On 21 January 2019, the UK government published its draft statutory instrument on State aid, outlining the changes to the UK State aid regime in the event of a no deal Brexit. Its publication comes at critical moment for the UK as it considers the potential options for leaving the European Union: (i) leave with a deal; (ii) leave without a deal; or (iii) postpone the date of leaving.

The State Aid (EU Exit) Regulations 2019 (“State Aid No Deal Regulation”), which still requires the approval of the UK Parliament, does not make material changes to the substance of the EU State aid framework, but rather transposes the regime into UK domestic law, establishing the UK Competition and Markets Authority (“CMA”) as the UK State aid enforcement authority, thereby replacing DG Comp.

This would put the UK in the position of having a national stand-alone State aid regulator. The State Aid No Deal Regulation also mandates the CMA adoption of existing EU State aid guidelines as statements of policy. Only minimal changes will be made to the guidelines to try to ensure their smooth operation following exit day.

The State Aid No Deal Regulation was closely followed by associated CMA guidance on 23 January 2019, which further clarified its State aid functions in the event of a no deal Brexit.

According to the CMA guidance, the key aspects of the CMA’s role in State aid are as follows:

  • Procedure. The State Aid No Deal Regulation keeps as similar an approach to the current DG Comp rules as possible to ensure certainty and continuity. The CMA will endeavour to be accessible to grantors of aid and to make its procedures as clear and efficient as possible. It is also required to publish a notice, on or before exit day, setting out the form and content of: notifications; complaints; the submission of annual reports in relation to existing aid schemes, and aid which is exempt from notification; and summary information for aid that is exempt from notification.

The CMA expects to publish these notices before the end of March 2019.

  • Independence of Decision Making. The CMA is currently seeking to maximise robustness, independence and decision-making impartiality with regards to its structures and processes. Concerns have been raised in this regard, as the CMA is funded by the UK government, yet will also have control over State decisions regarding undertakings in receipt of aid, thereby raising a potential conflict of interest. All State aid cases will be considered by a dedicated CMA State aid case team, on an initial examination. This initial review will be supported by professionals across the CMA, with decisions taken by senior officials. The CMA has committed to publishing further details of its decision-making structures for complex cases requiring additional, fuller investigation before March 2019.
  • Notification of State Aid. The CMA will accept notifications of State aid from the point at which the UK would leave the EU on the 29 March 2019. A new online notification system will provide aid grantors with a platform to make such notifications. Further guidance on access and use of the notification system will be provided by the CMA prior to the exit date. In addition, the CMA will engage in informal ‘pre-notification’ discussions with aid grantors expecting to notify State aid cases to the CMA in the first three months post-exit.
  • Approved or Ongoing State Aid Cases. State aid that has already been approved or exempted by DG Comp will not require re-approval, although the CMA will have the power to act in cases where aid granted has been misused. The same applies for aid provided under a block exemption. Ongoing cases that have been notified to DG Comp prior to exit, but that have not been decided on or before 29 March 2019, will have to be re-notified to the CMA. The CMA will be conferred with powers to investigate cases where aid has been granted without prior approval and where no block exemption applies (whether before or after exit day). An online complaints form will be made available for interested parties who wish to take issue with aid granted.

Should Britain manage to secure a Brexit deal with the European Union, then its departure will be governed by the Withdrawal Act (“WA”). Under the WA, the State aid framework remains the same. DG Comp retains jurisdiction over UK State aid notifications, with the WA permitting DG Comp to raise enforcement action against the UK up to four years following the end of the transition period, regarding aid granted within that time. Beyond this, DG Comp remains competent to resolve any State aid investigation that has been allocated a case number during this transition period.

This post forms part two of a two-part Brexit and competition law series, the first of which focuses on summarising the key differences to the UK competition framework under both a deal and no deal Brexit. Part one can also be found on the Covington competition blog.

Photo of Kevin Coates Kevin Coates

Kevin Coates advises clients on critical antitrust matters drawing on his extensive public sector experience in the Directorate-General for Competition of the European Commission (“DG COMP”), most recently as Head of a Cartel Unit.

His practice has a particular focus on advising companies…

Kevin Coates advises clients on critical antitrust matters drawing on his extensive public sector experience in the Directorate-General for Competition of the European Commission (“DG COMP”), most recently as Head of a Cartel Unit.

His practice has a particular focus on advising companies in the electronics, technology, software and e-commerce sectors.

Mr. Coates advises on all aspects of EU, UK and international competition law, including merger control, compliance, cartels and leniency, and abuse of dominance.

Mr. Coates served as Head of a Cartel Unit at the Directorate-General for Competition (“DG Comp”) at the European Commission between 2012 and 2016. Prior to this, he held several positions within DG Comp, over nearly 20 years in total, including advising the Director General of DG Comp on policy and communications issues, and overseeing competition cases in the telecoms and media sectors. While working for the Director General he was one of the team that produced the Guidance on Enforcement Priorities under Article 102.

He was also a visiting research fellow at NYU School of Law in 2009-2010.

Prior to joining DG Comp, he served as in-house Counsel at AOL Europe where he was responsible for antitrust and regulatory issues for AOL subsidiary companies in the UK, Germany, France and the Netherlands.

Mr. Coates is the author of “Competition Law and Regulation of Technology Markets” published by Oxford University Press in 2011.

Mr. Coates is co-chair of Covington’s Internet of Things (IoT) group, and leads the firm’s Brexit Task Force.