The CMA updates its penalty setting guidance for competition investigations
The UK's Competition and Markets Authority (CMA) has issued revised guidance on penalty setting in Competition Act cases. The revised guidance suggests an appetite to issue larger fines going forward.
In its consultation document for the revised penalty guidance, the CMA stated that it "is particularly mindful of the need to ensure that the level of penalty ensures effective deterrence, especially in cases involving large undertakings". The clear implication of this statement is that the CMA considers that, until now, the level of fines imposed has been too low. Indeed, the CMA predicts that, as a consequence of the revised guidance "there may be an overall increase in the level of penalties imposed."
Higher starting points
The revised guidance materially alters several of the six steps in the penalty-setting process. Part of the first step involves ascertaining the turnover of the infringing company in the relevant market, which is then used as a base for calculating the fine. Two notable changes have been made to the first step, which may result in higher starting points.
First, the revised guidance introduces the possibility of taking account of turnover generated outside the UK, e.g. where: (i) the geographic market affected by the infringement was wider than the UK; or (ii) the infringement involves market sharing, and one party to the infringement agreed not to compete in the UK; such a party would therefore have zero relevant UK turnover.
Second, the revised guidance removes the previous statement that the CMA will only exceptionally depart from calculating relevant turnover based on the businesses' audited accounts in the last financial year. This suggests a greater appetite for creativity and flexibility in calculating (and potentially increasing) the turnover used as the basis for calculating the fine.
Fewer mitigating factors
Aggravating and mitigating factors are considered at the third step of the guidance. In the revised guidance, the CMA has removed two mitigating factors.
Companies can no longer obtain a discount of up to 10% for effective compliance policies. In addition, the new guidance removes the possibility of obtaining a discount where there was genuine uncertainty as to whether the relevant conduct infringed competition law. However, it still recognises that there may be exceptional circumstances in which the CMA's characterisation of the infringement is truly novel, which may still warrant a reduction in the fine.
Greater focus on specific deterrence
Greater focus is placed on the factors the CMA will take into account when considering increases in penalties for specific deterrence (deterring the company subject to the decision). The revised guidance emphasises that penalties may need to be increased to achieve deterrence where a company is large; penalties that do not deter an infringing company from breaching competition law in the future are also unlikely to deter other companies from breaching competition law. Moreover, the CMA has provided almost no guidance on the level of increases it may apply in such circumstances, meaning that such increases will be unpredictable and, based on recent CMA decisions, potentially significant.
Moreover, the previous guidance contemplated increasing fines where the infringing company profited from the infringement. The revised guidance gives this greater prominence, but also now calls for any increase to exceed the gains "by a material amount".
In addition to noting that the revised guidance is likely to lead to larger penalties, the CMA notes that these changes have been introduced because, following Brexit, the CMA is "likely to need to take enforcement action and ensure effective deterrence in respect of large, multi-national companies active in the UK." This, combined with the CMA's new approach of taking account of extra-UK turnover in markets wider than the UK, has clear implications for companies whose UK activities would previously have been captured by European Commission investigations.