The U.K.’s Competition and Markets Authority says Sony’s purchase of AWAL could lead to “worse terms for artists and less innovation in the music sector.” Sony called the findings “perplexing.”

The CMA’s investigation, announced in February, found evidence that, if AWAL were to have continued as an independent entity, the two companies could have “competed more strongly with each other in future.” That competition, according to the CMA, “could have benefited artists by improving the terms of their deals with distributors, potentially allowing them to keep a larger share of their earnings and to have more ownership of their music rights.”

A statement concludes: “The CMA is therefore concerned that the loss of an innovative competitor like AWAL could, despite continued presence of the other major labels, lead to worse terms for artists and less innovation in the music sector.” Sony’s purchase of Kobalt Neighbouring Rights, which was announced at the same time, isn’t of concern.

Sony must address the CMA’s concern within five working days with legally binding proposals to address the competition concerns identified. The CMA then has a further five working days to consider whether to accept any offer instead of referring the case to a Phase 2 investigation.

A Sony Music Entertainment spokesperson called the findings “perplexing” and “based on an incorrect understanding of AWAL’s position in the U.K.”

“We strongly believe this transaction is unambiguously pro-competitive and that our investment in AWAL is key to its continued growth and future success.

“Every other regulatory body that has reviewed this transaction has agreed with our view and approved it quickly. We will continue to work closely with the CMA to resolve any questions they might have.”