Regulation – and regulatory change – poses an important risk factor for businesses, investors and other stakeholders. Our Regulatory Risk and Compliance specialists are monitoring a range of key developments in this context and will be updating clients on them over the coming months. Here is a high-level overview of these developments.
Enforcing the UK’s territorial constitution
The UK’s territorial constitution (notably the devolution and internal market statutes) is designed to balance the division of powers between our different governments. The diverging policy agendas of those governments (e.g., on topics ranging from environmental protection and sustainability, to gender recognition and the rights of tied pub tenants to fair treatment from their landlords) are creating regulatory risks which businesses have to navigate.
Where the legal limits set under the territorial constitution are breached by such policy initiatives, firms may have the ability to protect their interests in the UK courts. Current and pending cases promise to shed greater light on these constitutional limits and the remedies available to enforce them.
New directions for UK competition and consumer policy
UK competition and consumer policy looks set for fundamental reform with the recent introduction of the Digital Markets, Competition and Consumers Bill in Parliament. The Bill proposes reform of consumer protection law; new tools to regulate digital markets; and wider reforms of competition law and merger control.
In addition to the developments in the Bill, the UK’s Competition and Markets Authority is taking steps to assist firms to resolve the tensions inherent in ‘sustainability agreements’ and find ways to mitigate enforcement risks.
The achievement of ESG and wider sustainability goals is often facilitated by collaboration within and across business sectors (e.g., on the phasing out of polluting raw materials). However, ‘horizontal cooperation’ between competing firms – even in pursuit of legitimate goals – can nonetheless engage UK and overseas prohibitions against anti-competitive agreements and concerted practices.
The regulatory impacts of the UK’s departure from the EU and its single market continue to emerge, creating challenges for businesses operating in the UK and involved in cross-border trade and investment.
The UK Government is continuing to press ahead with its plans to limit the residual impact of EU law (e.g., via the Windsor Framework). In addition, steps being taken in both the UK and the EU to protect their domestic industries from foreign influence are adding to the regulatory risks for cross-border activity.
The claims made by firms about their ‘green’ ambitions (such as those included in prospectuses or financial statements) and credentials (e.g., as to the environmental sustainability of their products or services) are coming under increasing scrutiny from regulators and stakeholders in the UK and overseas.
The UK Government is poised to introduce sweeping new powers allowing the Competition and Markets Authority to enforce consumer protection laws in cases where misleading claims are being made. In addition, the UK courts are hearing landmark claims brought by investors designed to hold directors accountable for delivering corporate sustainability strategies.
In light of the UK Government’s March 2023 White Paper on a pro-innovative approach to AI regulation, we are looking at the legal issues for businesses grappling with how regulatory regimes across all sectors of the economy adapt to the opportunities and challenges created by AI deployment and acceleration.
The UK’s regulators are being handed enormous flexibility to implement the government’s five key principles of: (1) safety, security and robustness, (2) appropriate transparency and explainability, (3) fairness, (4) accountability and governance and (5) contestability and redress. On the one hand that creates opportunities for innovation, but on the other leaves room for uncertainty and fragmentation.
Reinforcing openness and fair-dealing in the public sector
Firms dealing with government need to be alert to the impact of transparency and fair-dealing regulations in relation, e.g., to freedom of information, subsidy control, lobbying and public procurement. Recent and ongoing changes in these various rules pose risks and may also give rise to opportunities.
In particular, firms should ensure they are up to speed with initiatives at UK and Scottish levels designed, on the one hand, to reinforce transparency and accountability and, on the other, to provide greater commercial flexibility, e.g., for public sector buyers.
Creating financial accountability for regulatory failings
Businesses can be significantly affected by the behaviour of regulated utilities, such as those operating water or transport infrastructure. The failure of this infrastructure can result in considerable cost for firms, users and wider communities, but remedial action has traditionally been viewed as a matter to be handled by the relevant regulators, e.g., via enforcement action.
However, cases are beginning to emerge in which under-performance by utilities is being founded upon as the basis for damages claims, in parallel to regulatory remedies. These claims, which may involve large classes of claimants, are of interest not only to affected parties but also litigation funders.
We welcome feedback on these themes and would be happy to have a dialogue with interested parties. Please feel free to get in touch with one of the key contacts above or via your usual Shepherd and Wedderburn contact.