Competition law compliance for UK businesses

The two main prohibitions

The Competition Act 1998 contains two core prohibitions that mirror EU competition law:

• Chapter I prohibition: Bans anti-competitive agreements between businesses
• Chapter II prohibition: Bans abuse of a dominant market position

Either prohibition can be enforced by the Competition and Markets Authority (CMA) or, in regulated sectors, by one of eight sector regulators with concurrent powers.

Chapter I: Anti-competitive agreements

The Chapter I prohibition bans agreements between businesses that prevent, restrict, or distort competition within the UK. This covers formal contracts, informal arrangements, decisions by trade associations, and even 'concerted practices' - coordinated behaviour without any written agreement.

The most serious breaches are 'cartel' agreements - particularly price-fixing, market-sharing, and bid-rigging. These are treated as 'object' infringements, meaning they are presumed to harm competition without needing to prove actual effects.

Common Chapter I breaches

Many businesses breach competition law without realising it. Be especially careful about:

Conversations with competitors:

• Discussing prices, discounts, or pricing strategies at trade events
• Sharing information about future plans, capacity, or customer lists
• Agreeing not to target each other's customers or territories
• Coordinating bids for contracts - even 'cover pricing' is illegal

Trade association activities:

• Recommended price lists or minimum prices
• Sharing commercially sensitive member information
• Collective boycotts of suppliers or customers
• Industry-wide agreements on terms or standards that exclude competitors

Vertical agreements:

• Resale price maintenance - fixing the price at which retailers sell your products
• Restricting where or to whom distributors can sell
• Exclusive dealing arrangements that foreclose markets

Chapter II: Abuse of dominance

If your business has a dominant position in a market, you have a special responsibility not to abuse that position. Dominance typically arises where a business has more than 40% market share, though this is not a fixed threshold - the CMA looks at overall competitive constraints.

Unlike Chapter I, the Chapter II prohibition applies to unilateral conduct - you don't need an agreement with another party to breach it.

When dominance matters

Conduct that would be perfectly legal for a non-dominant business can be illegal for a dominant firm:

• Pricing decisions: Dominant firms cannot price below cost to eliminate competitors, or squeeze competitors' margins
• Dealing with customers: Refusing to supply without objective justification can be an abuse
• Discounts and rebates: Loyalty rebates that lock in customers may be abusive
• Bundling and tying: Requiring customers to buy products together can be abusive

Key point: If you have significant market share in any market, take legal advice before implementing practices that could exclude competitors or exploit customers.

When your business might be at risk

Consider your competition law exposure if any of the following apply:

High-risk scenarios for Chapter I:

• You attend trade association meetings or industry events
• You have informal contact with competitors (including former colleagues now at rival firms)
• You bid for contracts in competitive tenders
• You operate franchise or distribution arrangements
• You are part of a joint venture or collaboration with competitors
• Your industry has a history of cartel activity

High-risk scenarios for Chapter II:

• You have more than 40% share of any definable market
• You operate essential infrastructure others depend on
• You have intellectual property that competitors need to licence
• Customers have limited alternatives to your products or services

Who enforces competition law

The Competition and Markets Authority (CMA) is the UK's principal competition authority. However, in regulated sectors, eight sector regulators have concurrent powers to enforce the Competition Act 1998.

How investigations start

Competition investigations can begin from:

• Leniency applications: A cartel member reports the arrangement for immunity
• Complaints: From competitors, customers, or suppliers
• Whistleblowers: Current or former employees
• Market monitoring: CMA's own market surveillance
• Dawn raids: Unannounced inspections at business premises
• International cooperation: Referrals from overseas competition authorities

Dawn raids: The CMA has power to enter business premises without notice to search for evidence of competition breaches. Officers can require access to documents and electronic devices, copy files, and interview employees. Obstructing a dawn raid is a criminal offence.

Penalties for competition breaches

The consequences of breaching competition law are severe and can threaten the survival of your business. The Digital Markets, Competition and Consumers Act 2024 has significantly increased penalties for procedural breaches.

How penalties are calculated

The CMA calculates penalties using a five-step approach:

1. Starting point: Up to 30% of relevant turnover in the last year of the breach
2. Duration: Multiplied by number of years the breach lasted
3. Adjustments: Increased for aggravating factors (e.g., leading role, repeat offender) or decreased for mitigating factors (e.g., cooperation, compliance efforts)
4. Deterrence: May be increased to ensure the penalty deters future breaches
5. Cap: Cannot exceed 10% of worldwide annual turnover

The 10% cap is on worldwide turnover: This means a breach in the UK market can result in penalties based on your entire global business. For multinational groups, this can mean penalties in the hundreds of millions of pounds.

Small agreements exemption

Small businesses have limited protection from fines:

• Businesses with combined turnover under £20 million are immune from fines for Chapter I breaches
• Exception: This exemption does NOT apply to price-fixing agreements
• Businesses with turnover under £50 million are immune from Chapter II fines ('conduct of minor significance')

Important: Even if exempt from fines, the agreements are still illegal and void. Third parties harmed by the breach can still sue for damages in the courts.

Director disqualification

Competition breaches can have personal consequences for directors. The CMA can apply to court for a Competition Disqualification Order against any director whose company has breached competition law.

What directors should know

To avoid disqualification:

• Ensure your company has a competition compliance programme
• Take competition concerns seriously when raised by employees or legal advisers
• Never instruct or encourage anti-competitive conduct
• Do not turn a blind eye to suspicious activity
• Act promptly if you discover a potential breach

Criminal liability: For the most serious cartel offences (dishonest price-fixing, market-sharing, output limitation, bid-rigging), individuals can face up to 5 years' imprisonment under the Enterprise Act 2002. This applies to anyone who dishonestly agrees to participate in cartel arrangements.

The leniency programme

If your business is involved in a cartel, the CMA's leniency programme offers a way out. Businesses that report their involvement and cooperate fully can receive immunity from fines - but only if they act first.

Why leniency matters

Leniency is designed to encourage cartel members to come forward. The programme works because:

• Guaranteed immunity: The first to report (before investigation) gets 100% immunity from fines
• Criminal protection: Type A immunity covers all employees and directors for criminal prosecution
• Director protection: Full protection from disqualification orders
• Whistleblower rewards: Individual whistleblowers can receive up to £250,000

The race to the CMA: Only the first cartel member to report gets full immunity. Second and subsequent applicants receive progressively smaller reductions. This creates a powerful incentive to report quickly - any delay risks being beaten to the CMA by another participant.

How to apply for leniency

If you suspect your business is involved in a cartel:

1. Contact the CMA immediately: You can make initial contact anonymously to understand your position
2. Secure a marker: A marker preserves your place in the queue while you gather information
3. Provide full disclosure: Within the marker period, make complete disclosure of all known facts
4. Stop the conduct: Cease cartel participation immediately
5. Maintain confidentiality: Do not alert other cartel members
6. Cooperate throughout: Continue assisting the CMA until the investigation concludes

Take legal advice first: Leniency applications are complex and have significant consequences. Engage specialist competition lawyers before making any approach to the CMA.

Getting compliance right

An effective competition compliance programme can prevent breaches and may be a mitigating factor in penalties if a breach does occur. The key elements are:

1. Board-level commitment:

• Senior management must endorse competition compliance
• Allocate adequate resources to compliance
• Ensure compliance is part of business culture, not just a policy

2. Risk assessment:

• Identify where your business faces competition risks
• Consider contacts with competitors, trade associations, pricing decisions, distribution arrangements
• Focus compliance efforts on highest-risk areas

3. Clear policies:

• Written competition policy setting out dos and don'ts
• Specific guidance for high-risk activities (e.g., trade association attendance, customer/supplier meetings)
• Clear reporting channels for concerns