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UK Government gives green light for new regulatory regime for digital markets

  • United Kingdom
  • Competition, EU and Trade

02-12-2020

Following the publication of a market study report on online platforms and digital advertising by the Competition and Market Authority (the “CMA”), on 27 November 2020 the UK Government published its response in which it accepted the CMA’s findings and agreed to adopt a new pro-competition regime to tackle the market power of tech giants. The proposed new regime could give the CMA new powers to suspend, block and reverse the decisions of big tech companies, intervene in digital markets and order companies to take steps to comply with a new code of conduct.

Background

On 1 July 2020 the CMA published the final report of its market study into online platforms and digital advertising (“Report”). For an overview of the CMA’s report and findings, please see our earlier briefing here.

The Report followed a year-long market study in which the CMA assessed how well the markets for search, social media, and digital advertising are working. In its Report, the CMA acknowledged the value of the services provided by platforms funded by digital advertising.  However, it also raised concerns that a small number of companies hold an “unassailable market position”, which may prevent rivals from competing with them on equal terms. The CMA identified a number of potential barriers to competition, alongside broader social concerns such as a potential negative impact on newspapers and other publishers.

The CMA concluded that its existing powers are insufficient to address the “wide ranging and self-reinforcing” barriers to competition that it had identified in its study, and recommended a new pro-competition regulatory regime for online platforms.

Government Response

In its response to the CMA’s findings, the Government noted that digital platforms play an increasingly important role in the everyday lives of consumers, and acknowledged the importance of ensuring that these markets are dynamic and competitive.

The Government accepted the CMA’s findings and agreed to implement each of the four recommendations set out in the Report. These include:

The introduction of an enforceable code of conduct

The code will govern the behaviour of platforms funded by digital advertising and will apply to all companies which are designated as having Strategic Market Status (“SMS”).

The introduction of a Digital Markets Unit

This new body will sit within the CMA and be responsible for the SMS designation; introducing, maintaining and enforcing the code of conduct.

New powers for the Digital Markets Unit to enforce the code

The Digital Markets Unit is expected to be given powers to enforce the code of conduct on a “timely basis”, including powers to suspend, block and reverse decisions of SMS firms, require SMS firms to change their conduct to comply with the code and apply financial penalties.

New pro-competitive interventions

The Digital Markets Unit is expected to be given additional powers to intervene in the market, including the power to mandate access to data, enforce greater interoperability and impose separation remedies.

The Government has stated that the new regime will provide firms with “clear expectations” as to what represents acceptable behaviour when interacting with customers, users and competitors, with the stated intention being to “enhance choice and control for consumers across online platform markets.” Noting the fast-paced nature of digital markets, the Government has further stated that the new regime will allow the CMA to either pre-empt or take “swift action” to address practices that cause harm within the market.

Next Steps

In its response, the Government acknowledged the need for “urgent action” and stated that it intends to legislate “as soon as parliamentary time allows.” The Digital Markets Taskforce, which was established within the CMA earlier this year, has already been commissioned to provide advice on the design and implementation of a code of conduct, as well as the approach to determine which firms will be given SMS status. It is due to provide its initial advice to the Government before the end of 2020, while the Digital Markets Unit is expected to be established in April 2021. Alongside the announcement of the new regime, the Treasury also announced that the CMA will receive additional budget to take on its new responsibilities to regulate digital markets.

Despite this proactive approach, however, the Government acknowledged that some of the recommendations in the Report, in particular the pro-competitive interventions, are complex and come with “significant policy and implementation risks”. It, therefore, remains to be seen precisely what shape the Digital Markets Unit’s new regulatory powers will take.

Furthermore, after the Digital Markets Taskforce has concluded its work, the CMA stated that it will assess whether the actions being taken by the Government are sufficient and whether any further direct action by the CMA is required.

Comment

Many governments and competition authorities worldwide are currently considering how best to ensure that digital markets remain competitive.  The UK Government is no exception.  In 2018, the Government commissioned the Digital Competition Expert Panel, chaired by Professor Furman, to examine the economic challenges posed by digital markets.  A number of the Panel’s recommendations mirror those in the CMA’s Report.  Furthermore, it was the Government that called on the CMA to conduct a market study into digital advertising markets. 

The criteria for designating a company with SMS status is not yet known.  However, this could be a contentious issue given the additional regulatory burden which will be imposed on those companies.  In addition, companies with SMS status are likely to have to comply with new regulatory requirements in other jurisdictions, which may differ from those introduced in the UK.  For example, the European Commission is currently considering whether to adopt a new regulatory framework for large online platforms which act as gatekeepers, as part of its Digital Services Act package. Although the content of the new code of conduct remains unknown, it is clear that the regulatory burden on large online platforms is set to increase significantly in the coming year.