Regulators are increasingly using civil sanctions for enforcement. What does that mean for your business? Consumer products and services regulation expert, Dominic Watkins, Partner and Global Lead Consumer Sector at one of our legal partners DWF, explains all.

As is often the case with history, fashion or music, if you wait long enough, something that was a new fad 15-20 years ago may be popular again. Civil sanctions are perhaps this year's regulatory equivalent.

Back in 2006, the Government commissioned the Macrory Review to streamline and improve the regulatory enforcement framework in the UK, responding to concerns about the complexity, inefficiency and inconsistency of regulatory enforcement across various sectors.

The primary focus of the review was to create a more coherent and efficient regulatory system that balanced effective enforcement, whilst minimising unnecessary burdens on businesses. The review resulted in the Regulatory Enforcement and Sanctions Act 2008 (RESA).

RESA aimed to introduce a more consistent approach to enforcement by providing regulatory bodies with a wider range of enforcement tools. Those tools empowered regulators to use a variety of sanctions, including civil penalties/sanctions (which we will use as a 'catch all' term for any fiscal penalty levied by a regulator), compliance notices and enforcement undertakings, allowing them to tailor responses to breaches proportionately. This flexibility aimed to encourage compliance while avoiding excessive punitive measures for minor infringements.

Since that time, a range of laws have adopted these across a multitude of regulation, including the Ecodesign for Energy Related Products Regulations 2010, the Measuring Instruments Regulations 2016, the Non-Automatic Weighing Instruments Regulations 2016 and a number of environmental regulations. While the powers existed, in reality they were only used with any frequency by the Environment Agency in regulating environmental issues. This, however, appears to be changing.

The continued reduction in numbers of, particularly local authorities and regulators, and delays in the court system has resulted in a renewed focus on civil sanctions. This has the potential to substantively change the approach for regulators going forward. It can be seen through a considerable number of consultations to extend the use of existing civil sanctions regimes or to apply them to new areas.

We will cover four that concern the consumer sector the most: extension of the powers in the environmental regime; followed by the Office of Product Safety and Standards' (OPSS) new enforcement policy; their place in the Digital Markets Competition and Consumer Bill; and then in the longer term the Product Safety Review. However, not all regulators have the ability to use civil sanctions. One notable area that does not use civil sanctions is health and safety.

New environmental powers

On 1 December 2023, the innocuous sounding Environmental Permitting (England and Wales, Amendment No 2) Regulations 2023 marked another significant step forward in the use of civil penalties in environmental cases. However, these regulations have had a significant impact as they remove the current upper cap on variable monetary penalties. Previously capped at £250,000 and now offering the potential for unlimited penalties, this greatly increases the impact.

Significantly, it also extends the scope to include a much wider range of offences, including permitting offences. That means businesses, which were previously prosecuted, should ensure they have procedures in place to respond to this wide range of 'quick and easy' civil penalties.

While other regulators have historically had the power to use civil penalties, the Environment Agency has used them the most and has the most advanced policies associated with them. This also includes reference to the sentencing guidelines for the underlying offences to allow for a more consistent and structured approach to these notices. So, while a move to an unlimited fine is worrying, the guidance underpinning the regime does help mitigate this concern, as even when it does not expressly apply, it does give a useful reference point. By contrast, there are no sentencing guidelines for misleadingness, product safety or eco-design, therefore where penalties are unlimited and left to the discretion of the regulator, this can bring a huge potential for inconsistent approaches.

New focus from the OPSS?

This is quite evident from the OPSS's recent consultation on an update to its Enforcement Policy. The existing enforcement policy already expressly includes reference to 16 regimes where it has the power to issue financial penalties. The meetings held about the consultation made it clear that the ability to use these measures is on top of mind for regulators, and from the regulators' perspective, these are no lose as they no longer have to rely on proving guilt in a court.

However, what was clear is that the Enforcement Policy does not indicate when the regulator may consider a civil sanction appropriate, just that it might. Furthermore, when one reviews the underlying guidance for the 16 regimes, the associated guidance does not always assist with either that issue or how the appropriate level of penalty simply refers back to this OPSS Enforcement Policy (again, under guidance for the Ecodesign for Energy Related Products Regulations 2010, para 5.15 refers back to the enforcement policy albeit it does have factors to be considered). Having more in-depth guidance with monetary starting points, such as those used by the Health and Safety Executive, and in the sentencing guidelines would be useful for businesses, regulator certainty and consistency. We made this recommendation as part of our feedback and wait to see if the response to the consultation will adopt our proposed changes.

By contrast to the existing OPSS guidance, DEFRA is consulting on the Statutory guidance on the use of penalty notices for animal health and welfare offences released in December 2023. The guidance details when penalties should be used and how penalties should be calculated, for example with the starting points and then with a penalty calculated based on culpability levels which result in either a specific number or per cent of the starting point. While the methodology may not be perfect, the level of detail and clarity is similar to what is required for the range of offences the OPSS is intending to cover by this policy.

Powers for the Competition and Markets Authority

In 2024 the Digital Markets, Competition and Consumers Bill is due to become an Act. This is a huge piece of consumer protection legislation which changes many things. Most importantly, it will recast the Consumer Protection from Unfair Trading Regulations to simplify them and make it easy to prove a breach. This will apply to any and all commercial practices, including the way in which goods are sold and marketed as well as all the claims about them – so all advertising will also be in scope. This Bill will allow the Competition and Markets Authority (CMA) to determine guilt and then issue a civil penalty for up to 10 per cent of the global turnover of the offender. Again, this could be for advertising claims or any other form of commercial practice.

This will fundamentally shift the risk and likelihood of enforcement action from the cost of an investigation and a court process to the cost of reaching a conclusion and sending a letter. Recent market studies have shown that the CMA is both well-funded and motivated in areas like price claims and green claims, amongst others. So, the potential for this to be a game changer is real. Businesses should be considering if their current diligence and approval systems are enough.

Product Safety review

In 2023, there was a consultation on significant changes to product safety law. Those changes include as proposal 11: to introduce improvement notices, civil monetary penalties, and enforcement undertakings. In other words – the tools recommended by Macrory.

The consultation states that “A civil monetary penalty would be issuable by an authority for certain types of non-compliance, considering factors such as seriousness, whether harm has been caused, levels of cooperation and previous patterns of non-compliance.”

Significantly, it notes that: “The availability of civil monetary penalties would enable non-compliance to be sanctioned without the need for prosecution through the courts, ensuring authorities and businesses can avoid the time and costs associated with court proceedings. Their use would be subject to statutory guidance and oversight by OPSS, and the recipients of the penalties would have the right to make representations and appeals. This will ensure they are used proportionately, fairly and consistently.”

While the detail of how and when the penalties would be used will follow, as more details of the proposed new regime emerge, we can see such logic for their adoption being repeated time and time again.

Enforcement of health and safety offences

In the realm of health and safety, the trend towards the use of civil sanctions has not been followed. The Health and Safety Executive (HSE) relies on criminal sanctions and improvement notices for enforcement. The definitive guidelines for sentencing health and safety offences, corporate manslaughter and food safety and hygiene offences came into force on 1 February 2016 and have seen fine levels increases substantially since that time.

While the Environment Agency also makes reference to sentencing guidelines including when imposing civil sanctions, this approach can be contrasted to the new civil penalties we see being used by the OPSS and will see being used the CMA, which are much less transparent and predictable.

What should you be doing?

While there may also be a mechanic for the courts to issue a similar notice, they can also be issued by a regulator who has reached the requisite conclusion – without the need for any recourse to the court or any finding of guilt. There is of course an appeal process but it varies in scope and approach. More significant is the timeframe in which businesses have the opportunity to prevent a notice crystallising – it is very limited indeed and in some cases just 28 days between the notice of intention in respect of the civil sanction and it becoming final. Having an appropriate process in place to manage this will be key.

With the continual shrinking of regulator budgets at central and local government, it is hardly surprising that the pace, certainty, and lower cost of civil sanctions are appealing to the regulators and policy makers alike. As we progress through 2024, with the ever-growing number of areas where these are possible, the only questions remaining are: what will adoption rates be like, particularly in new areas, and how 'unlimited' is unlimited?

If you have any questions or would like to discuss any of these topics and what they mean for you and your business, please get in touch by emailing me.
 

 

Dominic Watkins is a Partner and Head of the Consumer Sector at global integrated legal and business services provider, DWF. He is an experienced regulatory lawyer focusing on regulatory compliance and defence, particularly in the food, retail and hospitality sectors.