Reforms to UK Competition and Consumer Law introduced in the Digital Markets, Competition and Consumer Bill

On 25 April 2023, the much anticipated UK Digital Markets, Competition and Consumer Bill (“Bill”) was introduced in Parliament.

The headline-grabbing change in the Bill is a wide-ranging new competition regime for digital markets which will put the Competition and Markets Authority (“CMA”) at the heart of the UK Government’s policy to regulate large digital platforms. This is a step-change in the UK regulatory landscape which provides for a proactive and interventionist regulatory regime – similar to the regulation of financial institutions and utilities – for some of the major Big Tech companies.

The Bill proposes substantial reforms to UK competition law more generally which impact all sectors, not just digital markets. The CMA’s enforcement powers to intervene in anti-competitive conduct are expanded and reforms proposed to the UK’s merger control regime introduce new ways in which the CMA can intervene in M&A deals. Importantly, the Bill provides the CMA with an explicit ability to intervene in conduct which takes place outside of the UK, and to review M&A deals which have a very limited impact on the UK economy. Finally, the CMA has a whole new suite of tools to enforce consumer law including the ability to impose fines of up to 10% of global turnover on companies that break the law. This means that the Bill substantially strengthens the role and powers of the CMA for the future.

The timing of the adoption of the Bill will largely depend on Parliamentary time. However, according to an official from the Digital Markets Unit (“DMU”), the Bill may not receive Royal Assent until Spring 2024.

Comment

What is clear from the Bill is that the CMA will be at the heart of the UK Government’s plans to regulate the digital economy. The CMA’s new powers are sweeping and the CMA has been given a big stick to enforce these new powers. Not only will it be able to determine which companies are regulated, it will also be able to set expectations as to how regulated digital companies conduct themselves and will have broad powers of investigation.

The new digital markets regime proposed in the Bill bears many of the hallmarks of the Financial Conduct Authority's (“FCA”) supervisory regime for financial institutions. Like the FCA, the CMA will be a proactive regulator setting conduct standards for regulated companies, monitoring behaviours and it will have substantial enforcement powers to ensure compliance with these. Similarly, the Bill also puts in place a Senior Manager regime whereby a Senior Manager within a regulated company can be required to take responsibility for compliance with the Bill. This borrows from the approach taken in the financial services sector. This is a fundamental change in role for the CMA and its new DMU, and a substantial change in the way in which digital platforms are regulated in the UK.

The Bill also seeks to extend the CMA’s powers to carry out investigations and antitrust enforcement bringing in extra-territorial scope to the prohibition on anti-competitive agreements and in relation to its information gathering powers. The Bill gives the CMA express powers to issue information requests to businesses outside the UK. These are powers the CMA requires post-Brexit when it can no longer call on the competition authorities of EU Member States to gather information for it. Some form of cooperation with national authorities in other states to assist the CMA will also be required. It remains, however, to be seen how the CMA will enforce these new powers outside the UK.

The extension of the CMA’s investigatory powers under the Bill will put businesses under onerous obligations, for example, requiring businesses to preserve data in circumstances where they are expected to know or suspect that an investigation into them is coming. The proposals will also extend the CMA’s powers to search for, and seize data, and to carry out interviews of any individual, whether or not present of former employees, including those who are not connected to the business under investigation, as well as to current employees. The need to comply with investigations will become ever more important as the penalties for failure to comply, for example with information requirements, will result in potentially very substantial fines of up to 1% of annual global turnover or 5% of daily global turnover which can be imposed on businesses both in and outside the UK.

From a merger control perspective, the key change is the introduction a new acquirer-focused jurisdictional threshold, which will explicitly allow the CMA to look at deals even if the parties involved are not competitors but are active in upstream/downstream or related markets, which is a step-change from the current regime. A feature of the CMA’s merger control function in recent years is that they have been intervening in transactions with a relatively limited UK nexus. Arguably the new rules bolster this ability (which aligns with the comments about extra-territorial scope above). In the context of these changes, we can expect the CMA to continue their focus on digital markets, where they have recently prohibited a number of global deals.

Proposals in the Bill for the CMA’s market inquiries provide some pragmatic and welcomed changes, but overall raise serious concerns that a desire to run market investigations more flexibly and expeditiously, for example, by introducing voluntary commitments at any stage during the process, risks moving away from an important, thorough and extensive evidence based approach during which the CMA ought to consider fully all potential competition issues across a market.

The UK’s consumer protection law framework is one of the most robust in the world, but redress is currently largely only available to consumers via the courts. The CMA’s new power to impose penalties of up to 10% of global turnover for businesses breaching consumer law marks a significant step forward in the UK in strengthening consumer confidence across all markets. With the CMA’s new “teeth” businesses will have to take consumer law compliance much more seriously just like they have done with regard to UK competition law compliance and compliance with privacy laws which have adopted sizeable UK financial penalties for many years.

Content of the Bill

The Bill expands on the proposals in the Government’s responses to its consultations “Reforming competition and consumer policy” and “A new pro-competition regime for digital markets” published in Spring 2022. In this briefing we provide an overview of the key provisions in the Bill.

New competition law regime for digital markets

The Bill introduces the long-awaited regulation which aims to create a new pro-competition regime for digital markets. The new regime is targeted at a small number of firms who undertake significant digital activity in the United Kingdom.

SMS firms

The regime will be enforced by the DMU, an administrative unit of the CMA, which has been operating in shadow form for over two years. The DMU will designate firms having “strategic market status” (“SMS”) in respect of a digital activity if they meet the following conditions:

The digital activity is linked to the UK e.g. provision of a search engine service, with some operations physically located elsewhere, could be linked to the UK if the activity has a significant number of UK users.
The firm has “substantial and entrenched market power” in respect of a digital activity. The DMU will be required to carry out a forward-looking assessment of a period of at least 5 years to determine if this test is met.
The firm has a “position of strategic significance”. This test will be met if the firm meets one or more of four conditions: position of significant size or scale; a significant number of other firms use the activity; the firm’s position would allow it to extend its market power to a range of other activities; and the firm’s position allows it to determine/substantially influence the ways in which other firms conduct themselves, digitally or otherwise.
The CMA estimates that the firm’s total global turnover in the relevant period exceeds £25 billion or the total value of its UK turnover in relevant period exceeds £1 billion.

Conduct requirements

Firms with SMS (“SMS firms”) will be subject to bespoke conduct requirements setting out how they must behave in relation to the relevant digital activity. The CMA may only impose a conduct requirement if it considers that it would be appropriate to do so to prevent SMS firms from:

treating users unfairly and interacting with them on unreasonable terms (“fair dealing”);

limiting choices available to users (“open choices”); and

restricting information needed to make informed choices (“trust and transparency”).

The Bill provides examples of the permitted types of conduct requirements including, for example, to:

trade on fair and reasonable terms;

have effective processes for handling complaints by and disputes with users or potential users;

provide clear, relevant, accurate and accessible information about the relevant digital activity to users or potential users; and

not to apply discriminatory terms, conditions or policies to certain users or potential users or certain descriptions of users or potential users.

Pro-competition interventions

The CMA will also have the power to undertake pro-competition interventions (“PCI”) in relation to a SMS firm where, following a PCI investigation, the CMA considers that:

a factor or combination of factors relating to a relevant digital activity is having an adverse effect on competition, and

making the PCI would be likely to contribute to, or otherwise be of use for the purpose of, remedying, mitigating or preventing the adverse effect on competition.

A PCI may take the form of a pro-competition order requiring a SMS firm to comply with certain structural and/or behavioural remedies. For example, requiring the SMS firm to allow greater interoperability or data access in relation to the digital activity.

Mergers

SMS firms will be required to report all of their M&A deals above a certain threshold to the CMA. After studying and accepting a report, the CMA may choose to open an investigation using its existing merger powers.

Enforcement and appeals

The CMA intends to seek to resolve any concerns relating to the digital markets regime through informal and cooperative engagement with the relevant SMS firms. The CMA will, however, have robust powers to address non-compliance when firms do not comply with the relevant requirements including the ability to:

carry out a conduct investigation if the CMA considers that a SMS firm is not complying with any of its conduct requirements;

accept commitments from a SMS firm to address any potential conduct issues;

issue fines of up to 10% of global turnover and disqualify directors;

make senior managers responsible for ensuring that the SMS firm complies with information requests; and

enforce conduct requirements through a “final offer mechanism”, which is designed as a backstop measure to resolve breaches relating to complex payment terms.

CMA decisions adopted under the digital markets regime can be appealed to the Competition and Appeal Tribunal (“CAT”) on a judicial review basis to challenge the legality of the decision.

Proposed changes to competition and consumer law

The Bill amends various provisions in the Competition Act 1998 (“CA98”) and the Enterprise Act 2002. The tables below summarise the main changes to competition and consumer law, which are contained in the Bill, and their potential impact.

Competition law

Policy Objective	Provision in the Bill	Impact
Ability to enforce against anti-competitive conduct which takes place outside of the UK but which impacts the UK economy	The Bill removes the requirement in the Chapter 1 prohibition CA98 for an agreement to be implemented in the UK.	This expands the territorial scope of the CMA’s power to investigate anti-competitive agreements post-Brexit and achieves a key policy goal for the CMA to investigate agreements implemented overseas.
Stronger evidence-gathering powers for the CMA to investigate anti-competitive conduct	The Bill introduces a new duty to preserve documents “where a person knows or suspects” that an investigation by the CMA “is being or is likely to be carried out”. This covers falsifying, concealing, destroying and/or disposing of documents. This duty would arise, for example, where a business receives a case initiation letter from the CMA or is tipped off that a whistleblower has approached the CMA. The Bill expands the powers of the court or CAT to grant a warrant to the CMA where there are reasonable grounds for suspecting that there are documents relevant to an investigation which are accessible from the premises and not just on the premises. It also extends the CMA’s powers to obtain information stored remotely when executing a warrant to apply to any information stored electronically and accessible from the premises. The Bill enables the CMA to use its “seize and sift” powers when it inspects domestic premises under a warrant. The Bill broadens the CMA’s power to interview witnesses by extending it to cover any individual including those not connected with the business.	This imposes an onerous obligation on business even if no investigation has actually started. As worded, this would require putting in place a litigation hold on all potentially relevant documents without knowing what exactly the investigation may cover. This duty would apply in respect of both individuals and their employers meaning that an individual could also be fined for breaching the preservation duty. This brings into the reach of the CMA documents held abroad if they are accessible from the UK. If employees are holding relevant documents/data held at home, the CMA will be able to conduct “black bin liner” type searches on home premises. This enables the CMA to ask questions to any individual who it thinks could provide any relevant information including ex-employees who could be interviewed without the knowledge of the company.
CAT powers to grant declaratory relief and exemplary damages	The Bill enables the CAT to grant declaratory relief in individual or collective claims made based on actual or alleged antitrust infringements. The Bill gives the CAT and courts the discretion to award exemplary damages, but not in relation to collective proceedings. This also provides that an immunity recipient can be liable to pay exemplary damages to its direct or indirect customers or suppliers, but that an immunity recipient cannot be held liable for exemplary damages that the claimant is unable to obtain from other parties involved in the cartel infringement.	This expands the types of claim which can be made in proceedings before the CAT. A declaration made by the CAT will have the same effect as those granted by the High Court and claims for declaratory relief may be sought in addition to, or instead of, claims in respect of loss or damages.
Reform of UK merger control thresholds and the introduction of a new threshold to cover “killer acquisitions”	The Bill: increases the UK merger control turnover threshold from £70m to £100m; introduces a “small merger safe harbour test” requiring the UK turnover of the target or any other enterprise concerned to exceed £10m for there to be a relevant merger situation; and introduces a new acquirer-focused threshold to catch “killer acquisitions” and other deals not involving direct competitors being. This requires at least one merging party to have: an existing share of supply of at least 33% in the UK; UK turnover of at least £350m; and another party is a UK business/body, at least part of its activities are carried on in the UK, or it supplies goods or services in the UK.	The increased turnover threshold and the small merger safe harbour are welcomed. However, in practice, these changes are unlikely to impact many deals. The major change is the new acquirer-focused threshold. It explicitly allows the CMA to look at deals even if the parties involved are not competitors and it may have far-reaching consequences, as it will allow the CMA to investigate acquisitions by large companies of target businesses which are not competitors (i.e. which are active in upstream/downstream or related markets) and which may have a limited link to the UK.
New statutory ‘fast track’ merger process	The Bill enables the CMA to fast track a merger to an in-depth Phase 2 investigation if it receives a request from the parties involved in a merger to do so. The CMA must inform the relevant parties whether it will make a fast-track reference within the “initial period” which is the statutory period of 40 working days within which the CMA must complete the Phase 1 investigation. The CMA must publish a fast-track reference decision.	Businesses will welcome this change to put the fast-track process on a statutory footing with the result that this process could be utilised more regularly on deals. The proposed power to give commitments to short-cut an in-depth phase 2 investigation, which can be onerous, will provide welcomed flexibility to the CMA’s merger regime.
Measures to make the markets inquiries process more streamlined, flexible and efficient	The Bill will enable the CMA to: focus market investigation references on key issues; accept binding commitments/undertakings at any stage of the market inquiries process; conduct trials of remedies before settling a final remedy package; and amend past remedies if the CMA considers that they are not having the intended effect. The Bill removes the requirement for the CMA to consult on a market investigation reference within the first 6 months of a market study or publish a notice of its decision not to make a reference.	The ability of the CMA to trial remedies and amend past remedies are welcomed. However, the proposal that market investigations could focus on “key issues” rather than looking at a market as a whole assumes that the issues are clear at the outset whereas that is often not the case. The purpose of a market investigation is to consider why a market is not working well which requires full input from business on what the key issues are. The removal of the obligation to make a decision on a market reference within 6 months is not in business’ best interest and means that the outcome of a market study could hang over business for 12 months before any reference is made which arguably goes against the new statutory objective for the CMA to act quickly.
New civil penalties for failure to comply with an investigative measure	The Bill introduces new powers for the CMA to issue civil penalties where previously only criminal offences existed, for failure to comply with investigative measures and information requirements in relation to the CMA’s antitrust, mergers and market inquiries investigations. For businesses, the CMA can impose a fine of up to 1% of the business’ annual global turnover or up to 5% of its daily global turnover; and For an individual, the CMA can impose a fine of up to £30,000 or up to £15,000 per day.	This enables the CMA to issue penalties more easily on both businesses and individuals, and the level of fines it can impose have increased exponentially. Non-compliance with, in particular, information requests, could be very serious and is particularly concerning for businesses located outside the UK where they may be served with an information request by email either to a UK subsidiary or on non-UK headquarters.
New statutory duty requiring the CMA and the concurrent regulators to act expeditiously when carrying out their competition and, in relation to the CMA, its consumer law and digital markets functions	The Bill requires the CMA and sectoral regulators to make decisions or take action “as soon as reasonably practicable” when exercising their relevant competition, consumer and digital market functions.	Businesses will welcome quicker decision-making. However, it is not clear what the legal test “as soon as reasonably practicable” means in practice. The question is what additional burden this duty will place on businesses subject to an investigation by the CMA and sectoral regulators.

Consumer law

Policy Objective

Provision in the Bill

Impact

Protecting UK consumers against unfair and misleading subscription arrangements

The Bill provides consumers with significant new rights in relation to subscription contracts and replaces the two main parts of the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013. These:

ensure pre-contract information is given to consumers that are entering into subscription contracts so that consumers understand the contract they are entering into;
introduce a requirement to specifically remind consumers at least 3 working days (before the last cancellation date) before the subscription auto-renews or rolls over onto a new term;
create an obligation on traders to notify consumers when a low-cost introductory offer (rate higher than the original rate) or free trial is coming to an end on their subscription;
introduce a requirement on traders to ensure their contracts can be exited in a straightforward, cost effective and timely way by their consumers; and
introduce a right to cancel during cooling-off periods.

Businesses who provide subscription services to consumers will need to carefully review their sales processes, their terms and conditions and their after sales process. Even those businesses which currently adopt best practice in this area are likely to need to make changes to comply with the new prescriptive requirements in areas such as pre-contract information, consumer reminders and the ability for a consumer to exit a subscription arrangement.

Enhancing the enforcement powers and redress available to the CMA

The Bill gives the CMA the power to:

fine businesses up to 10% of their global annual turnover for breaches of consumer law;
impose penalties of up to 5% of a business’ global annual turnover for non-compliance with undertakings given to the CMA (with an additional daily penalty non-compliance continues); and
impose penalties of up to 1% of a business’ global annual turnover for non-compliance with a statutory information request, or where the business has provided false or misleading information in response to an information request, or has concealed, destroyed, or falsified information or documents (with an additional daily penalty while non-compliance continues).

These new powers will be of concern to business as penalties for breaches of consumer laws, non-compliance with statutory information requests and non-compliance with undertakings are introduced for the first time. We envisage that businesses will consider carrying out consumer law compliance audits and will act with great care when approached by the CMA in connection with the exercise of its consumer law powers.

Next steps

The Bill will need to pass through Parliament and receive Royal Assent before it becomes law. This means that the Bill will be subject to scrutiny and debate by both the House of Commons and the House of Lords. The Government has not yet announced when the second reading of the Bill in the House of Commons will take place, but it is expected to be within the next few weeks.

The overall timeframe for the Bill to complete its passage through Parliament will depend on the availability of Parliamentary time and whether either House of Parliament makes significant amendments to the Bill. It will be interesting to see to what extent the provisions in the Bill change as the Bill progresses through Parliament. According to an official from the DMU, this process could take until Spring 2024. As the current Parliamentary session ends in October 2023, if the Bill has not completed its passage through Parliament by that time, it may need to be carried over into the next Parliamentary session. Even once the Bill receives Royal Assent, we expect that it will take a number of months before the new digital regime becomes operational.

For further information or if you would like to discuss the proposed changes and implications for you, please contact:

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