevant concern and following parliamentary consent.   The CEO of the CMA, Andrea Coscelli, has indicated that the CMA intends to ramp up investigations and enforcement in the technology sector, with or without these new powers.

In addition to recommendations in relation to the regulation of digital markets, the Penrose Report’s detailed recommendations encompass the following:

  1. Certain powers currently exercised by the UK’s nine specialist sector regulators (such as the Financial Conduct Authority, the Gas and Electricity Markets Authority (Ofgem), the Water Services Regulation Authority (Ofwat) and the Office of Communications (Ofcom)) should be reviewed to avoid over-regulation. Outside the regulated network monopolies, those sectors should form a “normally-competitive industry, with the same high standards, strong competition and consumer powers as other parts of our economy”. In particular, Penrose advocates the introduction of a duty on sector regulators to publish a multi-year project plan to promote a normally-competitive industry, with a view to handing over responsibility for more and more of the sector to the CMA.
  2. Competition appeals processes should be streamlined to improve procedures and case management at the Competition Appeal Tribunal. Penrose also supports the creation of a lower tier of regional county competition courts to hear local and regional cases.
  3. The CMA’s powers to enforce consumer protection law should be aligned with its existing competition enforcement toolkit, including the ability to issue decisions and impose fines for breach of consumer protection law, without requiring the consent of a court. Penrose also recommends that the CMA be more active in protecting consumers from harms arising from loyalty penalties, hidden contractual terms, and ‘sludge’ (actions that nudge consumers in the wrong direction, for example incentivizing consumers to sign-up to auto-renewal subscription products).
  4. Penrose envisages that the CMA should be a “micro-economic sibling for the Bank of England”. The CMA should publish an annual report on the “State of Competition and Consumer Detriment” to measure progress and monitor problems across all sectors of the economy, and all parts of the country. These findings should be used to measure the success of the CMA and sector regulators including by reference to case numbers and net benefit analysis.
  5. The Government should continue to pursue cooperation arrangements, such as the framework agreement with competition authorities in the USA, Australia, Canada and New Zealand. Penrose acknowledges that UK laws permitting regulators to share confidential information are better than those of many other countries, but he takes the view that cooperation agreements facilitate appropriate and safe information exchanges, so cases are decided faster and more fairly.
  6. Penrose supports the removal of regulatory hurdles where possible (the so-called “Brexit Dividend”), including through the introduction of a ‘one-in-two-out’ basis at all levels of government and regulator rule-making.

Next Steps

The response to the Penrose Report has been broadly positive, although the extent to which the Government will implement Penrose’s recommendations remains unclear. Business Secretary, Kwasi Kwarteng MP, has said that the Government will consider the proposals and “respond in due course”.

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Photo of James Marshall James Marshall

James Marshall advises on all aspects of competition law and foreign direct investment (FDI) screening, with a focus on merger and FDI control, investigations and enforcement, commercial counselling, and abuse of dominance. He has strong experience in the life sciences, energy & infrastructure…

James Marshall advises on all aspects of competition law and foreign direct investment (FDI) screening, with a focus on merger and FDI control, investigations and enforcement, commercial counselling, and abuse of dominance. He has strong experience in the life sciences, energy & infrastructure, digital and technology, financial services, and sports sectors.

James regularly leads cross-border teams to steer clients through both the merger control and FDI aspects of major global deals. Clients turn to James to help them navigate complex global transactions, and to find innovative solutions to antitrust enforcement and counselling matters.

Earlier in his career, James worked with the UK Competition and Markets Authority (CMA), where he helped develop the UK’s antitrust and regulated sector enforcement regimes. He also practiced for several years in the Asia-Pacific region and has experience advising on competition, regulatory, and public policy issues in Asia and the Middle East.

James is a former Chair of the Competition Section Advisory Committee of the Law Society of England and Wales. He is highly recommended by Legal 500 and is recognized as leading adviser by Who’s Who Legal. James is dual qualified in England and Wales, and the Republic of Ireland.

Photo of Sophie Albrighton Sophie Albrighton

Sophie Albrighton advises clients on all aspects of competition law, including merger control, market investigations, cartel investigations, abuse of dominance, and state aid. She regularly advises clients on EU, UK and multi-jurisdictional merger control and foreign direct investment. She also has extensive experience…

Sophie Albrighton advises clients on all aspects of competition law, including merger control, market investigations, cartel investigations, abuse of dominance, and state aid. She regularly advises clients on EU, UK and multi-jurisdictional merger control and foreign direct investment. She also has extensive experience advising clients subject to investigations by various competition regulators in the EU and the UK, as well as developing and carrying out bespoke compliance training for clients in sectors including media, FMCG, retail, energy, travel, and financial services.

Photo of Grace Kim Grace Kim

Grace Kim is an associate in Covington’s London office and a member of the Antitrust/Competition and White Collar and Investigations practices. She assists clients across a range of industries on regulatory matters, investigations and transactions requiring competition and anti-corruption/bribery review. Grace also advises…

Grace Kim is an associate in Covington’s London office and a member of the Antitrust/Competition and White Collar and Investigations practices. She assists clients across a range of industries on regulatory matters, investigations and transactions requiring competition and anti-corruption/bribery review. Grace also advises on the UK’s National Security and Investment Act and other Foreign Direct Investment (FDI) regimes, and is a member of the firm’s Business and Human Rights practice group.

Prior to joining the firm as a trainee, Grace held in-house compliance roles at the European headquarters of a global consumer electronics company and the global headquarters of a UK-based retailer.

Photo of Summreen Mahween Summreen Mahween

Having trained at the firm’s London office, Summreen Mahween is an associate in the Corporate Practice Group.

She works on a range of transactional and commercial matters, predominantly advising public and private companies on mergers and acquisitions, corporate restructurings, commercial advisory work, and…

Having trained at the firm’s London office, Summreen Mahween is an associate in the Corporate Practice Group.

She works on a range of transactional and commercial matters, predominantly advising public and private companies on mergers and acquisitions, corporate restructurings, commercial advisory work, and general corporate governance. Whilst her clients are wide-ranging, Summreen has a particular focus on the life sciences and technology industries.

Summreen also has significant experience in financial services and regularly writes about, and advises on, ESG-related developments in the banking sector. Her pro bono work principally consists of advising non-profit organisations on various Business and Human Rights matters.