All change at the CMA: the new Digital Markets Unit

CMA welcomes government reforms on new powers

The Competition and Markets Authority (CMA) have issued responses to the UK Government’s proposals to enhance its powers to address breaches of competition and consumer law (here), and to its new pro-competition regime for digital markets, which empowers the Digital Markets Unit (DMU) (currently sitting within the CMA in “shadow” form) to tackle perceived problems in the digital sector (see response here). The Chief Executive of the CMA stated that the new DMU powers will “enable us to take swifter, stronger action against companies which break the law and to tackle tech giants whose market power is a threat”.

It can be difficult to keep up with all the actual and proposed changes in the competition law field as it relates to digital markets. This year alone, the Government have: in June published their Digital Regulation plan (here); issued their consultation on the new pro-competition regime for digital markets in July, which closed last week; and are due in Q4 to publish their Digital Strategy.

The proposed set-up and powers of the DMU are among the more ground-breaking; although the consultations and Response covered multiple areas of competition regulation, we discuss below the proposed nature of the DMU under the digital markets consultation, and the impact of the new Unit’s anticipated powers on businesses.

What is the new Digital Markets Unit?

In July, the Department for Digital, Culture, Media and Sport (DCMS) published proposals for a new regulatory regime for digital markets, accompanied by consultation documents, which stated a need for a distinct regulatory approach for digital markets due to their fast-changing nature, scale and scope. The consultation sought views from a broad range of interested parties (such as start-ups, charities, technology companies, investors, law firms and civil society organisations) and closed in October 2021. Moreover, the consultation proposes that the DMU will be given the power to designate tech firms that are deemed to have Strategic Market Status (SMS). The regime will cover certain activities of these SMS firms through a mandatory code of conduct, enforcement policies by the DMU such as “pro-competitive interventions” and fines, as well as a new mandatory filing regime for specific transactions involving the SMS firms. The DMU could also be given the ability to suspend, block and reverse behaviour that breaches the new mandatory code of conduct, for instance through unfair changes in their algorithms or terms and conditions.

How will this affect businesses?

The proposals for the DMU set out by the Government do indicate a willingness to listen. If approached right, there is an opportunity to create an agile, focussed and informed unit, with benefits not just for consumers but for the wider industry.

However, there are a number of possible outcomes that could see the DMU lose its focus, particularly with regard to the merger rules being proposed and how they interact with other regulators, and, for instance, the National Security and Investment Act (the UK’s new, standalone statutory regime for intervention in investments and acquisitions on national security grounds, which will be fully commenced from 4 January 2022, see our update here). Given that the digital markets consultation’s new regime is somewhat radical in granting the DMU significant powers to intervene and impose up-front regulation on digital businesses, tech companies will be watching these developments closely.

The increased, sector-specific, scrutiny proposed seems to envisage a shift towards a financial-services-style regulation. Tech companies will likely need to set up compliance models to cater for self-reporting obligations for instance. On top of this, the proposed enhanced and mandatory merger regime will likely require multiple filings annually for tech companies, even for entirely benign mergers, and will add to overall compliance costs. What is increasingly clear, therefore, is that Big Tech (and potentially smaller tech companies) are facing a level of regulatory scrutiny akin to, or even beyond, the already burdensome regulation in the financial services sector.