Digital Markets Competition and Consumers Bill - wide-ranging reforms to UK regulation

On 25 April 2023, the UK Government introduced the draft Digital Markets, Competition and Consumers Bill (the "Bill"). The date for the second reading is yet to be formally scheduled. 

In our first update, we provide a high level overview of the proposed reforms. Subsequent updates will focus on each area in more detail. 

Key takeaways

• The Bill will implement the Government's digital markets strategy, which includes tailored codes of conduct for certain digital companies and a bespoke merger control regime for designated firms.
• The Bill also contains significant reforms to the competition and consumer law regimes in the UK, in particular:
  • Wide-ranging changes to the Competition and Markets Authority's ("CMA") Competition Act 1998 and market study/investigation powers, including the ability to impose significant penalties for non-compliance with market investigation orders.
  • Significantly strengthening the consumer law enforcement regime by enabling the CMA to directly enforce consumer law through the imposition of fines and the ability to award compensation to consumers.
  • Changes to UK consumer laws to tackle subscription traps and to enhance protections for savings schemes.

Following its announcement in the Autumn Statement 2022, the UK Government has now introduced the Bill (see our November 2022 update). The Bill includes significant and wide-ranging reforms to the regulation of digital markets and the existing competition and consumer law regimes. This follows several consultation processes (see our September 2021 newsletter and our May 2022 update), the Penrose Report in 2021 (see our March 2021 newsletter) and the Furman Report in 2019 (see our April 2019 newsletter).

Digital Markets

The Digital Markets Unit ("DMU") was launched in "shadow form" in April 2021, pending the introduction of legislation to put it on a statutory footing. The Bill now sets out more detail on the proposed regime: 

• Only firms found to have "substantial and entrenched" market power and a "position of strategic significance" in at least one digital activity will be designated as having "strategic market status" ("SMS").
• To designate a firm, the DMU will need to establish a UK nexus. This could be established because the digital activity has a significant number of UK users.
• Firms will only be designated if their global (group) turnover exceeds GBP 25 billion or the UK (group) turnover exceeds GBP 1 billion.

The DMU will also be required to publish guidance on how it will apply these concepts in practice. The designation process will last up to nine months (extendable by up to three months). If the DMU does not issue an SMS designation notice by this deadline then it shall be deemed to have issued a notice that it has decided not to designate the business in respect of the digital activity to which the investigation related. 

Once designated, businesses will be subject to enhanced regulation through: 

• an enforceable code of conduct tailored to the particular business. The code of conduct may include requirements not to apply discriminatory terms; to provide clear, relevant, accurate and accessible information to users; or preventing the tying or bundling of services. Failure to comply with the code of conduct may result in fines of up to 10% of global turnover and director disqualification; and
• mandatory reporting requirements for certain transactions where the consideration exceeds GBP 25 million. Reportable transactions must not be closed until at least five working days after the CMA confirms that the information contained in the report was sufficient.

The CMA will also have the power to impose a wide-range of pro-competitive interventions, which are "mini" market investigations.

Competition Act investigations 

As anticipated, the Bill sets out significant changes to the CMA's powers when conducting Competition Act investigations, including: 

• new evidence gathering powers, including the ability to interview any relevant person; seize and sift powers at domestic premises (previously only available during inspections of business premises); and strengthening the CMA's powers to obtain information remotely when executing a warrant; and
• additional powers to sanction companies who fail to cooperate, with maximum caps of 1% of global turnover for non-compliance with investigation measures and up to 5% for non-compliance with remedies such as commitments and undertakings.

Notably, the Bill also addresses the question of whether the CMA's power to request documents and information extends to companies outside the UK. In a recent judgment, the Competition Appeal Tribunal concluded that the CMA did not have the power to require the production of information held outside the UK from foreign companies (see our February 2023 update). Schedule 11 seeks to address this by giving the CMA the power to request documents or information from companies outside the UK if the company's activities are being investigated under the Competition Act or the company has a UK connection (i.e. it carries on  business in the UK).  Schedule 11 also contains equivalent amendments in connection with mergers and market studies/investigations.

Merger Control

As set out in the Government's response to the 2021 consultation, the Bill amends the CMA's jurisdiction to review mergers by: 

• increasing the target turnover threshold from GBP 70 million to GBP 100 million (in line with inflation);
• introducing a new threshold designed to capture so-called "killer acquisitions". This would give the CMA jurisdiction where at least one party has a share of supply of goods or services of 33% and UK turnover of GBP 350 million; and
• introducing an exemption where each party's UK turnover is less than GBP 10 million.

Market Studies and Investigations 

Significant changes have been proposed to the markets regime powers. In particular, the Bill:

• gives the CMA greater flexibility to define the scope of market investigations;
• provides a more flexible process, including enabling the CMA to accept binding undertakings at any stage during the market study/investigation process and removing the requirement to consult on a market investigation reference within the first six months of a market study;
• enables the CMA to require businesses to trial remedies to determine the final format of certain remedies relating to what, when and how information is presented to consumers;
• enhances the CMA's ability to amend remedies in a ten year period following the finding of an adverse effect on competition in a market investigation. Significantly, this power will not be limited to removing obsolete remedies and the CMA will be able to supplement remedies "to achieve better outcomes". A mandatory two year "cooling off" period will apply from the end of a remedy review, which will prevent the CMA from conducting a further review of the same remedy on its own volition; and
• introduces the possibility of civil penalties of up to 5% for companies which breach market investigation orders and directions. This reflects the Government's concern that the CMA does not have sufficient powers to ensure compliance. The proposed penalty regime will apply to undertakings, directions, orders and interim measures. Given the potential (market-wide) scope, and often technical nature, of market investigation orders, the potential for these penalties to be imposed is likely to be of significant concern for many firms.

Consumer Law

The Bill introduces significant changes to how the CMA enforces consumer law in the UK.  In particular, the Bill enables the CMA to directly enforce consumer law through administrative proceedings which will bring the CMA's consumer law powers into line with its existing competition law powers. As part of this reform, the CMA will be given new powers to issue infringement notices, fine companies up to 10% of their global turnover and individuals up to GBP 300,000 for breaches of consumer law, as well as the ability to award compensation to consumers. The CMA will also be able to directly enforce undertakings given by enforcement subjects, with the possibility of fines for breaches of undertakings or directions imposed by the CMA.  Infringement notices, penalties and directions will be subject to an appeal "on the merits" to the High Court.

In addition, the Bill sets out reforms to: 

• tackle "subscription traps" by strengthening and clarifying rules on pre-contractual information that needs to be provided to consumers, including nudging requirements which are intended to make it easier to consumers to terminate subscription services; and
• strengthen protections for consumers using "saving schemes" (such as Christmas Savings Clubs) by requiring such schemes to fully safeguard customers money, and to update and simplify the regulations and protections relating to package travel.

The Government has also noted that it intends to consult on proposals to tackle "fake reviews" by prohibiting companies from commissioning fake reviews or hosting consumer reviews without making reasonable and proportionate checks that they are genuine.  The Bill will revoke the Consumer Protection from Unfair Trading Regulations and restate the protections from unfair commercial practices in primary legislation, with  a new power for the Government to amend the list of practices that are considered unfair in all circumstances under consumer law.

Comment

These reforms have been anticipated for several years. In the intervening period, the EU has progressed its proposals for digital regulation and the Digital Markets Act ("DMA") was published in the Official Journal in October 2022 (see our October newsletter article). The first designations under the DMA are expected in September 2023, with designated companies being required to comply with the substantive obligations from March 2024 (at the earliest). Similarly, the EU New Deal for Consumers seeks to modernise consumer protection rules and improvement enforcement of these rules in the EU (see our September 2022 update on Italian consumer law).

In the UK, additional guidance from the CMA will be required, particularly in relation to consumer law enforcement and the application of the pro-competition regime for digital markets. Both consumer law and digital markets were highlighted in the CMA's 2023/2024 Annual Plan as areas of focus for the CMA and we anticipate the CMA making proactive use of its new tools when the Bill enters into force.

Companies will therefore need to monitor progress of the Bill, accompanying guidance and developments at an EU level and consider how their internal compliance policies and procedures may need to be adapted.

Our next update will provide more detail on the pro-competition regime for digital markets set out in the Bill.