CMA proposes a new pro-competition regime for digital markets

On 8 December 2020 the CMA issued advice to the UK government on the design and implementation of a new pro-competition regime for digital markets. The advice was prepared by the Digital Markets Taskforce (DMT) formally launched by the CMA on 1 July 2020, following recommendations by the Digital Competition Expert Panel (appointed to advise the UK government on the state of competition in digital markets) set out in its final report (the Furman Report).

The DMT consists of experts from the CMA, Ofcom, the Information Commissioner’s office (ICO) and the Financial Conduct Authority (FCA) who were asked to provide the government with expert advice on the functions, processes and powers needed to deliver on its objectives in digital platform markets, taking into account the proposals set out in the Furman Report and the CMA’s findings in its market study into online platforms and digital advertising.

In its response to the CMA’s online platforms and digital advertising market study recommendations published on 27 November 2020 (see our blog post here), the government has already committed to:

• establish a new Digital Markets Unit (DMU) tasked with putting into place the key elements of the new regime and housed within the CMA
• consult on proposals for the new pro-competition regime early next year
• legislate to put the DMU on a statutory footing as soon as parliamentary time allows

The government will now need to consider what other steps it will need to take in order to establish the new regime proposed by the DMT.

We set out below a summary of the key proposals.  The full text of the report is available here.

Key proposals

A Digital Markets Unit

The government should establish a Digital Markets Unit (DMU) to further the interests of consumers and citizens in digital markets, by promoting competition and innovation.  The DMU should be a centre of expertise and knowledge in relation to competition in digital markets. It should pro-actively ensure compliance with regulatory requirements and prevent harm from occurring rather than enforcing ex post.

A pro-competition regime for the most powerful digital firms

The government should establish a pro-competition ex ante framework, overseen by the DMU, for the most powerful digital firms with ‘Strategic Market Status’ (SMS).  The DMU should have the power to designate a firm with SMS where the firm has substantial, entrenched market power in at least one digital activity, providing it with a strategic position.  The SMS designation process should be open and transparent and the DMU should list its prioritisation rules for designation in formal guidance. Firms designated with SMS should be subject to:

• • An enforceable code of conduct that governs the behaviour of the SMS firm in relation to the digital activity providing it with a strategic position.  SMS firms should have a legal obligation to ensure their conduct is compliant with the code and should put in place measures aimed at promoting compliance
  • Pro-competitive interventions to address the sources of market power and increase opportunities for greater competition and innovation, such as personal data mobility, interoperability and data access
  • An SMS merger control regime operated by the CMA alongside the wider merger control regime, under which SMS firms would be required to report all transactions to the CMA, with a mandatory suspensory notification regime for transactions meeting clear-cut thresholds. The preferred option would be to assess the materiality of a transaction by reference to its transaction value.  The CMA is also proposing to include a “more cautious legal test” when examining possible harm to consumers in order to address concerns about historic under-enforcement of mergers involving big tech companies.

A modern competition and consumer regime for digital markets

In addition to the SMS regime, the DMU should have the power to monitor digital markets in general and advise on whether further reforms are needed. The report concludes that further action is necessary in particular in order to address the issue of unlawful or illegal content, to enable effective consumer choice in digital markets and to provide for stronger enforcement of the Platform to Business Regulation which is intended to create a fair, transparent and predictable business environment for smaller businesses and traders on online platforms.

A coherent regulatory landscape

The new pro-competition framework will need to be joined-up and coherent with sectoral regulation, data protection regulation and the government’s new regime for harmful online content.  The DMU should be able to work closely with other regulators with responsibility for digital markets, including Ofcom, the ICO and the FCA.

The DMU should also work closely with regulators in other jurisdictions given that the most powerful digital firms operate across jurisdictions globally. Proposed measures include information sharing between regulators and the creation of an international network of agencies in order to promote a coherent regulatory landscape.

Contacts