New draft law changes the game for consumer law enforcement and digital markets regulation: digital markets

In this article, Scott Rodger, Senior Solicitor in our Regulation and Markets team, summaries the key changes in the long-awaited Digital Markets, Competition and Consumers Bill (Bill). In this second update, we focus on digital markets. You can check out our other updates on consumer and competition on our website.

2 May 2023

The long-awaited Digital Markets, Competition and Consumers Bill (Bill) has now been laid before Parliament. This new legislation, when enacted, represents the most significant reform of competition and consumer protection law in the UK in recent years. It will implement policy proposals which have been in the making for several years. The changes to the law will impact a wide range of businesses.

The Bill principally covers three areas: reform of consumer protection law; new tools to regulate digital markets; and wider reforms of competition law and merger control.

The Bill is extensive, consisting of nearly 400 pages. Accompanying Explanatory Notes come in at almost 230 pages.

See our other updates on consumer protection and competition on our website.

Digital markets

The Bill formally introduces a new regulatory framework for the regulation of digital markets. This will be overseen by the Digital Markets Unit (DMU), a division of the CMA, which has been operating in ‘shadow’ form within the CMA since early 2021, in anticipation of assuming its new role which will be formally introduced through this new legislation. Roughly 70 people are now working in the DMU.

Principally, the Bill allows the CMA to designate certain businesses which carry out ‘digital activities’ as having Strategic Market Status (SMS). A regulatory regime would then apply to firms designated with SMS. The CMA would be responsible for assessing whether a firm should be designated as having SMS, by carrying out an investigation and applying the tests set out in the Bill (the ‘SMS Conditions’). To be designated a SMS, the firm must have:

  • Substantial and entrenched market power (defined in section 5 of the Bill); and
  • A position of strategic significance (defined in section 6 of the Bill).

This must be a ‘forward looking’ assessment, looking into a minimum five-year time horizon. There is also a turnover threshold for SMS designation – global annual turnover must exceed £25bn, or UK annual turnover of £1bn.

The SMS designated firm would be subject to an enforceable code of conduct, with an ability for the CMA to conduct investigations and impose enforcement orders for breaching the conduct requirements. There is an extensive set of procedural requirements and steps set out in the Bill in relation to such investigation and enforcement.

The Bill sets out the types of conduct requirements the CMA can impose. These requirements have been framed in a highly principles-based manner – and so appear extremely broad, but in some cases are of a nature of how you would expect such businesses to operate in the first place: For instance, requirements to trade on fair and reasonable terms, or to have effective processes for handling complaints. The key element is the enforceability of these ‘principles-based’ requirements, something which we have previously seen in other regulated sectors such as energy retail, where principles-based ‘treating customers fairly’ codes of conduct have been in place for some time.

In addition to conduct requirements, the CMA will have new powers to make a ‘pro-competition intervention’ (PCI) on SMS designated businesses, where there is an identified adverse effect on competition and where a PCI would help mitigate or remedy that effect. A PCI can take the form of ‘pro-competition orders’, or recommendations made by the CMA to other public authorities around the regulation of an SMS designated business. Pro-competition orders may include provisions similar to orders the CMA can make following a market investigation reference under its Enterprise Act 2002 powers (which can include a range of conduct or structural interventions, such as requirements to divest all or part of a business – See the relevant section of the Enterprise Act).

In relation to mergers and transaction activities for SMS designated businesses, the Bill sets out a number of reporting requirements for certain transactions (i.e. an enhanced merger control process for SMS designated businesses). This is principally designed to address ‘killer acquisitions’ of smaller firms by such businesses, which can often fly under the radar of regulators under normal merger control procedures.

The Bill also provides for a range of enhanced enforcement tools for the CMA, including extensive information gathering powers, the ability to enter premises without a warrant, and a requirement on SMS designated businesses to nominate designated compliance officers and prepare periodic compliance reports.

In summary, the Bill sets out a potentially tough new regulatory framework for SMS designated businesses, which carry out digital activities, but falling somewhat short of full-blown networks style economic regulation of designated businesses (such as in energy or water networks).

Next steps

As the Bill has just been laid in Parliament, it will now need to go through the Parliamentary process. This could result in amendments to its provisions as it makes its way through the House of Commons and House of Lords, before the final version completes the legislative process and receives Royal Assent.


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