Updated on May 10, 2022
The UK Government has published its response to the consultation on a new regulatory regime for digital markets on May 6, 2022.
The regime aims to promote competition in digital markets for the benefit of consumers. It will be targeted at a small number of firms designated with having Strategic Market Status (“SMS”) in relation to specific digital activities. It will be enforced by the Digital Markets Unit (“DMU”), which is currently operating within the Competition and Markets Authority (“CMA”) in shadow form, pending legislation.
The response confirms that:
- The DMU will designate firms with SMS following evidence-driven assessments, based on criteria that will be set out in legislation. To make an SMS designation, the DMU will need to decide that the firm has substantial and entrenched market power in relation to specific digital activities and holds a strategic position. The DMU will have broad discretion as to which firms to prioritise for SMS assessments.
- Firms designated with SMS will then be required to comply with tailored “conduct requirements” set by the DMU (previously referred to as “codes of conduct”). There will be three overall objectives in the legislation—fair trading, open choice and trust and transparency. The DMU’s conduct requirements must fall within permitted “categories” which will be defined in legislation (previously referred to as the “principles”).
- The DMU will be able to respond quickly to breaches of conduct requirements by issuing interim orders, which can pause or reverse actions taken by SMS firms.
- The DMU will be able to impose targeted pro-competitive interventions (“PCIs”) on SMS firms where an adverse effect on competition can be demonstrated. The DMU will have broad discretion in designing PCIs, including the power to implement ownership separation.
- SMS firms in breach of DMU decisions will face significant financial penalties—up to 10% of global turnover. The DMU will also be able to apply to the court to disqualify individuals from holding directorship roles in the UK and impose civil penalties to named senior managers who fail to ensure that their firm complies with requests for information.
The Government explains it will take account of evidence of harm to competition and consumers. This represents a divergence from the EU’s Digital Markets Act (see our blog post on the DMA), where rules are self-executing and firms have little scope to defend conduct as pro-competitive. SMS firms will be able to adduce evidence of pro-competitive and/or consumer benefits prior to the implementation of conduct requirements or adoption of PCIs.
The Government also intends to introduce a mandatory obligation for SMS firms to report acquisitions to the CMA where: (i) the SMS firm acquires at least 15% equity or voting share, (ii) the value of the holding is over £25m, and (iii) the transaction meets a UK nexus test. The requirement for SMS firms to report these acquisitions will be introduced alongside the new ‘killer acquisition’ jurisdictional thresholds for all sectors in the voluntary merger control regime set out in the Government’s response to the consultation on Reforming Competition and Consumer Policy.
The Government has decided not to pursue its proposal to lower the evidential standard for the CMA to prove a substantial lessening of competition in Phase 2 merger investigations.
The Government response stated that it “will bring forward legislation to implement these reforms when parliamentary time allows”. The Queen’s Speech on May 10, 2022 included reference to a Draft Digital Markets, Competition and Consumer Bill, which would implement the digital markets regulatory regime and the changes proposed to UK competition and consumer law. The CMA subsequently published a blogpost noting that the Bill won’t be introduced in the next Parliamentary session (2022-2023), and that the government would legislate after that “as soon as Parliamentary time allows.” A digital markets regulatory regime in the UK is therefore still some way off.