UK Government Update on Digital Markets Competition and Consumer Bill

On 17 November 2022, the UK Government confirmed in its Autumn Statement 2022 that the Digital Markets, Competition and Consumer Bill (the "Bill"), initially announced in the Queen's Speech on 10 May 2022, will be brought forward early next year. 

Key takeaways

• The Autumn Statement indicates that the government's digital markets strategy will be implemented by the Bill. The strategy includes tailored codes of conduct for certain digital companies and a bespoke merger control regime for designated firms.
• The Bill is also expected to include a wide range of 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 imposing significant penalties for non-compliance with market investigation orders (this may extend to orders that have already been adopted following previous market investigations which, if pursued, would be controversial).
  • Significantly strengthen the consumer law enforcement regime by enabling the CMA to directly enforce consumer law through the imposition of fines.
  • Changes to UK consumer laws to tackle subscription traps and fake reviews and to enhance protections for savings schemes.

On 17 November 2022, the UK Government announced in its Autumn Statement 2022 that it will bring forward the Bill in the third Parliamentary session.  While no specific date has been announced for the first reading of the Bill, we understand this will likely take place in Spring 2023.

The Bill is expected to contain a number of significant and wide-ranging reforms to the regulation of digital markets and the existing competition and consumer law regimes, following several consultation processes in recent years.

In July 2021, the Government published two consultations on its proposed reforms (see our September 2021 newsletter article):

• one setting out its proposed reforms to competition and consumer policy, following publication of the Penrose Report (see our March 2021 newsletter article); and
• one setting out a new pro-competition regime for digital markets, which drew on recommendations from the Furman Report in 2019 (see our April 2019 newsletter) and the Digital Markets Taskforce in 2020 (see our December 2020 newsletter).

In April 2022, the Government subsequently published its response to the first consultation setting out the reforms which it intended to proceed with in relation to the competition and consumer law regimes (see our May 2022 update). The Government's response to the second consultation was published in May 2022.

The Autumn Statement only provides an update on the anticipated timing: it does not include any further details of the proposals which will be included in the Bill. In this update, we highlight the key reforms proposed by the Government which we anticipate being included in the Bill.

Digital markets

Under the pro-competition regime for digital markets, the Digital Markets Unit ("DMU") within the CMA will be able to designate companies as having Strategic Market Status ("SMS").  The DMU was launched in 'shadow form' in April 2021, pending the introduction of the UK's new digital regulatory regime (see our May 2021 update) .

While we await further details on the proposed regime, the Government has indicated that: 

• Only firms found to have "substantial and entrenched" market power in at least one digital activity will be designated.
• The DMU will also be required to establish a UK nexus.
• There will be a minimum revenue threshold to make clear that smaller companies are not in scope of the regime.

Further details on the criteria which will be used to assess whether a company has SMS will be included in legislation and the DMU will also be required to publish guidance on how the concepts will be applied in practice.  The DMU will have up to nine months to complete SMS designation assessments, but this deadline may be extended by three months in exceptional circumstances. 

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

• an enforceable code of conduct; and
• mandatory reporting requirements for transactions meeting certain thresholds.

The CMA will also have the power to impose a wide range of pro-competitive interventions. 

Codes of conduct 

The categories of permissible conduct requirements will be set out in legislation but each code of conduct will be tailored to the particular SMS company.  Examples of the types of conduct requirements that may be imposed include: 

• requiring SMS companies not to apply discriminatory terms, conditions or policies;
• preventing bundling or tying services;
• providing clear, relevant, accurate and accessible information to users; and
• preventing a company from leveraging other parts of the business to further entrench its power in a designated activity.

There will be an exemption designed to ensure that conduct which results in net consumer benefits is not considered to breach conduct requirements. 

Once finalised, the specific requirements will be binding on the company in question.  Failure to comply with the code of conduct could result in the DMU making an order requiring compliance or imposing financial penalties of up to 10% of global turnover.  In addition, the DMU will have the ability to impose civil penalties on named senior managers for failing to ensure compliance with information requests and seek director disqualification for regulatory breaches. 

Merger control

Following feedback received during the consultation process, the Government has refined its proposals to require SMS companies to report all M&A activity.  The revised proposals expected to be included in the Bill indicate that SMS companies will be required to report their most significant transactions, which the Government considers to be when:

• the SMS company will hold at least 15% of the equity / voting rights after the transaction;
• the value of the holding is over £25 million; and
• the transaction meets a UK nexus test.

The Government is not progressing its previous proposals to lower the standard of proof at Phase 2. 

Competition Act investigations

We expect the Bill to set out significant changes to the CMA's powers when conducting Competition Act investigations, including:

• new evidence gathering powers, such as the ability to interview any relevant person, seize and sift powers for inspections at domestic premises, and strengthening the CMA's powers to obtain information remotely when executing a warrant;
• a statutory framework for confidentiality rings as part of the CMA's access to file process which will include civil penalties for breaches; 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.

Merger control

The Government is also proposing amendments to the CMA's jurisdiction to review mergers.  In particular, the Government proposes:

• increasing the target turnover threshold from £70 million to £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 £350 million;
• introducing an exemption where each party's UK turnover is less than £10 million.

In relation to procedure, the Government is proceeding with proposals which are intended to improve the efficiency of the review process, including:

• the ability for the CMA to accept binding commitments earlier in a Phase 2 investigation; and
• a "fast-track" procedure at Phase 1, and removal of the requirement that parties accept a merger may create a substantial lessening of competition.

Market Studies and Investigations

The Government has proposed significant changes to the markets regime powers.

Specifically, the Government is proceeding with proposals to: 

• allow the CMA greater flexibility to define the scope of market investigations;
• provide a more flexible process, including granting the CMA the ability to accept binding undertakings to be accepted 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;
• enable 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;
• enhance 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
• introduce a civil penalty regime for companies breaching market investigation orders and directions. Although the position will need to be confirmed, and no doubt will be hotly debated, this may apply to existing orders that have already been adopted. The penalty would be capped at 5% of global turnover. In the consultation, the Government expressed a 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 higher penalties is likely to be of significant concern for many firms.

Following the consultation process, the Government decided not to proceed with certain proposals, including enabling the CMA to impose interim measures during market inquiries. 

Consumer law

The Bill is expected to introduce significant changes to how the CMA enforces consumer law in the UK.  In particular, the Government proposes to enable the CMA to directly enforce consumer law through administrative proceedings.  This will bring the CMA's consumer law powers in line with its existing competition law powers.  As part of this proposal, the CMA will be given new powers to fine companies up to 10% of their global turnover and individuals up to £300,000 for breaches of consumer law.  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.

In addition, we expect the Government to proceed with proposed 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;
• tackle "fake reviews" by prohibiting companies from commissioning fake reviews or hosting consumer reviews without making reasonable and proportionate checks that they are genuine; 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.

Comment

The Bill (when published) will provide further details on these proposed changes but 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. Companies will need to monitor the progress of these changes and consider how their internal compliance policies and procedures may need to be adapted. 

Once in force, the strengthened consumer law enforcement powers and new digital markets regime will have a significant impact on the regulatory landscape in the UK.  The consumer law measures will bring consumer enforcement alongside competition law in the CMA's toolkit.  In its 2022/2023 Annual Plan, the CMA emphasised the importance of consumer law and that it welcomes the proposals to strengthen its powers.  The reforms are therefore likely to lead to a substantial increase in the number of investigations into consumer law breaches.  Similarly, the CMA identified "promoting effective competition in digital markets" as one of its main themes for 2022/2023.  Once the DMU is on a statutory footing, we anticipate it being a proactive regulator, making significant use of the new tools available to it.

While the Autumn Statement does not provide additional insight on the detail of any proposals, it is helpful to have a clearer timetable and companies should monitor for further updates from Spring 2023. 

With thanks to Hayden Dunnett of Ashurst for his contribution.