As the Digital Markets, Competition and Consumers Bill progresses through Parliament, we take a look at the proposed changes to digital markets and the implications for businesses of 'Strategic Market Status', including new enforcement powers and penalties
The Digital Markets, Competition and Consumers Bill (DMCC Bill) completed its Committee stage in the House of Commons in July, with minor amendments, and now awaits Report. A Carry-over Motion has been agreed so that the Bill will resume in the next session of Parliament in September.
In this article we take a closer look at the proposed implications for digital markets in the DMCC Bill. Consumer law changes are considered separately and can be found here.
The DMCC Bill is long-awaited. A March 2019 report of looking at competition in the digital economy recommended that a pro-competition Digital Markets Unit be established to focus on digital platforms and address specific issues arising in those markets. In the Spring Budget of 202 the proposal was accepted and a cross-regulatory taskforce was established to report on a pro-competitive regime for digital platform markets. The CMA published this report and its recommendations were accepted by government in November 2020. Following further consultation the government confirmed its policy in May 2022 including the proposed establishment of the Digital Markets Unit and a new regime for firms having Strategic Market Status (SMS).
Before looking at what regulatory changes the Bill proposes, businesses should also be aware that this new framework takes a similar approach to the EU's Digital Markets Act (DMA) by targeting large digital companies with dominant market positions, which means that many digital international firms may not necessarily face completely new compliance requirements. For example, in the UK, the Competition and Markets Authority (CMA) will conduct a formal evaluation process to identify companies with Strategic Market Status whereas with the DMA, the European Commission is responsible for a similar designation. It is particularly important to note however, that the tests and approach used to make such determinations will differ between the UK and the EU. Therefore, while there will be some overlap between the UK and EU regimes, it is possible that the companies subject to regulation in each jurisdiction may differ and business should be aware of these differences.
The DMCC Bill confers new obligations and powers to the CMA, including:
- Strategic Market Status: The CMA may designate an undertaking as having SMS status where (i) its activity is linked to the UK and meets conditions of having substantial and entrenched market power, and a position of strategic significance; and (ii) it has a turnover exceeding £1billion in the UK or £25billion globally.
- Conduct Requirements – The CMA may impose conduct requirements on an undertaking in order to promote the purposes of fair dealing, open choice, trust and transparency. Requirements may oblige an entity to trade on fair terms, provide information, give notice in respect of changes, provide options and information as to default settings, and have effective complaints processes. Requirements may also be given in order to try to prevent discriminatory terms or policies, unfair favourable treatment of own products, bolstering its own market power, or using data unfairly.
- Power to Make Pro-Competition Interventions: The CMA may make an order imposing an undertaking on a business to address an adverse effect on competition.
- Mergers: the DMCC Bill also proposes an additional merger control threshold, which will allow the CMA to review mergers where either party has at least a 33% share of supply or purchases of goods/services in the UK, that party has more than £350m of turnover in the UK, and a UK nexus test is met with respect to the other party. All SMS firms and their groups will be required to report to the CMA all acquisitions worth at least £25m.
Investigatory and Enforcement Powers
The Bill also provides significant powers to the CMA to investigate and take enforcement action. Amongst other powers, the CMA may require information and obtain access to premises, equipment and information, and also interview any specified person. The Bill also sets out rights for the CMA to assist an overseas regulatory body in respect of actions similar to those under the Bill, to exchange information with that foreign regulator, and to publish a notice of its decision to provide assistance.
As proposed, the DMCC Bill provides significant enforcement powers, including:
- Penalties – the CMA may impose penalties in respect of failure to comply with competition requirements or investigative requirements. Penalties may be up to 10% of worldwide turnover (and for breaches of orders or commitments, up to 5% of daily worldwide turnover for each day of continuing breach).
- Criminal Offences – a number of actions are identified as criminal offences, which may be pursued against officers of a company within the UK. Destroying or concealing information, providing false or misleading information, or obstructing and investigation are all criminal offences. Those convicted are liable to a fine, up to 2 years' imprisonment, or both.
- Director Disqualification – changes to the Company Directors Disqualification Act 1986 enable disqualification of a Director for up to 15 years for involvement in infringement of a requirement relating to conduct or pro-competition interventions.
In conclusion, businesses that will fall within the scope of the SMS designation in the UK are likely already aware of their potential status due to the existing EU DMA as these undertakings tend to be very large and international tech firms. Nevertheless, it's essential that all businesses remain vigilant and monitor the Bill's progress (as well as any potential divergence between the Bill and the DMA) to ensure that they continue to comply with their regulatory obligations in the UK.
Staying informed and up-to-date with the latest regulatory developments will be crucial for businesses to thrive in the evolving digital landscape and to avoid becoming the victims of the newly created enforcement powers given to the CMA.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.