On 18 September 2023, following its initial review of artificial intelligence (AI) foundation models (FMs), the UK Competition and Markets Authority (CMA) published its eagerly awaited report (the "Report").1 The Report has been published within the wider context of the UK government's ambition to create a safe and pro-innovation framework for regulating AI, with AI and AI regulation being a priority for the UK government.2

Key takeaways include:

  • The FM landscape is nascent and emerging, and there is already a wide range of FMs available through varying levels of access.
  • A variety of different organisations are investing and developing FMs, with a diversity of business models, including both open and closed.
  • Regulation is not required at this stage; such regulation could make it unnecessarily difficult for competition and innovation to flourish.
  • The CMA will instead introduce flexible guiding principles (below) designed to help ensure that competition and consumer protection remains an effective driving force as the development and deployment of FMs evolves.
  • An update on the CMA's thinking, including how the principles have been received and adopted, will be published in early 2024.

Along with its initial review, the Report forms part of the CMA's proactive efforts to build its understanding and evidence base, so it is well positioned to play its part in supporting innovation in AI that benefits consumers, businesses and the UK. Given the CMA's mandate, the Report is focused solely on potential competition and consumer protection issues that FMs may give rise to, with the other important issues that the development of AI has raised (e.g. copyright and intellectual property, online safety, data protection, security and human rights) falling within the purview of other regulators.

In the Report the CMA takes a thoughtful and progressive approach, demonstrating that the CMA has engaged constructively with the AI industry (having spoken with other 70 interested stakeholders) and listened carefully to what these stakeholders had to say. The result is a thoughtful and relatively balanced Report. The ultimate conclusion reached by the CMA in the Report should also be welcomed, that is, that further regulation is not required at this stage, with the sector currently being better served via the introduction of a set of general principles designed to help ensure that competition and consumer protection remains an effective driving force as the development and deployment of FMs evolves. The potential flexibility that this principles-based approach permits, when combined with the CMA's commitment to continue the collaborative nature of its work to further refine these principles, represents a proportionate response to the current risks posed by the nascent and rapidly evolving AI sector. That being said, the Report also makes it very clear that the CMA will be continuing to monitor developments in the sector closely and will not shy away from seeking to investigate potential breaches of existing competition and consumer protection laws.

In high-level terms, the Report sets out the CMA's early views (and the supporting evidence it has collected underlying these views) on (i) how FMs are developed, the key inputs they require and how they are deployed today; (ii) the potential outcomes for competition in the development of FMs; (iii) the impact of FMs on competition in other markets and the potential outcomes for competition; (iv) the potential outcomes for consumers; and (v) the potential role for regulation in enabling positive developments and outcomes.

Most crucially, in relation to the potential outcomes for competition in the development of FMs and the impact of FMs on competition in other markets, the CMA has observed:

  • A positive market outcome for people, businesses and the wider economy will arise if the sector develops in a way that results in the continued existence of multiple FM developers competing to produce leading FM models, with innovative firms able to access the inputs (including financing, compute and data) they need to enable them to enter and compete effectively in the sector. This positive market outcome will also likely require the continued existence of a certain number of open-source models. In contrast, the CMA has flagged that concerns may arise if access to inputs were to be restricted so only a handful of firms can create leading FMs and resultantly develop positions of strength which could give them the ability and incentive to limit access to FMs (e.g. by providing models on a closed-source basis only) and impose unfair terms and prices for access.
  • There are currently a number of existing uncertainties regarding the future development of FMs, including the importance of proprietary data for training FMs, the need for larger models and cutting-edge performance, the challenges facing open-source FM models and the advantages that large technology companies may have due to their access to vast amounts of funding, data, technical expertise and resources. These uncertainties are likely to form a key area of focus for the CMA as it continues to build its understanding of the sector given their potential ability to make it harder for some firms to compete effectively.
  • That competition in other markets (i.e. those applying FMs to improve existing products and services or to create new ones) could be negatively impacted if the downstream use of FMs were to be made more difficult via a lack of competition or difficulty in switching between FMs, being locked into ecosystems that only offer a limited range of FM deployment options or FM products/services, and/or the existence of other measures imposed by FM developers who acquire market power or have entrenched market power in adjacent or downstream markets that are aimed at restricting competition (e.g. measures related to self-preferencing, tying and/or bundling). This will be particularly so if, as is expected, FMs and FM-enabled features become an important input into different downstream FM services.
  • To ensure that FMs achieve their potential to transform a wide range of services and be the catalyst for significant innovation and competitive disruption in markets, it is important to ensure not only that competitive conditions are maintained in the upstream development of FMs but also that certain developments/factors do not have a negative impact at the downstream level. These factors include significant data feedback effects that may tip the downstream market towards concentration, consumers' inability to meaningfully choose between FM services or switch away from downstream ecosystems and vertical integration and partnerships that harm competition or restrict businesses' choices. As with the uncertainties referenced above, the CMA is likely to focus closely on how these factors develop as it continues to build its understanding of the sector.

As regards its consideration of potential consumer protection issues, the CMA notes in the Report that new uses of AI have the potential to enhance consumers' experience of products and services. However, in order for this to be the case, consumers need to be sufficiently protected from the harms and risks that may result from the use of FM tools and also have confidence when using a range of AI enabled products and services. As such, it is important that consumers are fully informed of the relevant risks and limitations and that FM developers continue to devote resources to developing models that are at the cutting-edge of both reliability and accuracy (e.g. by continuing to develop technical measure that seek to mitigate hallucinations and help people distinguish between AI-generated and human generated content).

In terms of potential regulation in the sector, the CMA has observed that, while there will be an important role for regulation as FMs and FM application develop further, any such regulation must be tailored and appropriate. Crucially, and in what we think is an appropriate response in such a nascent market, the CMA has observed that overly burdensome regulation could make it unnecessarily difficult for competition and innovation to flourish. This may lead to concentration and become a significant barrier to entry in its own right. As such, the CMA has concluded that, at this stage, there may be benefit in leaving the sector to develop organically. However, the CMA does note that if it sees consumer protection or competition issues emerge it will not hesitate to use its existing powers to address these (which could include the launch of a more formal market study). In this respect it is worth noting that the CMA's powers will be enhanced by the Digital Markets, Competition and Consumers Bill that is currently making its way through Parliament, including by allowing the CMA to set targeted conduct requirements on firms found to have strategic market status in respect of a particular covered digital activity.

Guiding Principles

While the CMA has not recommended the introduction of regulation at this stage, so as to ensure that competition and consumer protection remains an effective driving force as the development and deployment of FMs evolve, the Report concludes with the CMA proposing the following "guiding principles":

  • Accountability - This is an overarching principle that requires FM developers and deployers to be accountable for outputs provided to consumers.
  • Access - This principle seeks to promote ongoing ready access to key inputs (such as data, compute, expertise and capital) without undue restriction, alongside continuing and effective competition in FM development to ensure new entrants can challenge early movers and avoid successful FM developers benefiting from any disproportionate benefits flowing from "first mover advantage" or an entrenched market position. This principle also seeks to limit "powerful partnerships" that may restrict competition from other developers.
  • Diversity - The CMA recognizes that open-source models help reduce barriers to entry and expansion in the sector and so this principle seeks to encourage the sustained diversity of business models, including both open and closed-source models.
  • Choice - This principle is focused on ensuring that a variety of deployment options exist for businesses (e.g. plug-ins, application programming interfaces (APIs), in-house development and partnerships) so that they have sufficient choice to enable them to decide how to use FMs.
  • Flexibility - This principle seeks to protect the flexibility to switch or use multiple FMs according to needs. Therefore, it is focused on enabling interoperability and preventing consumers becoming locked into one provider or ecosystem (e.g. by ensuring that they can switch/use multiple FM services without undue difficulty).
  • Fair Dealing - The focus of this principle is on seeking to prevent FM developers and deployers from engaging in anti-competitive conduct (e.g. anti-competitive self-preferencing, tying or bundling) so as to ensure that the best FM products/services will win out.
  • Transparency - This principle is aimed at ensuring that consumers and businesses are given sufficient information about the risks and limitations of FM-generated content so they can make informed choices.

While little further guidance is provided in the Report as to the scope of the above principles, the CMA does helpfully set out factors that could undermine these principles, including (i) mergers and acquisitions which could lead to a substantial lessening of competition in the development or deployment of FMs; (ii) if firms use their leading positions in key markets to block innovative challengers who develop and use FMs (e.g. by the misuse of vertical integration); (iii) undue restrictions on firms' ability to switch between or use multiple FM providers; (iv) the development of ecosystems that unduly restrict choice and interoperability; (v) if firms with market power in FM development or deployment engage in anti-competitive conduct such as the tying or bundling of products and services; and (vi) if consumers receive false and misleading content from FM services that impacts or is likely to impact their decision-making.

Importantly, the Report should not be viewed as being the end of the CMA's focus on the sector, with the CMA noting that it does not see the above principles as the finished article and plans to seek views both on the Report overall and on the principles themselves. To this end, the CMA is now starting a significant programme of engagement with stakeholders in the UK, the US and other jurisdictions (including market participants, academics, the UK government and fellow regulators both in the UK and abroad). The CMA is aiming to publish an update on its thinking on the principles, and how they have been received and adopted, in early 2024, also reflecting on further developments in the market.

Akin's antitrust & competition lawyers would be delighted to assist with any submissions you may consider to the CMA or in any engagement following CMA outreach, or indeed in any other AI-related regulatory activity or advice, including in relation to the European Union (EU) AI Act, EU Digital Markets Act (DMA) and the UK Digital Markets, Competition and Consumers Bill (DMCC).


1. The CMA launched its initial review on 4 May 2023. See our previous alert here for further details.

2. For example, in March 2023, the UK government published a white paper outlining its proposals for a new regulatory framework for AI (the “White Paper”). As noted in our previous alert (here), the White Paper outlines a common-sense approach aiming at fostering innovation without compromising safety or privacy. The UK is also due to host the first global summit on AI safety in Autumn this year (see).

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.