Now in its fifth year, the Competition and Markets Authority is more active than ever in its efforts to enforce the rules of the marketplace and protect consumers against unfair trading practices. Chief executive Dr Andrea Coscelli sits down with Geoffrey Lyons to discuss Brexit planning, the UK auditing shake-up, and learning from experience
Photos: Louise Haywood-Schiefer
It was the show tune heard round the world. On April 30, 2018, a hot mic caught Sainsbury’s CEO Mike Coupe singing “We’re in the Money” while waiting to be interviewed by ITV News. Media outlets from the Financial Times to HuffPost Canada published the clip. “Dark day for Sainsbury’s CEO” sounded the Washington Post. “Sainsbury’s chief sings himself into trouble,” wrote the New York Times.
Coupe later apologised for his “unguarded” moment. It’s not that he shouldn’t have been singing – a harmless if unorthodox way to prepare for an interview – but rather the “unfortunate choice of song,” from the American musical 42nd Street, suggested he’d be rolling in it after Sainsbury’s planned merger with Asda. The episode did little to assuage fears that the £12bn deal, which would have doubled Sainsbury’s market share, would eventually lead to job losses and price hikes.
Coupe tried to make up lost ground by claiming shoppers would ultimately see a 10% price cut for popular food items (“Mickey Mouse figures” according to MP Neil Parish), but the Competition and Markets Authority, which has jurisdiction to review big mergers, didn’t buy it. Exactly a year after Coupe’s gaffe, the CMA officially blocked the deal.
“It was an important intervention,” says Dr Andrea Coscelli, the CMA’s chief executive since 2016. “If you go back to 2003, our predecessor the Competition Commission blocked a similar acquisition,” he says, referring to its decision to prohibit Sainsbury’s, Tesco, and Asda from acquiring Safeway, later bought by Morrisons. “So the key question is: after 16 years, have things changed so much to allow this national consolidation in retail?”
CSW meets Coscelli in the CMA’s Holborn offices, his easy manner and black-rimmed glasses exuding a sense of calm rationality that befits a market referee. The non-ministerial department that he leads, which aside from investigating mergers is responsible for enforcing consumer protection legislation and intervening in markets with “competition problems”, is now in its fifth year. Coscelli is its second chief executive after Alex Chisholm, now permanent secretary at the Department for Business, Energy and Industrial Strategy. Before joining the CMA as one of Chisholm’s deputies, Coscelli spent 11 years in the private sector and five as a regulator at Ofcom – experience he calls a “good combination” for the role. “On any given day I might think about six or seven different markets in parallel,” he says. “And I think that in trying to regulate them, trying to understand them and how they see things, then having that experience is very important.”
The CMA has been tirelessly exercising its powers under Coscelli’s watch. At the time of writing it has 72 active cases, investigating everything from funeral services to anti-virus software. One case looking at secondary ticketing websites has been ongoing since before the CMA existed (passed on by its other predecessor, the Office of Fair Trading), and has resulted in legal action against Viagogo, a popular ticket resale site. Another case investigating illicit arrangements between suppliers of roofing materials (Coscelli says cartel activity is rampant in the construction sector) was launched just days after the CMA made headlines by ordering Amazon and food delivery company Deliveroo to put an integration deal on hold. Health insurance, video games, hotel booking services – the list goes on. Is there anything the department can’t investigate?
“In practical terms, we can intervene in pretty much every sector of the UK economy,” Coscelli says. “One of the key factors is whether someone else is already taking care of it. So if you think about financial services, there is a highly competent, well-funded regulator working 100% on it,” he says, referring to the Financial Conduct Authority. Coscelli says that even though the CMA is essentially operating in the margins, picking up cases that aren’t within other regulators’ purview, there’s plenty of work to keep busy.
Coscelli on... cartels
In October 2018, the CMA launched a “cartel awareness campaign” after research revealed that only 57% of businesses surveyed knew that fixing prices was illegal. Since then, calls to the department’s cartels hotline have soared. “We want to make sure that people feel confident that they can talk to us and give us leads,” Coscelli says. Although a 2018 survey revealed that only 18% of respondents were aware they could get immunity from fines if they reported cartel activity, Coscelli says this doesn’t really concern him. “It’s unrealistic to think that people running small businesses are aware of all the regulations and new complexities,” he says.
Keeping busy, however, doesn’t always win you friends. The CMA has been called everything from “unfair” and “disappointing” to “irrational” and “comprehensively failing” in its duties. After the Sainsbury’s deal was blocked, Coupe said the CMA’s ruling was “outrageous” and was “effectively taking £1bn out of customers’ pockets”. When an anticipated merger between Sky and Fox was provisionally halted, Conservative MP Philip Davies called the decision “personal,” conjured up by “lefties” opposed to Rupert Murdoch. Yet when a merger is cleared – like BT’s controversial £12.5bn takeover of EE – the CMA draws even more wrath, this time from the parties’ competitors. For the CMA, you’re damned if you do, damned if you don’t.
Coscelli is unfazed by these attacks. He says his organisation has a duty to defend consumers, and fundamentally rejects the idea that it’s being too aggressive. “Lots of people feel that they are subject to much more aggressive behaviour by businesses than they were 10 or 20 years ago, and they expect us and regulators to stand up for them,” he says. “In this type of job, you get lots of sensible people writing in about problems in markets. And when you read these letters and emails you think, ‘yeah, they have a point. We should do something.’”
Sometimes this can mean acting without precedent. Early this year the CMA published what law firm Linklaters has called a “radical reform” agenda, with proposals for new market powers that even its chair, Lord Andrew Tyrie, has admitted some will find “too wide-ranging and radical”. In June, then-prime minister Theresa May vowed to give the CMA “judge and jury” powers to fine companies that charge existing customers more than new customers – the so-called “loyalty penalty” – essentially allowing the department to circumvent the courts. The government has yet to consult on this proposal.
Coscelli says this may appear to some to be an overreach, but it’s needed to stop gross exploitation. “If you take, for example, home insurance, we’ve discovered that there are people in their 80s or 90s who are paying five or six times as much as you or I are paying for a very similar quote, and that’s because they’ve been with the same insurer for 25 years. Is that acceptable? Is that fair?
“If you believe in markets, if you believe in competition, if you believe that dynamic competition creates innovation and benefits for society, I think it’s important to draw the line. There are lots of great businesses, there’s lots of great innovation, but when people don’t do the right thing, I think it’s quite important to intervene.”
Coscelli on... working with other departments
“BEIS is our sponsor department, so we talk to them frequently, and we interact a lot with the Treasury. We’ve worked with DHSC on residential care and pharma. DfT is relevant because we’ll do a merger review for rail franchises, and we work with DCMS on digital. I’d say we have ongoing dialogue with over 50% of departments.”
Come Brexit day, the CMA could see a significant increase in its workload. Currently the European Commission manages much of the competition work that cuts across UK markets. In the event of no deal, this will all fall on the CMA’s shoulders. “We’re in a state of flux,” Coscelli says. He mentions some of the Commission’s major decisions that heavily involved UK markets, such as the three antitrust cases against Google that resulted in fines of more than €8bn, and a €1.1bn fine against a banking cartel caught rigging the foreign exchange market. “All of these things have been done in Brussels for UK consumers,” he says. “The day after Brexit, we have to deliver.”
Luckily the department was allocated £20m to ensure it’s prepared for a no-deal scenario. Coscelli says it’s also growing its staff by over 40% and expanding its presence in cities like Belfast and Cardiff. In Edinburgh, staff numbers have grown from just three to 42. “Suddenly we’re moving away from being London-centric to being more pan-UK,” he says. As CSW went to press, the CMA had just relocated its headquarters from Holborn to Canary Wharf – near to, but not in, the government’s east London hub.
If proximity had any relevance, this would make some of the 100-plus companies stationed in Canary Wharf anxious. One such company, KPMG, is part of the so-called “big four” auditing firms (along with EY, PwC, and Deloitte) that have come under intense scrutiny by the CMA and others in the last year. In April, the CMA sent shockwaves through the business community by publishing the final report of its six-month study into the audit market. While the report’s conclusions reaffirmed what most already knew – that there is both a lack of competition in the industry (the big four’s share of FTSE 350 auditing is 98%) and a lack of resilience in the event that one of the big four goes bust – its recommendations raised eyebrows. The CMA called for, among other things, an operational split of the big four’s auditing work (separating auditing from consulting), and, most controversially, mandatory joint audits as a way of removing barriers to entry for challenger firms.
“Obviously the government has had limited time for a domestic agenda, but we hope this is going to be one of the priorities for the new prime minister,” Coscelli says. “When we looked at the data, we found that for some of the large corporates in the UK, they felt they only had the choice of one or two auditors.” The reason a choice of four could dwindle to one or two is because all listed companies are required to rotate their auditor after a maximum of 20 years, “so now you start with three,” Coscelli says. “And if there are conflicts, you can easily end up with one or two, which is really not good. Our view is that we need to get to having six or seven credible players.”
The CMA’s proposal for mandatory joint audits, requiring listed companies to choose a challenger firm to work alongside the big four, has divided opinion. While some have said it would herald a new era of audit – “real reform [that] will deliver a genuine societal benefit,” as one commentator put it – others have been more critical. John Allan, Tesco chairman and president of the Confederation of British Industry, has said mandatory joint audits would “add cost and complexity for business with no guarantee of better outcomes”. Michael Izza, CEO of the Institute of Chartered Accountants in England and Wales, has said they would be a “very complex intervention” that could potentially “drive out incumbents and discourage new entrants into the market”.
“Joint audits are a bit more complicated, but they’re working in France,” Coscelli says. “If you accept that there is a problem, and if you accept that breaking up the four firms horizontally is really not an option because the costs outweigh the benefits, then you are in a world of second bests.” Coscelli adds that while some may disagree with the measure, nobody disagrees that the audit market is in need of significant repair. “It’s a good way to get us out of the position we’re in now.”
When he’s not policing the world of commerce, Coscelli says he’ll occasionally go to the theatre, most recently to see Stefano Massini’s The Lehman Trilogy, a critically-acclaimed chronicle of Lehman Brothers’ 170-year history. It’s uncertain whether this really counts as a break. Lehman’s shock collapse in 2008, after all, represents every regulator’s worst nightmare. But for Coscelli and his team, the past is the best teacher. “You learn from experience,” he says. “And it’s important in this job to learn to be challenged.”
Coscelli on... fake reviews
It’s currently estimated that as many as 15% of all online reviews are fraudulent. In June, the CMA launched a programme aimed at tackling this problem. Coscelli says the CMA has tried going after companies that sell fake reviews to other businesses, but they’re difficult to find. “What we’re doing now is going after the platforms,” he says. “There are businesses on Facebook, real businesses with employees, that generate fake reviews.” After a web sweep between November 2018 and June 2019, the CMA found 26 Facebook groups and over 100 eBay listings selling them. Both companies are currently conducting urgent reviews of their websites.