The Digital Markets Unit (DMU), the UK’s digital markets regulator, has operated on a non-statutory basis within the Competition and Markets Authority (CMA) since April 2021. The Chancellor of the Exchequer has now confirmed in his Autumn Statement on 17 November 2022 that the new Digital Markets, Competition and Consumer Bill (DCCB) will be introduced in the third Parliamentary session (by May 2023). A representative of the CMA has since confirmed that the new powers are expected to come into force by October 2023.
Background
The DMU’s role will be to oversee and enforce “the new pro-competition regime for digital firms with Strategic Market Status” and to “perform a monitoring role in relation to competition in digital markets more widely”.
As we previously noted, the Queen’s Speech in May 2022 announced the long-awaited DCCB which will, amongst other things, formalise the independent role of the DMU and grant it new powers to conduct Strategic Market Status (SMS) designation assessments. The Chancellor’s announcement ends the uncertainty about whether and when the plans for a new regime in the UK will be introduced.
The reforms
In the Autumn Statement, the Chancellor referred to competition as “the most important driver of global success” and noted his Government’s intention to bring forward legislation to grant the DMU “new powers to challenge monopolies and increase the competitive pressure to innovate”.
The DCCB will introduce a suite of reforms to the UK’s competition law regime, including in relation to the DMU and its powers to designate tech companies as having SMS in relation to activities where they hold ‘substantial and entrenched market power’.
The Government’s response to the public consultation on digital markets reform published in May outlined its updated plans and provides a useful steer of the likely framework of the new digital markets regime. The Government indicated, amongst other things, that the DMU will:
- Target SMS designation at certain types of ‘digital activities’ of “a small number of the most powerful firms”. SMS designation will be subject to a UK nexus and a minimum revenue threshold.
- Impose ex ante Conduct Requirements to proactively shape the behaviour of SMS firms.
- Have broad discretion over pro-competitive interventions – including the power to implement ownership separation (where other remedies are insufficient).
- Be able to impose penalties, including fines of up to 10% of a firm’s global turnover for the most serious regulatory breaches and fines of up to 1% of global turnover for information offences. In addition, civil penalties may be imposed on named senior managers who fail to ensure compliance with requests for information (directors may be disqualified for regulatory breaches and civil and criminal liability may attach to anyone knowingly or recklessly providing false information to the DMU).
- Have a statutory duty to consult with other regulators where proportionate and relevant.
The Government also updated its SMS merger control proposals: SMS-designated firms will now only be required to report their “most significant” transactions prior to completion. The Government has indicated that this will be when:
- the SMS firm acquires over 15% equity or voting shares;
- the value of the SMS firm’s holding is over £25m; and
- the transaction meets a UK nexus test.
If these criteria are met, the SMS firm must notify the CMA in advance of completion and the CMA will then conduct an initial review to consider whether the merger warrants further investigation.
Looking forward
The Chancellor’s emphasis on the importance of the DMU in promoting competition in digital markets in the Autumn Statement, and the updated timeline for the introduction of the DCCB, brings back to the forefront reforms that many thought had been left to simmer given the recent political and economic landscape. The reforms will help the UK close the gap with other major regulators; the EU’s Digital Markets Act came into force on 1 November 2022 and will apply from 2 May 2023.
While the final wording of the DCCB and associated reforms are yet to be seen, the Government’s response to its public consultation provides a useful overview of the framework and likely substance of the new regime.
The DMU is expected to hire 200 full-time individuals and is likely to engage in a recruitment drive in preparation for its mandate under the new digital markets regime. The UK’s new Digital Regulation Cooperation Forum, which brings together the major UK regulators tasked with regulating digital services (the CMA, FCA, ICO and Ofcom), also signals that there will be regular cooperation between regulators that meet at the intersection of digital markets.
Please get in touch with us to discuss the impact that the UK’s new regulatory regime for digital markets could have on your business. Hogan Lovells practises law at the intersection between business and government and is particularly well placed to help – having a deep understanding of the regulatory landscape and the detail of the upcoming reforms. We also have extensive experience of working inside government, and advising corporations on the machinery of government and this Government’s policy priorities. Let us help you prepare for, and navigate, the new regulatory environment in advance of the digital market reforms formally coming into force by October 2023.
Authored by Mez Azizi, Alice Wallace-Wright, Christopher Hutton, and Matt Giles.
