John Schmidt Scottish Competition Law Forum 2014 5 June 2014 Does ex-ante regulation work?

John SchmidtScottish Competition Law Forum 2014

5 June 2014

Does ex-ante regulation work?

What am I not talking about?

1

• Lloyds – TSB split up and monitoring role

• RBS spin-off

• Post-mortem on individual cases and where the OFT/FSA/CMA/FCA got it wrong or got it right

What will I focus on?

2

• Outline of where we are in terms of ex-ante vs ex-post

• Reflections on past issues in sectoral regulation

• Views on future challenges

Conclusion

3

• It is good to have both ex-ante regulation and ex-post enforcement.

• BUT there is an upside if separating those two functions into different authorities.

“Competition in enforcement” should provide:

incentive for ex-ante regulators to get it right

incentive to intervene/ change tack when something is not working as well as it could

safety valve if the ex-ante regulator does not intervene

• We have the tools, possibly even too many tools. Effectiveness depends not on the quantity of tools or quantity of authorities but on the authorities’ willingness to act appropriately.

What have we got? General Competition Law

Regime Ex-ante Ex-post

Merger control

State aid

Article 101/Ch I ()

Article 102/Ch II

Market study/market reference/Sector Enqiury

() ()

4

What have we got?

Sector Regulatory Powers Competition Powers (ex-post)

Ex-ante Ex-post

Water OFWAT and CMA Concurrent ex-post enforcement in England

WICS in Scotland has no competition enforcement powers.

Gas and Electricity

OFGEM/CMA concurrent

Telecoms OFCOM/CMA concurrent

Post CMA for competition enforcement

Rail ORR and CMA concurrent

Aviation CAA and CMA concurrent

5

Is it working?

6

dti/Treasury Report on concurrent competition powers (2006)

• “Where a regulated company is in breach of one of its existing licence conditions, the regulator will enforce the condition or consider whether it should be revoked – competition powers are generally only used where there are gaps in existing sectoral powers. […] this approach may just leave competition powers are a ‘backstop’.” para 4.5

• “Sectoral regulation has played a key role in opening up markets and stimulating market development, removing barriers to entry and in ensuring fair, transparent pricing. HOWEVER (my emphasis) greater use of competition law has potential benefits. It appears where regulators have a choice, they usually choose to use their regulatory powers and do not use their concurrent competition powers.” para. 6.4

Where are we 8 years on?

7

• On the whole, sectoral regulators still tend to rely on sectoral powers.

• On the whole, the OFT have not championed the use or filled the lacuna.

• What will the CMA do?

Intervention toolbox in the financial services sector

Regime Regulation Powers

(ex-ante)

Regulation Powers

(ex-post)

Competition Powers

FCA

• PSR (2015)

PRA [] []

CMA

8

Past cases

9

Past cases Year Enforcement?

PPI 2006 Reference/remedies

PCA Market Study and updates

2007/2010/2011/2013

UTCCR (PCA) Test Case 2007 []

Retail banking review 2010

Loans information exchange 2010 Fines/Settlement

Private motor insurance 2011 Commitments

LIBOR/Forex 2011 DGComp/FSA

OTC/CDS 2011 DGComp

PCA 2012 No reference

Payment systems review 2013

SME Market Study 2013 Transferred to CMA

CMA taken on SME study and PCA review

Ongoing

What are the challenges in the financial services sector?

10

• Choosing the right cases.

• Not being hostage to keeping cases open at all cost:• Closing cases• Accepting undertakings early

• Not over-relying on market studies/MIRs.

• No ‘market allocation’ between the authorities on who should investigate.

• We have the tools, possibly even too many tools. Effectiveness depends not on the quantity of tools or quantity of authorities but on the authorities’ willingness to act appropriately.

Glasgow191 West George StreetGlasgow G2 2LBT +44(0)141 566 9900F +44(0)141 565 1222

LondonCondor House10 St. Paul’s ChurchyardLondon EC4M 8ALT +44(0)20 7429 4900F +44(0)20 7329 5939

Edinburgh1 Exchange CrescentConference SquareEdinburgh EH3 8ULT +44(0)131 228 9900F +44(0)131 228 1222

www.shepwedd.co.ukAberdeen1 Berry StreetAberdeenAB25 1HFT +44(0)1224 343 555 F +44(0)1224 343 555

Ranked No. 1 for Service Delivery and Responsiveness

in the Legal Week Client Satisfaction Report 2012

© Shepherd and Wedderburn 2013