The OFT’s four steps to compliance

Author: | Published: 26 Sep 2012
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Risk-based, four-step approach
During an economic crisis, the role of competitive markets in driving growth is a crucial one. Competition agencies, the Office of Fair Trading (OFT) included, often say that in these circumstances high-impact competition law enforcement is more crucial than ever, as effective competition and well-functioning markets drive the long-term productivity growth vital for economic recovery. At the OFT, we believe that compliance also has an important role to play, as encouraging businesses to embed a culture of competition law compliance can be an effective complement to high-impact enforcement work. Our risk-based four-step approach, detailed below, is designed to give businesses a helping hand as they seek to achieve compliance with competition law.

About the OFT

The OFT is the UK's consumer and competition authority – our mission is to make markets work well for consumers. Our goal is competitive, efficient, innovative markets where standards of customer care are high, consumers are empowered and confident about making choices, and where businesses comply with consumer and competition laws but are not overburdened by regulation.

High-impact enforcement

We prioritise work that drives change and delivers real outcomes across markets, which includes a commitment to taking high-impact enforcement cases. Enforcement is vital to the effectiveness of any competition regime. This is not just because it stops bad practice and creates opportunities for redress, but also because of the wider deterrent effect of raising business awareness of the consequences of non-compliance such as fines, Director Disqualifications Orders (in the UK), and the risk of private damages actions. Research published by the OFT in December 2011 found that for every completed competition law enforcement action, up to 40 potential competition law infringements are deterred.

The OFT has had a number of recent enforcement successes, including bringing our civil airline fuel surcharges case to a close, imposing a substantial penalty of £58.5 million on British Airways (BA). We've also recently issued Statements of Objections in two cases: the first for alleged infringements of competition law in relation to the online supply of hotel accommodation; and the second in relation to alleged infringements by Mercedes-Benz and five commercial vehicle dealers involved in the sale of Mercedes-Benz trucks and vans. Our high-impact enforcement work continues at pace.

Embedding a culture of compliance

But, although crucial, competition law enforcement is not the only way we help to ensure that markets work well for consumers. Rather than wait to impose sanctions on businesses that breach the law, we aim to help them to try to avoid this in the first place. There is a growing acceptance that compliance (including with competition law) is, and should be, an important boardroom agenda item. We support this and recognise that most businesses do want to comply, which is why we provide a range of tools to help them do so (these can be found on the OFT's website).

Underpinning the tools we provide is our recommended risk-based, four-step approach to achieve an effective culture of compliance with competition law. Risk-based, in this context, means that the approach is tailored to the specific risks faced by each business. We do not mandate any specific compliance measures – these are a decision for the individual business, depending on competition law risk exposure and the business's internal culture.

Businesses may already have in place, or choose to implement, a compliance methodology that differs from our suggested process, but which is equally effective. However they choose to do it, businesses should find an effective means of identifying, assessing, mitigating and reviewing their competition law risks to create and maintain a culture of competition law compliance that works for them. Our tools are designed to help them achieve this.

Risk-based, four-step approach

Our risk-based, four-step approach can be summarised in the chart above.

At the Core is a commitment to compliance from the top down, which underpins the practical steps outlined below.

The first of these practical steps is Risk Identification – what are the key competition law risks faced by the business? Step two is a Risk Assessment – how serious are the identified risks? Are they low, medium or high? Which employees are in high risk areas (this could include those in contact with competitors or in sales and marketing roles)? The third step is Risk Mitigation – setting up appropriate policies, procedures and training with the aim of minimising the likelihood of the risks occurring, but also to detect and deal with these issues when they do. The final step is Review – looking at the business's commitment to compliance on a regular basis, reviewing the steps set out above and checking that the approach identified remains fit for purpose.

Our enforcement efforts are geared towards promoting such a compliance culture. For example, our recently adopted 'Guidance as to the Appropriate Amount of the Penalty', which sets out the approach that the OFT will take when imposing a penalty for a competition law infringement, expressly states that genuine efforts to embed a competition compliance culture could mean a reduction in the amount of the financial penalty imposed. The new guidance also sees the maximum starting point for penalty calculations increase to 30% of relevant turnover, from 10%, bringing us in line with the approach of the European Commission and many European competition authorities.

Final thoughts

High-impact enforcement is critical for a successful competition regime, but it is not the only tool that can be used to drive effective competition. The OFT is committed to seeking to embed compliance more deeply within businesses' corporate governance and risk processes, at the same time as maintaining our high-impact enforcement approach. The compliance tools we have designed are deliberately flexible so that they offer all businesses a framework for approaching competition compliance and deciding how they can best achieve compliance with the law. There is no single way to comply, but we hope businesses across the globe, including IFLR readers, will find our tools a useful way to think about compliance.

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