The UK Government has published its long-awaited Digital Markets, Competition and Consumer Bill, including a wide-ranging and far-reaching set of reforms to UK competition and consumer law, along with a new regulatory regime for digital markets.
The publication of the bill follows the UK Government’s response to its consultations in April-May 2022 (see previous blog posts here and here), in which it recommended legislation implementing the digital markets regulatory regime and various changes to UK competition and consumer law. The Queen’s Speech in May 2022 only included reference to a draft Bill being published in the future, which provoked criticism and calls for the Government to prioritise commencing the legislative process.
Those calls have now been answered. Notably, the Bill put forward is not a ‘draft’ bill, and will now proceed directly through the parliamentary process, including debate in the House of Commons and House of Lords. The Competition and Markets Authority (CMA) has welcomed the Bill, stating it “has the potential to be a watershed moment in the way we protect consumers in the UK and the way we ensure digital markets work for the UK economy”.
In summary, the Bill provides for:
- A new UK digital markets regime, providing specific conduct rules for firms with ‘Strategic Market Status’ (SMS) in respect of digital activities. These are accompanied by investigative and enforcement powers for the CMA’s Digital Markets Unit (DMU), which is to be put on a statutory footing after almost two years operating in ‘shadow’ form. The Government has promised that the regime will be more flexible than the EU’s Digital Markets Act. The UK Secretary of State for Science, Innovation, and Technology stated that “the EU approach is blunt and applies blanket rules on firms, which risks creating unnecessary burdens on business” and that the UK regime – “a key Brexit opportunity” – will be “more flexible, bespoke, and targeted”.
- Merger control changes, including generally applicable changes to the jurisdictional thresholds, including changes to the levels of the turnover threshold, a safe harbour for mergers where both parties each have less than £10m UK turnover, and an alternative jurisdictional test to capture so-called “killer” acquisitions.
In addition, there are special requirements for firms deemed as having SMS under the new digital regime. In particular, the Bill would introduce a specific reporting obligation with a 5-day “waiting period” for qualifying transactions by SMS firms , which would prevent these firms from closing deals until this period expires or the CMA consents. This is a departure from the UK’s generally voluntary and non-suspensory merger control regime.
- Reforms to UK competition law, notably through strengthening the CMA’s investigation and enforcement toolkit. The Bill proposes a range of measures providing the CMA with additional powers to impose penalties (for example, the power to fine firms for breaching remedies or commitments), and larger fines for non-compliance with information requests (rising to 1% of global turnover, and a 5% of global turnover rate for daily non-compliance).
- Strengthening of the UK consumer protection regime, including a significant upgrade in the CMA’s enforcement toolkit for consumer cases, and specific rules in respect of practices such as subscriptions. As with the competition law reforms, these changes are applicable to all firms, not just those designated as having SMS. For the first time, the CMA will itself be able to take decisions on whether a company has infringed consumer law, and will be given the power to impose significant penalties for breaches of the law, including fines of up to 10% of worldwide turnover. This is a dramatic step change for the CMA, providing it with considerably more clout in consumer cases, where it has previously been required to go to court to prove an infringement.
In the rest of this blog post, we summarise the Bill’s reforms in more detail.
Pro-Competition Regime for Digital Markets
The Bill introduces a new regime aimed at promoting competition in digital markets for the benefit of consumers. It will be targeted at a small number of firms designated as having SMS in relation to specific digital activities. The rules will be enforced by the DMU, which the Bill proposes to place on a statutory footing.
- SMS designation. The DMU will designate firms as having SMS in relation to specific digital activities following evidence-driven “SMS investigations”, based on criteria set out in the legislation. In particular, firms may be deemed as having SMS if they have substantial and entrenched market power and a position of strategic significance in relation to a particular digital activity in the UK. In addition, a firm must meet turnover thresholds (at least £1bn UK turnover or £25bn global turnover) to qualify as having SMS. The DMU must consult on any proposed SMS designations.
- Firm-specific conduct requirements. Firms that are designated as having SMS will be required to comply with firm-specific conduct requirements developed by the DMU, to be supported with guidance. The legislative and firm-specific conduct requirements will pursue three overarching objectives, defined in legislation: “fair trading,” “open choices,” and “trust and transparency”. Section 20 of the Bill sets out an exhaustive list of permitted types of conduct requirements, although these are broadly framed. The Bill contains an exemption from the conduct requirements for practices that result in net consumer benefits (this is similar to the arrangements under the section 19A regime in Germany, see further our Digital Markets Regulation Handbook).
- Compliance. SMS firms are required to provide the CMA with compliance reports setting out how they are complying with the conduct requirements that apply to them, on timeframes set by the DMU. Firms must nominate a compliance officer within their organisation to take responsibility for compliance and provide the reports.
- Penalties. The DMU will have the power to impose financial penalties of up to 10% of global turnover for breaches of the conduct requirements, and daily fines up to 5% of global turnover for continued breaches. A lower level of 1% of global turnover (and up to 5% for each day of ongoing noncompliance) will apply to information offences (e.g.,noncompliance with information requests or providing misleading information). The DMU will also be able to issue interim orders in order to pause or reverse actions taken by SMS firms if they breach conduct requirements.
- Final offer mechanism. The Bill provides for the DMU to adopt a final offer mechanism where an SMS firm has failed to agree “fair and reasonable” payment terms with a third party, in breach of conduct requirements. Notably, this is not limited to SMS firms dealing with online publishers. Rather, such a mechanism could be used to resolve disputes between SMS firms and a third party in relation to any transaction.
- Pro-competitive interventions. In addition to its ability to impose conduct requirements, the DMU will be able to carry out “pro-competitive interventions” (PCIs) in respect of SMS firms to remedy adverse effects on competition. To do this, the DMU will need to carry out an evidence-driven investigation and establish that adverse effects on competition exist, before imposing a “pro-competition order” or making a recommendation to government or regulators for further action. The remedies available to the DMU under this tool are the same as those available under the market investigation regime (including structural separation). Unlike in conduct investigations, when considering making PCIs the DMU “may” rather than “must” have regard to UK user/customer benefits. Firms may appeal PCIs, but on a judicial review basis, rather than on the full merits.
The Bill proposes several changes to provide the CMA with additional powers to investigate and enforce competition rules, including:
- Allowing the CMA to impose higher penalties for noncompliance with information requests (fines of up to 1% global turnover, and a 5% daily rate for ongoing noncompliance); and
- Permitting the CMA to impose financial penalties for breaches of commitments, directions, undertakings, and orders made under the Competition Act 1998.
The Bill also proposes a significant substantive change to provide that anticompetitive agreements prohibited under Chapter 1 need not be implemented (or intended to be implemented) in the UK in order to be caught by the prohibition.
The Bill proposes some important changes to the UK’s merger control regime.
- The Bill contemplates the following changes to the jurisdictional thresholds for UK merger control review, namely by:
- raising the value of the turnover from £70m to £100m (to reflect inflation);introducing a safe harbour for the turnover test where each of the merging parties has UK turnover below £10m; and
- introducing a safe harbour for the turnover test where each of the merging parties has UK turnover below £10m; and
- introducing an alternative jurisdictional test to cover so-called “killer” acquisitions, which requires only one of the merging parties to have a share of supply of at least 33% and UK turnover over £350m.
- Additionally, as part of the new digital regime, SMS firms will have a duty to report mergers where:
- The SMS firm acquires a 15%+ equity or voting share in the target (or, for JVs, the JV vehicle);
- The value of the SMS firm’s holding (or, for JVs, the value of the capital and assets contributed by the SMS firm) is over £25 million; and
- The transaction has a UK nexus.
- The SMS firm may not close the transaction until the expiry of a 5-day “waiting period” after reporting the transaction to the CMA, unless the CMA consents.
The Bill provides for a radical overhaul of consumer protection enforcement in the UK. The limited powers available under the existing regime – in particular the need for the CMA to apply to the Courts to establish breaches of the rules and enforcement of information requests – have long frustrated the CMA, which has suffered some notable setbacks.
The Bill promises to bring the CMA’s consumer protection powers in line with its (much stronger) capabilities for competition and merger control cases, including by:
- Allowing the CMA to take a decision on whether a firm has breached consumer rules, rather than having to convince a court there has been an infringement (firms will be able to appeal infringement decisions on the merits).
- Giving the CMA the power to impose fines of up to 10% global turnover for breaches of consumer law. This is a major change. Previously, the CMA was only able to seek a court order for behavioural changes or consumer redress schemes under so-called “enhanced consumer measures” to penalise firms that violated consumer rules.
- Providing the CMA with additional information gathering powers, backed up with the power to issue penalties of up to 1% of global turnover (or up to 5% as a daily rate for ongoing noncompliance). These penalties mirror the equivalent sanctions proposed elsewhere in the Bill.
Furthermore, the Bill introduces new substantive consumer protection rules, including:
- New requirements for businesses offering subscription contracts, including mandatory pre-contract information that must be provided to customers, requirements to send reminder notices before consumers are charged (e.g., at the end of a free trial or before a contract is automatically renewed), and specific rules regarding arrangements for cancelling subscriptions.
- Rules for so-called “consumer savings schemes” (i.e. contracts where consumers make payments as a form of saving for goods or services to be provided at a later date). The proposed requirements include insolvency protection and insurance requirements to ensure that consumers are protected from the insolvency of a business offering such schemes, and specifies various information that is required to be provided to consumers.
There are also other changes to the CMA’s powers, for example in relation to the markets regime, where the Bill provides for the CMA to be able to accept undertakings at any stage during a market study or investigation. The Bill does not, however, include the controversial proposed interim measures power for market investigations (which the Government previously concluded was “unlikely to justify the potential risks of premature regulation overall” in its response to the consultation).
The Bill will now proceed through the Parliamentary process. This will involve debate in both chambers, and the consideration of amendments in both the Commons and the Lords, before the Bill receives Royal Assent and is entered into the statute book as an Act. It seems likely that the Government will wish to conclude this process by the end of the current Parliamentary session in the Autumn if possible. Although some amendments are inevitable, the Bill represents a sea change in UK competition and consumer enforcement, particularly in relation to digital firms, which now face the prospect of ex-ante rules in the UK, to add to the list of similar requirements being adopted in other jurisdictions, such as the DMA in the EU. The consumer law changes are also a radical reform, with businesses, for the first time, facing the risk of substantial fines for breaching the law.
 Former CMA chief executive Andrea Coscelli decried the Government’s delay in putting forward the legislation, stating that the UK risked becoming a “rule taker” lagging behind other jurisdictions that have already enacted digital regulation, commenting that “[t]he … frustration is that we were [initially] ahead of the European legislation [in drafting the rules] … we’re now behind” (see Financial Times, ‘UK risks being a ‘rule taker’ on tech regulation, warns CMA chief’, June 20, 2022). In October 2022, the House of Commons Business, Energy, and Industrial Strategy Committee issued a report urging the Government “to publish the Draft Bill before the end of November 2022” (see House of Commons Business, Energy and Industrial Strategy Committee, ‘Post-pandemic economic growth: state aid and post-Brexit competition policy’, October 25, 2022).
 CMA, Press Release, ‘New bill to stamp out unfair practices and promote competition in digital markets’, April 25, 2023.
 See Michelle Donelan MP, The Times, ‘Digital Markets, Competition and Consumers Bill: ensuring fairness and free markets in the digital age’, April 25, 2023.
 These concepts are defined in the Bill (see sections 2 – 6).
 See section 13 of the Bill.
 See section 29 of the Bill.
 See sections 38-43 of the Bill.
 See section 44 of the Bill.
 See section 101(6) of the Bill.
 The format and content of the report shall be set out by the CMA (see section 58 of the Bill).
 See section 61 of the Bill.
 For example, the CMA took Care UK to court in the Care Homes consumer protection case, but the High Court ruled against it, dismissing the CMA’s proposed enforcement action, and refusing the CMA’s request for appeal. The CMA subsequently dropped its claim against another party, Barchester.
 See section 194 of the Bill.
 See Reforming competition and consumer policy: government response to consultation, paragraph 1.47.