Mishcon de Reya page structure
Site header
Main menu
Main content section
Abstract - consulation on AI

Legislative changes to promote competition in digital markets

Posted on 25 July 2023

On 25 April 2023, the Digital Markets, Competition and Consumers Bill (DMCC) was introduced into the UK House of Commons, bringing expanded and strengthened consumer protection laws and a new regulatory regime to promote competition in digital markets in the UK. We provided key insights into the consumer and competition law changes when the DMCC was introduced. In this article, we explain in more detail the changes and implications for competition law.

The DMCC is the product of extensive and long-running work by the UK Government and the Competition and Markets Authority (CMA), which is largely reflected in the CMA's Advice of the Digital Markets Taskforce published in December 2020 and the joint statement by the CMA and the Information Commissioner's Office of May 2021. These and other publications record the view that consumers would benefit from improved competition in digital markets but that these improvements would not necessarily come about through the application of conventional pro-competition approaches or interventions. Rather, the traditional competition law toolkit needs to be supplemented by a new and more flexible approach, designed with the dynamics of changing technology and digital markets in mind.

The CMA accordingly recommended that the Government establish a Digital Markets Unit (DMU) which would be the "centre of expertise for digital markets", intended to promote competition and innovation in digital markets and proactively prevent harm to consumers. To enable the DMU to achieve these goals, a new and tailored regulatory framework was required, together with enhancements to existing consumer protection and competition laws. The CMA recommended that certain firms be designated as having "strategic market status" (SMS) and become subject to:

  1. An enforceable code of conduct to set expectations and manage behaviour of SMS firms.
  2. Pro-competition interventions such as facilitating data access.
  3. Merger control rules to ensure greater opportunity for scrutiny of transactions involving SMS firms.

The DMCC seeks to bring these recommendations (and others) to fruition and to provide the CMA with new enforcement powers through the DMU (which will remain an administrative function, rather than become a separate enforcement body). Sarah Cardell, Chief Executive of the CMA, said that the Bill "has the potential to be a watershed moment" for protection of consumers in the UK and ensuring digital markets support economic growth and innovation in the UK.

Designation of SMS

The DMCC provides that firms may be designated as having SMS in respect of a digital activity following investigation if (1) the digital activity is linked to the UK, (2) the firm has substantial and entrenched market power, (3) the firm has a position of strategic significance, and (iv) the turnover condition is met.

In more detail:

  • A digital activity is "linked to the UK" if there is a significant number of UK users, the firm carries on business in the UK in relation to the relevant activity, or the activity or the way the firm carries on the activity is likely to have an immediate, foreseeable, and substantial effect on trade in the UK.
  • The meaning of "substantial and entrenched market power" is not defined in the DMCC but will likely be informed by existing approaches to assessing market power and will be based on a forward-looking assessment beyond 5 years.
  • A firm holds a position of "strategic significance" in respect of a digital activity if it has significant size or scale in respect of the activity, a significant number of other firms use the digital activity, the firm's position would allow it to extend its market power to a range of other activities, or the firm's position allows it to determine or substantially influence how other firms conduct themselves.
  • The "turnover condition" requires that a firm may only be designated SMS if the CMA estimates the total value of the firm's UK turnover (or the turnover of the group) in the relevant period exceeds £1 billion or if their global turnover exceeds £25 billion.

The "turnover condition" is the only clear threshold test for SMS designation, with the other requirements giving the CMA some flexibility in their determination. The CMA will need to publicly consult on any decision in respect of an SMS investigation. The designation period will run for 5 years from the date of notice of the designation decision, subject to extension or early revocation. Further guidance on how the CMA will interpret and apply the test is expected, and firms that meet the turnover condition, should assess whether they may currently or in future be considered to satisfy the remaining three conditions.

Conduct requirements may be imposed on SMS-designated firms

The CMA will be able to impose tailored conduct requirements on SMS-designated firms in relation to a relevant digital activity subject to the condition that the CMA must consider it appropriate to do so for the purposes of one or more of the following objectives:

  • Fair dealing: users (or potential users) are treated fairly and able to interact, directly or indirectly, with the undertaking on reasonable terms.
  • Open choices: users are able to choose freely and easily between services or digital content provided by the firm and services or digital content provided by others.
  • Trust and transparency: users have the information they require to enable them to understand the services or digital content provided by the firm, including the terms on which they are provided, and to make properly informed decisions about whether and how they interact with the relevant firm.

The DMCC contains a list of prescribed permitted conduct requirements that may meet one or more of these objectives, including the requirement to trade on fair and reasonable terms, to have effective complaints handling processes, and to provide clear, relevant, accurate and accessible information about the activity to users.

It is important to note that these obligations will not displace existing competition or consumer protection laws, rather they will create a bespoke set of behavioural expectations on each SMS-designated firm that will operate alongside and strengthen these existing laws. Once a conduct requirement is set, the CMA will be under a duty to monitor compliance and take enforcement action if faced with a suspected breach, as well as to assess the effectiveness of requirements and make amendments as needed.

Pro-competition interventions

The DMCC will empower the CMA to make pro-competition intervention (PCI) in relation to an SMS-designated firm where, following investigation, the CMA thinks that a factor or factors relating to a relevant digital activity is adversely affecting competition and a PCI would likely help remedy, mitigate, or prevent that effect. A PCI may be:

  • An order imposing requirements on the SMS-designated firm as to how it must conduct itself in relation to the relevant activity or otherwise. Such requirements could be behavioural or structural remedies like those we already see under the Enterprise Act 2022, including divestiture.
  • A recommendation to another public body about steps it could take in respect of the SMS-designated firm or the activity itself, or otherwise.
New reporting obligations in relation to merger activity

While the standard merger control regime in the UK remains voluntary, SMS-designated firms will be required to notify the CMA before completing a merger where:

  • The merger will result in the firm or a member of the firm's group increasing its percentage of shares or voting rights in a "UK-connected body corporate" (meaning that the target or joint venture being formed carries on activities in the UK or is intended to do so) from 15% or less to more than 15%, 25% or less to more than 25%, or from 50% or less to more than 50%; and
  • The value of consideration for that increase in equity share or voting rights is at least £25 million. 

Upon notification, the CMA will have five working days to determine whether the filing is sufficient – the transaction cannot complete during this period. Once the report is accepted, the CMA can then decide to review the transaction in accordance with the wider merger control regime under the Enterprise Act 2002.

Next steps

The DMCC completed its Committee stage in the House of Commons on 11 July 2023, where minor amendments were made. The Bill will be carried over to the next session of Parliament. 

However, we do not expect to see significant changes bearing in mind the intentions and principles that underpin the Bill. Once passed, the CMA will provide guidance on how it intends to interpret and apply the new rules and powers.

How can we help you?

How can we help you?

Subscribe: I'd like to keep in touch

If your enquiry is urgent please call +44 20 3321 7000

Crisis Hotline

I'm a client

I'm looking for advice

Something else