Navigating Change: Recent Developments in UK Competition Law

Episode Summary

Skadden antitrust partners Aurora Luoma and Bill Batchelor delve into the significant legislative and policy changes in U.K. competition law that took effect at the beginning of 2025. These changes, introduced by the Digital Market Competition and Consumers Act (DMCC), aim to address gaps in merger control and the digital markets regime while enhancing the enforcement capabilities of the Competition and Markets Authority (CMA).

The conversation highlights changes in the CMA’s jurisdiction, particularly in reviewing mergers; procedural changes, such as the ability to fast-track to Phase 2; and the introduction of the strategic market status (SMS) regime. Bill and Aurora also provide insights into the political dimensions influencing the CMA’s approach and the potential impact of recent leadership changes within the agency. 

Voiceover (00:00):
Welcome to Fierce Competition, a podcast from Skadden’s global antitrust and competition group that explores antitrust policy and enforcement around the world. Join our colleagues from across the continent as we discuss the latest developments and what they mean to you in an increasingly complex legal and regulatory landscape.

Aurora Luoma (00:21):
Hello and welcome to another edition of Fierce Competition where we are starting the new year by discussing recent legislative and policy changes in UK competition law. And there is a lot to unpack here, including a wider net for intervention in M&A, a brand new ex-ante competition regime for major tech firms, direct consumer enforcement powers, as well as strengthened investigative and enforcement powers for the UK’s competition agency, the CMA. And coupled with this, senior CMA officials have made it clear in recent months that the agency is laser-focused on using its powers across the board in a way that drives economic growth for the UK. So what does all of this mean? Could we see a different CMA this coming year? Let’s jump straight in. I’m Aurora Luoma, the competition partner in our London office, and I’m joined here today by Bill Batchelor, competition partner in our Brussels and our London offices.

Bill Batchelor (01:08):
Hello everyone and happy New Year and what a new year we have to begin with. So on the 1st of January, we saw sweeping changes come into effect in the UK, transforming the competition landscape, the most significant reforms we’ve seen in this area for over a decade, arguably even two decades, that the changes reduced by the Digital Market, Competition and Consumers Act 2024 came into law last year, but now applying as of the 1st of January. Consumer law, which is also a far-ranging change. The provisions there will not apply until later in this year. So you have a little bit more ramp up. Even before it comes into forced deals, you might have signed last year but have not yet closed. They will also be caught by the new regime. So take a look at what you thought might be happening and revise it accordingly. So in broad terms, what does this new suite of rules try to do? Well, we’re upgrading the law to address perceived gaps in merger control and in the digital markets regime, as well as updating the regime to make it stronger in terms of enforcement.

(02:20):
So the bill has had quite a time of it in the legislative process. We even thought we might lose it after the general election last year as it seemed to be kicked into touch. And at one point, the CMA was so convinced that the regime would come into force, that it stalled one of its marketing queries only to find that the legislative process was not quite as smooth as they hoped it would be and they had to pick it up. They had to go forward with their existing regime on market investigation in particular. But let’s unpack what we’ve got in the new regime. Aurora, we have to start with merger control, and perhaps for our global listeners, let’s start with what the UK does because it’s a bit of a rare animal. We always see the UK in SPAs when you’re negotiating your deal as being an important jurisdiction to consider. But on its face, this is a voluntary regime. You’re not required to notify. You can close over the UK, they don’t suspend your transaction. But why is it that we see the CMA taken so seriously when we’re negotiating deals?

Aurora Luoma (03:26):
All of that’s right, Bill. I think the main point to remember about the CMA is that they have incredibly broad jurisdiction. So they currently have two tests which allow them to review mergers. One is a relatively simple turnover test. So if the target has turnover of 70 million in the UK, the CMA can review the transaction. Equally, if the transaction gives rise to a share of supply of 25% or more, the CMA can also review the transaction. The reason that merging parties always think quite hard about whether to file or not in the UK, as of course, the CMA has historically, or at least for the past few years, been seen as a very interventionist regulator. So with an appetite to look at mergers that it thinks could potentially affect competition in the UK, and we’ve seen it take up and even block transactions where it’s identified issues without any straightforward solutions.

(04:16):
So what the current rules or the new rules that are coming into force plan to do is two things. One, they’re going to slightly expand the CMA’s jurisdiction and the other one is that they’re also going to narrow the jurisdiction at the same time in order to take very small transactions out of its remit. So the fundamentals are not really changing, but what the reforms seek to do is to refocus the CMA’s efforts on ensuring the scrutiny of transactions with the most potential to harm competition in the UK. And this was deemed important in part because the CMA is investigating far more mergers post Brexit. So as you mentioned, Bill, the CMA’s jurisdiction review deals was already wide, and whilst the share of supply test is very broad and flexible, it only really captures mergers between competitors because it requires the transaction to result in an increase in share of some description.

(05:05):
So this meant that also, although the CMA has been very broad and flexible in how it’s interpreted, that test has not always been able to review transactions between non-competitors such as vertical deals where the two parties are operating at different points in the supply chain or conglomerate deals where the parties are operating in adjacent markets but not in the same market. And the reason that’s been important is quite a number of the deals that the CMA’s wanted to look at have been vertical or conglomerate in nature and have given rise to some of the most interesting issues, particularly potential competition concerns or ecosystem theories of harm. So what the current new rules will do is allow the CMA to look at those kind of transactions in certain circumstances without having to spend time arguing over jurisdiction. And so under the new thresholds just to take you through those, one party to the transaction, and usually the assumption is that this will be the buyer has to have a significant market presence in the UK, so turnover of at least 350 million in the UK.

(06:01):
So there’ll need to be a relatively large presence in the UK market and at least a 33% share of supply again in the UK. The other party and the general assumption is that this would be the target would have to have at least the UK Nexus. And the current guidelines we have suggest that the UK Nexus test is a very low threshold, so any sort of attempts to compete in the UK or IP rights for example, could give rise to a UK Nexus. Conglomerate mergers is also killer acquisitions, which have obviously been a significant focus not just of the UK but other regulators worldwide. And those are transactions where a very large supplier is buying a smaller future competitor in order to take them out of the market or at least perceived to be doing so.

(06:47):
And at least historically, many of those kind of deals have fallen under the relevant thresholds because of the target’s very limited presence. So the UK government has estimated that this new threshold will lead to review of perhaps two to five cases more per year than it has historically looked at. But this is just an estimate. Likely, it’ll also lead to an increase in parties submitting briefing papers to the CMA just to test whether CMA is likely to look at mergers, where historically there might’ve been pretty strong arguments that the CMA did not have jurisdiction.

Bill Batchelor (07:17):
I think that’s absolutely right, Aurora, and let’s not forget too, that the CMA has been at pains to claim a broad scope for its past even before these legislative changes. So on a widely noted matter from September last year, it asserted jurisdiction over an acquihire hiring key employees of a target business, perhaps unsurprisingly in the AI sector where employees arguably are an important asset. And said, well, actually the hiring of those employees of themselves would be key assets sufficient to constitute a merger and so it’s subject to our review, albeit they cleared the deal on the merits, and so there won’t be an appeal to test that thesis. Perhaps in better news for deal makers, we have a number of exceptions now for smaller deals. So firstly, the UK is increasing its turnover threshold, so it used to be 70 million. Now, the target has to have over 100 million in the UK, but that really doesn’t make that much of a difference because the kind of deals the CMA wants to look at are those where the share of supply test is likely to be satisfied.

(08:26):
So that’s not giving so much away to raise the revenue threshold. Secondly, we have a small deals exception. So if both parties have UK turnover of less than 10 million, then there’s a safe harbor from review. Again, not so useful in the sense that really if the parties are that small, both of them in the UK, then is that likely to be a transaction the CMA would’ve reviewed. Perhaps more impactful is not a legal change at all, but a soft law change from the CMA last year where they said, we’re going to raise our de minimis exception to £30 million. So if the size of the market in the UK is less than £30 million in value, so you might think yes, you might be very close competitors in this very small market, but nonetheless, if the market size is that small, it’s really not worth our while to refer this to phase two, which involves a lot of expenditure of resources, markets that size that we take the view should be able to look after themselves.

(09:28):
And we saw one recent example of this in a very technical market in flexographic printing plates in XSYS-MGS where the CMA said, “Actually, yes, although we might’ve found concerns, normally the size of the market in the UK is £22 million or less. And so we don’t think this is one where taxpayers money should be spent on investigating it further.” So from substantive changes to more procedural ones, there’s some quite useful procedural changes that come up. So first for your list, you can ask to go fast track to phase two. Now, why on earth would that ever be an attractive proposition? In the past, it really wasn’t that attractive. You basically had to concede that there might be a competition problem that should get investigated further. Few people found that an attractive proposition, but sometimes going to phase two more quickly can be attractive. So for example, if you have a quite complicated remedy you want to offer, the CMA would rarely want to do that in phase one.

(10:33):
They would want to put quite a lot of resources into thinking about that remedy and checking it with the market with their remedies team within the CMA. That would be a more lengthy process, more suited to phase two. Secondly, if it’s one where based on prior precedent that the CMA has looked at this market before and reached certain views and they’re going to need to reverse course in order to clear your deal, going to phase two where there’s lots more resource put into the investigation where they can do market surveys, where they will have a more detailed examination with a larger inquiry group, that might be an attractive way to go through the phase one process, which you’re broadly thinking as a formality anyway and get to go to phase two. Obviously, something to be considered very carefully with your advisors. Secondly, and another timetabling matter, which is really important in practice, is you can agree to extend the phase two timetable by agreeing with the regulator to stop the clock.

(11:32):
Often parties feel that the CMA is a bit of a slave to statute, and once you’re on the clock, then the wheels grind remorselessly through to the end of the phase two process. And if something unexpected crops up or there’s a new issue or you’d like them to look at evidence in a different way, they simply get time themselves out because they have to go on to the next stage of their process. So if you want to have an agreed stop the clock, that’s possible. Equally, importantly, you might find that attractive to do because of the way the deal is being examined in other jurisdictions. So if you’d like all your regulators to be examining the same things at the same time, to be able to make submissions in a streamlined way and get everybody onto the same page, that can be really important to have that flexibility in terms of stop the clock, particularly again, when you get to merger remedies where you’d like each jurisdiction to have a similar amount of time to review it.

(12:27):
There can also be some tactical considerations. So other jurisdictions might give better disclosure than the CMA, which is famously shy about showing you its file. And so you might say, “Well, actually, if we can get disclosure from other regulators, that might help us in our submissions to the CMA.” So that’s quite attractive. In some part, it’s all due to the way in which the rather famous Microsoft-Activision case was treated. Remember it got blocked. Then under threat of litigation, the block was reversed with a new remedy being offered. So there the CMA says, “Well, if we’d only had a chance to think about possible additional remedies to have further discussions with the parties about how much more they could give, maybe that getting timed out in terms of our process wouldn’t have happened.” So that said, there’s actually quite a lot to be said about remedies. Now, I think there might have been some recent developments, Aurora, which we should make the audience aware of.

Aurora Luoma (13:25):
Yes. So it’s only speculation really at this stage. There’s been no stated policy change, but it’s interesting in particular because the CMA historically has been known for having a very strict stance on remedies. So what it’s really sought when it’s identified an issue in any mergers, it’s reviewed, is a very straightforward, clear cut and most importantly structural remedy, which means that if there’s a concern in a particular market, you have to sell some or all of the business in order to resolve the concern. Now, for many transactions, that’s fine, but for increasingly in recent and tech deals, that creates some issues because there isn’t often an easily divestible part of the business in the way that there might’ve been historically in traditional markets.

(14:06):
So first of all, the CMA’s chief executive, Sarah Cardell, who’s been in her role for a couple of years now, announced at the end of last year that the agency will carry out a review of its approach to merger remedies early this year. And that review will include considering when behavioral solutions might be appropriate, but a behavioral solution being where instead of selling a part of the business, you commit to do or not do something. And that could be, for example, a licensing agreement or commit to certain types of pricing or certain types of investments. So that consultation is likely to run most of this year, but for sure all eyes will be on it to see what kind of conclusions the CMA reaches about its flexibility on thinking about those kinds of remedies.

Bill Batchelor (14:50):
And perhaps at this point, we should just raise the political dimension, right? I think it’s no secret that with the new administration in the UK, the government has said we want to be open to business. Famously, in one recent block before the CMA, the CEO of one of the merging parties said they regarded the UK as being closed to business, not a sobriquet that the current incumbent of number 10 welcomes. And so we have seen Prime Minister Keir Starmer saying, “We want to rip up the bureaucracy, the block’s investment, and implicitly that competition regulators might be part of the problem, therefore should take growth seriously.”

(15:29):
Now, those are political statements. They don’t change the nature of the test or the law or the professionalism that the CMA’s review, but certainly sentiments where we see those policy advisors in department of business, the treasury, policy advisors to number 10 take very seriously that they want to be seen as having an open and friendly business regime. So I do think we have a change in tone. I do think we have an openness to discuss remedies and even in ongoing reviews that we’re involved in.

Aurora Luoma (16:01):
And Bill, we do of course have one particularly interesting case on this topic just from the end of last year where the CMA did accept purely behavioral remedies. Now, it was a transaction that’s in the regulated sector, and the CMA has always been clear that that is one area where they could think about behavioral commitments because there is a regulator who can oversee any commitments that the parties do make. So one of the questions there, and everyone obviously has had their eyes on that case, is whether that kind of more flexible thinking about how to resolve concerns might be extended to cases outside the regulated sector as well.

Bill Batchelor (16:34):
So a lot to unpack on mergers. Let’s wrap up here and go to key takeaways for 2025. So my main takeaway from our discussion, Aurora, is the fundamental structure of the regime isn’t changing. The test is still the same, deals that are highly challenging to get through will remain, highly challenging to get through, but we do have a greater scope for discussion with the regulator, the promise the regulator will be more open to discuss remedies in particular and also some procedural changes that give us a little bit more flexibility in trying to get the deal through.

Aurora Luoma (17:11):
I think that’s right, Bill. And maybe thinking about another key part of the new regime that’s coming in that’s been a hot topic for a number of years now is the introduction of the digital markets’ regime in the UK.

Bill Batchelor (17:24):
We have the British variant of the gatekeeper law, which is coming into force with the DMCC Act, and that is the strategic market status regime. So SMS, so there at the CMA has to investigate, do you have strategic market status? If as a digital platform, you has decided that you do, then there are some rules that will apply automatically. Again, fairly generic around fair dealing, non-leveraging, but also the opportunity that the regulator has to devise something more tailored and more detailed. The type of digital sectors that have been affected by the DMA, for example, have been incredibly varied. So are we really saying that one type of digital sector affected? So cloud computing, for example, really has the same attributes as the app store or the social media app or the operating system for a mobile phone system. So perhaps with this more scalpel-like intervention, the CMA may have its own brand of gatekeeper law that might be more proportionate and more targeted in its intervention we have yet to see.

Aurora Luoma (18:34):
I suppose the question on the other hand then would be, does that kind of flexibility in designing the regime to the company then on the other hand, give rise to a risk inconsistency and approach by the CMA?

Bill Batchelor (18:44):
Well, certainly that’s a little bit of what you’ve seen in Germany. So they’ve designated a number of the companies as having market power across a series of markets and then designed specific remedies that they want to see. Some of them have been very intrusive. For example, data siloing obligations. So if you have a portfolio of products, then you can’t use data from one product in the next one. Now, you might say actually the use of data is something consumers like because they don’t have to sign on three times to different products. You already know their preferences. You can serve them up relevant services more quickly. So you can see ways in which different sectors are treated differently if you have a more bespoke approach. I think the CMA’s point would be this is the way we’ve always done it, where we look at industries, we look at specific market failures within them, and we try and resolve those. We’re not saying that we can cure everything. That’s what a general competition regime is for. It’s not what this type of investigation is for.

Aurora Luoma (19:49):
And while we said we’d moved away from the topic of merger control, one critical change to bear in mind is the introduction of mandatory merger reporting obligations for those firms that are designated as having SMS. Again, this is a significant difference from the current merger control regime in the UK, which, Bill, as you pointed out earlier, has always been voluntary. So under the new regime, those firms that are designated SMS will be required to report mergers with a value of at least 25 million. So relatively small transactions where certain shareholding thresholds are met, it has to be made before completion, which as we noted contrasts with the fact that the UK merger control regime is usually voluntary and there’ll also be a standstill period after notification of five days before the parties can complete the merger. The point of the new rules is to improve transparency and give the CMA an opportunity to look at mergers by those companies that has considered SMS before that completed.

(20:47):
The report that’s going to be submitted as part of the SMS merger notification we anticipate will be less detailed than a full merger notice, but it’ll need to give the CMA adequate information to decide whether to open a phase one merger investigation or indeed whether to issue an initial enforcement order. So thank you, Bill. Perhaps less smooth swiftly on and touch very briefly on some of the other remaining changes in the DMCC that could be of interest in different contexts. Perhaps one to notice that the actors also strengthened the investigative and enforcement powers of the CMA. The CMA has broader powers to interview individuals. It also has broader ability to remove evidence including laptops and personal devices when dawn raiding or inspecting domestic premises. So individuals homes, which effectively takes into account the fact that people are increasingly working at home and therefore more likely to store work materials in their home environment.

(21:42):
They also have stronger powers to obtain data and documents which are stored remotely, such as in the cloud, which has been historically a bit of a point of ambiguity or contention in dawn raids. And perhaps finally to note that the rules extend the reach of the prohibition on anti-competitive agreements to apply to conduct implemented outside of the UK, provided that there is some effect on trade within the UK, and that works to bring the UK a little bit more in line with the EU and allows the CMA to investigate more global cartels, which we’ve seen it increasingly doing since Brexit. I mean, last, and as you say, certainly not least, are the changes to the CMA’s powers to enforce consumer laws. Perhaps the biggest change here is that the UK has historically had a strong set of consumer laws, but they haven’t really been heavily utilized.

(22:28):
And one of the reasons has been that the CMA had to go to court if it wanted to enforce those laws against particular companies. And what the DMCC does is allow the CMA to enforce consumer laws directly. And it also introduces investigatory powers, which look in many respects similar to the types of investigatory powers we see on the antitrust side. So what that means is from by April this year, the CMA will gain the ability to issue infringement decisions directly for breaches of consumer law without needing to go to court, as we’ve said. And importantly, fines can reach up to 10% of global turnover for businesses, which is pretty much in line with the level for breaches of competition.

Bill Batchelor (23:08):
Yeah, and I think it’s going to be super interesting because you could well imagine there’ll be some cases where both consumer and competition angles will be under review. So if you think about potential market failures, is that because you have a consumer problem, there’s been opacity in the information available to the consumer, and so they can’t compare properly, or there’s some sort of nefarious anti-competitive conduct that means consumers don’t have the opportunity to switch as quickly as they might want to or as competitors might like them to. So you can see there might well be overlap cases where the CMA wants to pursue both types of violation. So wrap up. It’s been a whistle-stop tour of recent developments 2025, no doubt will be extremely eventful. What are your key takeaways, Aurora, for our audience today?

Aurora Luoma (24:01):
Well, if we look at a whole, I think we’re certainly witnessing an authority, which is getting an expanded toolkit in a number of different areas, whether we look at merger control or consumer law, enforcement of consumer law, and some greater powers as well. But at the same time, I think we are also seeing some more flexibility being introduced, which is very welcome. Perhaps a bit more prioritization as well. The new regulatory regime for digital firms is clearly a groundbreaking change that’s going to impact many aspects of the UK economy and the CMA’s enforcement powers will give it more power to intervene in global transactions and conduct as well as I mentioned, consumer law breaches. In total, I expect the CMA is going to remain an active and interventionist agency. It’s maybe going to use a broader set of powers alongside the very strong enforcement of mergers that we’ve seen in recent years. But we may see, as I mentioned, it start to prioritize conduct impacts UK growth and investment when it’s deciding where to focus its resources and its investment and its efforts.

Bill Batchelor (25:03):
I completely agree. I think on mergers, we’ve already had a change in tone. Now, whether that will lead to a difference in legal outcomes, we’ll see, but at least there is a greater openness in mergers. In terms of traditional antitrust enforcement, maybe a little bit of ramp up. Now, they’ve got these additional tools, digital, they’ve put so much resource into, they really want to move quickly. They say they’ve hired in terms of technical experts to really get these cases off the ground, and they’re inheriting a relatively active book of market inquiries even before the law on digital comes into force. So I think that’s going to be the fastest moving.

Aurora Luoma (25:47):
Well, I think ultimately we’ll just have to wait and see how the CMA chooses to deploy its new powers in the coming months. So it’ll certainly be interesting to watch how on that unfolds. So Bill, even since we recorded this podcast, there’s been breaking news at the CMA with an unexpected change in leadership. The UK government’s replaced the chair of the CMA, Marcus Bokkerink, two years into his five-year term. Chancellor Rachel Reeves said that Marcus Bokkerink recognized it was time for him to move on and make way for somebody who does share the mission and the strategic direction that the government is taking in terms of its growth strategy. And since then, we’ve seen Doug Gurr, the former boss of Amazon UK and president of Amazon China, who’s now serving as the interim chair. So what message is the government sending?

Bill Batchelor (26:31):
I know, right? It’s been all changed just in a past couple of weeks. So I think the new Labor Administration’s mantra is UK regulators must drive domestic growth, investment, innovation. And the CMA’s response to data has generally been, “Well, yeah, that’s what we do. That’s our existing approach to enforcement, which should through competition promote growth.” With this move, however, the government says center signal that they don’t think that’s enough. They want the CMA to do more or to do things differently to promote the growth agenda. And already Doug Gurr has not been in office long, but a labor growth group of MPs has written to him saying, “We want you to conduct a rapid review of all ongoing CMA work with a pro-growth lens, ensuring every investigation, intervention and decision actively supports Britain.” So the new chair has welcomed this direction explaining that will be his focus, particularly on speed of investigations, building sector expertise.

(27:36):
The regulation take too much time to understand what sectors it regulates and further increasing engagement with businesses. So overall, that appears positive. It’s a push for a less burdensome process. I think we would all welcome attention to speed, greater business engagement. And in fairness, it is something that has been said at the CMA that there has perhaps been too little business engagement and that its processes can take too long and can be very costly, particularly for small businesses. All that said, is a change of chair the same as a change of executive staff? Well, it’s not quite the same. CEO Sarah Cardell remains in place. Of course, the statutes under which the regulator acts, all of those still remain in place and one suspects for day-to-day tasks, little will change, but at the edges, we might see pressure to move faster in mergers and investigations and potentially be more receptive to efforts to resolve competition concerns through remedies.

(28:40):
Another factor in play is that one third of the CMA’s current panel members are due to step down. Now, why are they important? Well, these are independent senior experts who are assigned to groups to be the statutory decision makers on mergers referred to phase two. So very complex mergers and market investigations where there might be a regulatory output, perhaps new guidance or law changing how an entire market behaves. So these are very senior and influential individuals. Panel members are appointed by the government on the basis of their experience in one of a number of areas such as competition or consumer policy and law, economics, accountancy, sectoral regulation, let’s not forget, they also have an appeal function when there’s an appeal from a specialist regulator like Ofgem or Ofwat.

(29:36):
So it’s quite likely we’ll see the appointment of new panel members with more of a business background this year, and that’s something to watch to see whether the government is trying to send a signal by virtue of these new appointments. What else should we be looking for? Well, I think the next milestone, Aurora, will be when the government publishes its non-binding strategic steer. So civil service speak for how the government would like the CMA to focus its efforts, that should be out in the next few weeks and set the CMA’s priorities. Again, this may provide a further signal as to what the government is expecting from the CMA.

Aurora Luoma (30:17):
So thanks everyone for joining, and we’ll look forward to welcoming you to our next Fierce Competition podcast.

Voiceover (30:23):
Thank you for joining us for today’s episode of Fierce Competition. If you like what you’re hearing, be sure to subscribe in your favorite podcast app so you don’t miss any future conversations. Additional information about Skadden can be found at skadden.com.