This article considers the key findings from the CMA's recent survey into the level of knowledge held by businesses regarding competition law and the risks arising from non-compliance.
On 22 October 2018, the UK’s principal competition regulator, the Competition and Markets Authority (CMA), published a report by ICM Unlimited (ICM) setting out the results of a competition law survey across 1,200 UK private sector businesses (across all regions, sectors and sizes (excluding sole traders)). Respondents comprised senior personnel with responsibility for sales within businesses.
Underlying the survey is the belief that a greater awareness of competition law should help prevent anti-competitive practices. However, the survey indicates that although awareness of competition law has improved slightly since the CMA’s 2014 survey, businesses are still some way off having a strong understanding of competition law and the risks posed by breach - which include regulatory action and fines, criminal liability for individuals and civil damage claims by parties that have suffered loss as a result of a competition law infringement.
Summary of findings
Key findings are:
- the greater the level of contact between competitors in an industry sector, the greater the opportunities for anti-competitive behaviour
- familiarity with competition law and the role of the CMA remains low; surprisingly, since 2014, the awareness of medium-sized businesses has outstripped large businesses by 12%
- competition law training sessions remain infrequent. Of those businesses that reported delivering training, only 6% have offered training on competition law
- businesses are aware generally of the issues relating to price-fixing but awareness of other conduct which breeches competition law and the penalties for non-compliance is much lower, and
- whilst 57% of businesses view their commercial activities as being at low risk of breaching competition law it is perhaps telling that the more familiar a business is with competition law, the less likely they are to hold this view.
Further analysis of the survey results
Businesses’ contact with their competitors
ICM found that 79% of businesses are in contact with other businesses in their industry. The sectors most likely to be in regular contact with competitors include: Professional Services and Information, Communication, Financial & Real Estate.
The most commonly cited reasons for such contact are professional networking (43%) and in relation to a transaction (34%). However, the volume of people citing the latter reason has decreased 10% from 2014. 10% of businesses cited pricing discussions as a reason for contacting other businesses. This has remained largely static from the 9% in 2014, suggesting that most businesses understand the risks of discussing prices with competitors.
Awareness of competition law
There has been little change in stated awareness of competition law since 2014, with 61% stating that they had some, but not a lot, of knowledge. The results are particularly interesting when broken-down by business size and sector:
- the familiarity of medium-sized businesses (50 to 249 employees) with competition law has increased from 37% to 52% since 2014. By contrast, familiarity at large-sized businesses’ (250+ employees) has decreased from 57% to 40%
- awareness of competition law is highest in the following sectors: Manufacturing and Information, Communication, Financial & Real Estate (30-33%), while the Education & Health, Agriculture, Mining and Utilities and Administration sectors lag behind (at 12-15%), and
- although awareness of competition law has increased in the Professional Services and Manufacturing sectors (11 to 14% increases since 2014), the Education & Health sector’s 18% decrease is concerning.
As to awareness of penalties for non-compliance with competition law, 7% of ICM’s respondents described their awareness as good while 68% admit their knowledge to be poor. Around a quarter of respondents were able to cite ‘fines for the company’ or ‘imprisonment’ as sanctions for non-compliance; however, few (1-3%) mentioned other sanctions such as exposure to damages claims, voided agreements and disqualification from membership bodies.
As to training, only 6% of respondents stated that their organisations held such training within the last 12 months, trailing far behind Health & Safety (46%), Employment Law (19%) and Fraud (15%). The same trend is seen in senior level discussions: 18% of senior staff had discussed competition law in the past year whereas 77% had discussed Health & Safety.
Awareness of anti-competitive behaviours
The survey included a series of true-false statements to test the extent of businesses’ awareness of anti-competitive practices. Respondents were best able to identify non-compliant price-fixing practices (with approximately 60% accuracy). However, where the practices related to identifying the potential benefits of whistle-blowing, the illegality of setting the price at which products are resold, or agreeing to carve-up customers with other businesses, accuracy dropped to between 35 and 41%.
ICM also introduced several new true-false statements reflecting recent competition law cases concerning control over resale prices and advertising conditions by companies in vertical relationships. Respondents were able to identify with reasonable accuracy (approximately 45%) that letting a supplier control resale prices or controlling where and at what price a customer advertises your products is illegal. However, only 25% identified that it would be illegal for your supplier to prohibit you from selling or advertising their products online.
ICM found that accuracy was best within the Manufacturing sector and worst within the Education & Health sector. It also found a high instance of ‘do not know’ responses (between 19% and 42% depending on the question), suggesting many senior personnel do not feel confident identifying what anti-competitive practices comprise.
Corporate commitment to compliance
The majority of respondents (57%) perceive their businesses’ activities as placing them in “very” or “fairly low” risk of breaching competition law, while 12% only consider its risk “very/fairly high”. There is a strong correlation between those businesses that identify themselves as knowing competition law “very/fairly well” and those that recognise that its activities place them at risk of breach.
Most respondents would take action upon learning about illegal activity within their business (88%) or at a competitor (77%). The most popular reaction where illegal activity takes place at a competitor is to call an independent body. By contrast, respondents are most likely to speak to the breaching party directly if they encounter illegal activity within their business.
ICM found that the strongest factors encouraging staff to comply with competition law are ethical and reputational, outstripping the force of sanction factors by approximately 10%. As to encouraging reporting, the strongest factors are convenience, confidentiality and anonymity (50-69%). 12% only were incentivised by the availability of a reward.
- ICM’s results suggest that many businesses are not confident as to what, beyond price-fixing, constitutes anti-competitive practices. Better familiarity in this topic is vital given the frequency of contact between businesses in the same industry.
- The decline in large-sized businesses’ awareness of competition law is surprising although perhaps explicable given the low levels of training and senior discussions reported on this topic.
- The correlation between level of training and knowledge of competition law risks is unsurprising. Evidence suggests that where training is offered, it is preferable in the first instance to focus on identifying anti-competitive practices over knowledge of the law itself.
- ICM’s findings that staff are most likely to report illegal activity within their business internally indicates the importance of an internal whistle-blowing procedure. To encourage that procedure’s use, businesses should ensure that it is confidential, anonymity may be assured if demanded and it is convenient to use (respondents suggested a preference for dedicated hotlines and websites).
Please contact Chris Owen if you would like to discuss the ICM’s survey results in further detail or to discuss the training that Simmons & Simmons can provide to your business in this area.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.