DMCC Act: Key changes to the CMA's investigatory powers

After receiving Royal Assent on 24 May 2024, the Digital Markets Competition and Consumers Act (DMCC Act) has entered a new phase of implementation (see our May 2024 update). In our last update, we outlined key changes to UK merger control regime (see our June 2024 update). This update focuses on the Act's impact on the CMA's investigation powers under the Competition Act (CA98) and market inquiries regimes.

Key takeaways

• Duty of expedition: the CMA will be required to take action as soon as reasonably practicable when exercising its competition powers. The extent to which this will impact the CMA's processes and investigatory timelines remains to be seen.
• CA98 investigations: the CMA will have new evidence gathering powers (such as seize and sift powers during dawn raids at domestic premises) and additional powers to fine companies up to 5% of their turnover for failure to comply with investigatory measures, commitments, interim measures or CMA directions.
• Market studies and investigations: the DMCC Act gives the CMA more flexibility when conducting market studies and investigations, including the ability to revoke, vary or supplement remedies and new powers to sanction companies up to 5% of global turnover for failing to comply with undertakings or market investigation orders.
• Bespoke powers for monitoring the retail motor fuel sector: new information gathering powers for the CMA in relation to companies involved or connected with the distribution, supply and retail of motor fuel, with civil (and, in certain circumstances, criminal) sanctions for non-compliance.

The DMCC Act includes amendments to the CMA's investigatory powers under the CA98 (Chapters 1 and 2), as well as changes to the CMA's process and investigatory powers when conducting market studies and investigations. The changes are designed to offer the CMA greater flexibility when conducting investigations. This is likely to significantly increase compliance risks for companies which are subject to investigations; both during an investigation and in respect of any commitments, undertakings or remedies resulting from an investigation. 

Duty of expedition in undertaking investigations

The DMCC Act imposes a new duty of expedition on the CMA which requires it to take action as soon as reasonably practicable when exercising most of its functions under its competition, market studies, digital markets and consumer powers. The practical impact of this new duty remains to be seen: one potential impact, for example, could be tighter timelines for responding to statutory requests for information.

Extra-territorial application of CMA information gathering powers

The question of whether the CMA's compulsory information gathering powers are extra-territorial arose in the CMA's CA98 investigation into suspected anti-competitive conduct relating to end-of-life vehicles. On appeal, at first instance, the Competition Appeal Tribunal (CAT) concluded that the CMA's powers were not extra-territorial. While the CAT's decision was overturned by the Court of Appeal (see our January 2024 update), the decision has been appealed to the UK Supreme Court. 

To address this uncertainty, the DMCC Act expressly confirms that the CMA's information gathering powers are extra-territorial in effect.

Key changes to CA98 investigations

In the context of CA98 investigations, the DMCC Act significantly strengthens the CMA's investigative powers by giving the CMA:

• enhanced powers to access information during dawn raids: the Act expands the CMA's powers to obtain and access electronic information held off-premises when executing a search warrant (including by using equipment found at the searched premises).
• the power to seize documents from domestic premises: the Act amends the Criminal Justice and Police Act 2001 and gives the CMA the power to seize and sift materials from domestic premises during raids (as it can currently do during raids at business premises). This will allow the CMA to take materials from domestic premises where it would not be practical to decide on site what documents should be taken.

The Act also imposes an obligation on undertakings to preserve documents when a person knows or suspects that the document would be relevant to an investigation that is being, or is likely to be, carried out. This will require companies to take proactive steps to preserve documents where they consider it is likely that the CMA will investigate: it is not enough to preserve documents once the investigation has begun. 

Civil penalties

The DMCC Act also gives the CMA enhanced powers to fine companies for breaching commitments made following an investigation, interim measures orders or a directions made by the CMA to bring an infringement to an end. Under the Act, the CMA will be able to impose a fixed penalty of up to 5% of global turnover and/or a daily amount up to 5% of global daily turnover.

The Act also enhances the CMA's power to issue civil penalties for failure to comply with investigative steps during an investigation, with maximum penalties of:

• 1% of the undertaking's turnover for fixed penalties;
• 5% of the undertaking's daily turnover for daily amounts.

Where a penalty is a combination of a fixed penalty and a daily penalty, the above thresholds must not be exceeded.

Key changes to the CMA's market study and investigation powers 

More flexibility in the investigation procedure

The DMCC Act introduces greater flexibility for the CMA when conducting market studies and investigations by:

• removing the six month time-limit for the CMA to consult on its decision to make (or not make) a market investigation reference;
• enabling the CMA to make a market investigation reference where it had initially decided not to make a reference where: (i) it has been more than two years since the CMA's original decision or (ii) there has been a material change in circumstances since the CMA first prepared its market study report; and
• giving the CMA greater flexibility to focus on particular features of a market that has been referred for investigation.

Changes to remedies and commitments

The Act gives the CMA the power to accept an undertaking from a party at any stage during the market study or investigation process.  

The DMCC Act requires the CMA to monitor the effectiveness of undertakings and orders. The CMA is also required to prepare a report of its findings from time to time and upon request by the Secretary of State. 

In conjunction, the CMA has the power to vary, release or revoke undertakings and orders made in the previous ten years (and no less than two years after they have been implemented). 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. Significantly, this power is not limited to removing obsolete remedies and the CMA will be able to supplement remedies "to achieve better outcomes" with a view to remedying the original adverse effect on competition identified by the CMA during its market investigation.

The CMA will also be able 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. 

Civil penalties

Under the current regime, the CMA cannot impose civil penalties on companies for breaching market investigation orders or undertakings given to the CMA in lieu of a market investigation reference.

The DMCC Act gives the CMA the power to impose fines of up to 5% of global turnover and/or daily penalties of up to 5% of the company's global turnover on companies who fail to comply with market investigation undertakings or orders. The Government has indicated to stakeholders that the fining power is only intended to apply to market investigation orders which are made (or undertakings which are given) after the Act enters into force.

The DMCC Act also permits the CMA to fine companies for failing to comply with its investigatory powers, including imposing fixed penalties of up to 1% of global turnover (up from a £30,000 fixed cap) and/or daily penalties of up to 5% of the company's global daily turnover (up from a £15,000 cap).

Bespoke regime for the retail motor fuel sector

The DMCC Act creates a bespoke regime for the CMA to require undertakings involved or connected in the distribution, supply and retail of motor fuel to supply it with information. These information gathering powers can only be used where the CMA considers that the information will assist it in: 

• assessing competition in the retail of motor fuel in the UK;
• making proposals or giving advice to the Secretary of State about action that could increase competition or benefit consumers; or
• assessing the effectiveness of any action taken by the Secretary of State in the retail of motor fuel.

The DMCC Act envisages that the CMA may require companies to provide information on a recurring basis or to generate and retain information they would not have otherwise collected or obtained.

The regime has significant consequences for non-compliance:

• civil penalties: the CMA can fine undertakings up to 1% of their global turnover, or up to 5% of their daily global turnover, for failing to comply with an information request or providing false or misleading information; and
• criminal sanctions: individuals who destroy or falsify information (or knowingly provide false or misleading information) can be liable for a potentially unlimited fine or imprisonment of up to two years. Officers of a company that commit a criminal offence may also be held criminally liable.

This regime is intended to remain in force until 23 May 2029 but the Secretary of State has the ability to extend (or shorten) the duration of the regime.

Assistance to overseas regulators

The DMCC Act creates a framework through which the CMA is able to assist overseas regulators with foreign investigations where an overseas regulator makes a request of the CMA, in respect of a similar function that the CMA has.  For example, an overseas regulator undertaking an investigation in respect of an equivalent market investigation power can request the CMA use its statutory powers to provide the overseas regulator with information.  The CMA is only able to assist an overseas regulator if it considers it appropriate to do so, and the request is made pursuant to a qualifying cooperation arrangement or otherwise approved by the Secretary of State.  The CMA is currently consulting on draft guidance as to how it plans to utilise these powers. 

The DMCC Act includes amendments to Part 9 of the Enterprise Act 2002, which gives the CMA more flexibility to share information with overseas regulators in certain circumstances. 

With thanks to Isabella Hunt for her contribution.