Power to the CMA – UK publishes flagship draft Digital Markets, Competition and Consumers Bill

Background

The Bill sets out a range of reforms to the UK’s competition law and consumer protection regimes and fleshes out the much anticipated digital markets regime.  Although the detail of the Bill is likely to change as it moves through both Houses of Parliament, the direction of the reforms is likely to remain largely unaltered.

This alert provides a high-level summary of the key reforms the Bill introduces.  In the coming weeks, we will publish a series of more detailed deep dives into the major areas of reform introduced by the Bill in relation to (i) digital markets, (ii) competition law, and (iii) consumer law.

Digital Markets regime – the DMU comes to life  

The Digital Markets Unit (DMU), the UK’s digital markets regulator, has operated on a non-statutory basis within the CMA since April 2021.

Under the proposed legislation, the role of the DMU will be to oversee and enforce the new regime for digital firms with so-called Strategic Market Status (SMS), and to monitor competition in digital markets more widely.  The DMU was expected to become fully operational by October 2023 but, although there is currently no timetable established for when it will receive its new powers, it appears unlikely that its new powers will take effect until 2024.

However, even after the Bill becomes law, the DMU will have no legal existence of its own, and will effectively remain an internal department of the CMA.

As expected, the Bill gives the DMU a wide range of powers, including to designate companies as having SMS in relation to certain types of digital activities, to impose conduct requirements on designated undertakings and to launch “pro-competition interventions”.

SMS Designation: The DMU may designate an undertaking as having SMS in respect of a digital activity following an SMS investigation. Designation will be subject to a UK nexus, ‘SMS conditions’ (namely, "substantial and entrenched market power” and a “position of strategic significance”) and a turnover condition (global turnover exceeding £25 billion, or UK turnover exceeding £1 billion). The designation would last for a base period of 5 years. 

Conduct requirements: The Bill gives the DMU the power to impose conduct requirements on designated undertakings. Such conduct requirements must pursue one of the specified objectives set out in the Bill (fair dealing, open choices or trust and transparency) and be of a “permitted type”. The range of permitted types of conduct requirements is very broad, giving the DMU a wide discretion to decide which conduct requirements to impose on specific designated undertakings. The expectation is that these will be applied on an individually-tailored basis for each company designated. 

Pro-competition interventions (PCIs): The Bill gives the DMU the power (following an investigation of up to nine months) to make a PCI in relation to a designated undertaking where it considers that (i) certain factors relating to a relevant digital activity are having an adverse effect on competition, and (ii) making a PCI would be likely to address this.  A PCI may take the form of a “pro-competition order”, whereby the CMA can impose a wide range of behavioural or structural requirements (in line with its existing powers in the context of market investigations), or may consist of recommendations to a public official about steps the CMA considers they should take in relation to the designated undertaking or digital activity in question.

Merger control – duty to report: Designated undertakings will be required to report to the CMA all transactions in which:

• the designated undertaking increases its share or voting rights above thresholds of 15%, 25% or 50%; and
• consideration provided for the acquired shares or voting rights is at least £25 million. 

Reporting must take place prior to closing. The CMA then has five working days to determine whether it considers a report sufficient.  It will use the report to decide whether to open a full investigation under the Enterprise Act 2002 merger control regime.

Competition law – enhanced powers for the CMA across the competition regime

The Bill makes a number of changes to the competition law framework. None of these is revolutionary, but there are important changes to all aspects of the existing rules, all of which will further enhance the powers of the CMA (and, in some cases, the powers of sectorial regulators). 

Merger control: The Bill amends the CMA’s existing jurisdictional thresholds and introduces a new threshold to expand the jurisdiction the CMA has to review proposed transactions. 

• Existing turnover test: The jurisdictional threshold based on the UK turnover of the target is increased from £70 million to £100 million.
• Existing share of supply test: The CMA will no longer have jurisdiction to review transactions where each of the parties involved has UK turnover of £10 million or less, even where there is an overlap in the parties’ business activities.
• New jurisdictional test: The Bill introduces a new jurisdictional test which can apply to non-overlap transactions.  This test will be met where, pre-transaction, one of the parties (i) supplies at least 33% of goods or services of some description within the UK (or a substantial part of the UK), and (ii) has UK turnover of more than £350 million. 

The Bill also makes a number of procedural changes to the merger regime, but the basic system remains as today.  Notably, notification to the CMA of a transaction within the CMA’s jurisdiction remains voluntary, subject to the risk of later investigation. 

Antitrust: The Bill expands the scope of the prohibition on anticompetitive agreements (the Chapter I prohibition) to agreements implemented outside of the UK, where these are likely to have an immediate, substantial and foreseeable effect on trade within the UK.

Market investigations: The Bill makes several changes to the procedural provisions for market studies/investigations. These include increased powers to review and amend decided “remedies” agreed or imposed at the end of previous investigations, and to fine companies that breach those remedies.  

Penalties and offences: More widely, the Bill empowers the CMA to impose fines (without going to a court) in new circumstances – where companies fail to comply with orders imposed or commitments given.  These fines are potentially very large – up to 5% of turnover for businesses and in some cases also applying to individuals.

The Bill empowers the CMA to disqualify directors for breaches of competition law without requiring a court order. Additionally, the Bill creates or expands criminal offences for destroying or falsifying information, giving false or misleading information, and obstructing an officer in the context of CMA investigations.

Consumer law and enforcement

The Bill also introduces various changes in the areas of consumer law and enforcement.

Enforcement reforms: The Bill strengthens the CMA’s enforcement powers in respect of consumer protection law infringements, in particular:

• Direct enforcement: the CMA will be able to directly enforce consumer protection laws and impose fines without first obtaining a court order if it has reasonable grounds to believe that a person has engaged, is engaging or is likely to engage in a breach of relevant (consumer protection) law.
• Monetary penalties: as well as requiring businesses to undertake to cease and not repeat the infringing practice, and take enhanced consumer measures, the CMA can directly impose a fine of a fixed amount which, in the case of a breach of relevant consumer law, can be up to £300,000 or, if higher, 10% of the global turnover of the relevant person (in line with the competition regime).
• Enforcement against online interfaces: the CMA’s new powers include directing online content to be removed or modified, disable or restrict access to an online interface and display a warning to consumers.

New consumer law requirements: The Bill will also introduce new rules in the following areas:

• Unfair commercial practices: new rules will replace existing regulations by changing certain details of a trader’s act or omission relating to the B2C promotion or supply of goods, services and digital content which amounts to prohibited commercial practices and introducing new commercial practices which are deemed unfair and prohibited.
• Subscription contracts: new regulations on recurring or continuing B2C contracts for the supply of goods, services and digital content which is offered for free but incurs payments later or the entry price increases after a period of time.
• Consumer savings schemes: new regulations on consumer savings schemes, which restrict the consumer from redeeming goods, services or digital content in exchange for the consumer’s payments into an account held by a trader, to protect those payments against the trader’s insolvency and for consumers to receive certain information relating to the schemes.
• Out-of-court resolution of consumer contract disputes (ADR): provisions on ADR providers and information requirements for a trader when dealing with a consumer complaint under a B2C contract for supply of goods, services and digital content.

Looking forward

The draft legislation introduces a wide range of reforms across digital markets, competition and consumer policy, and was welcomed by the CMA as a “legal framework fit for the digital age”.  Taken together, the reforms will significantly strengthen the CMA’s powers.

Please get in touch with us to discuss the impact that the UK’s new digital markets regime and competition and consumer reforms could have on your business, and how we can help you prepare for the changes.  

Authored by Mez Azizi, Angus Coulter, Christopher Hutton, Stelios Charitopoulos, Sophie Vriezen, and Michiko Jo.