CMA publishes provisional approach to implementing the new Digital Markets competition regime

On 11 January 2024, the Competition and Markets Authority (CMA) published an overview of its provisional approach on how it plans to implement the new Digital Markets competition regime created under Part 1 of the Digital Markets, Competition and Consumers Bill (DMCC Bill). The overview document is a response to the Government's request for the CMA to set out its plans and proposed timelines for implementing the new regime. It therefore currently represents a provisional overview as the DMCC Bill is still going through Parliament and may be further amended. A more detailed final version will be published once the Bill receives Royal Assent, expected in Spring 2024.

The overview document contains the principles that will guide the CMA's approach in its new role, lists the CMA's target outcomes, sets out how the CMA's actions will be reviewed, how it will be held to account and how it will work with firms with strategic market status (SMS) and stakeholders under the new regime. The CMA makes it clear that it is committed to taking a targeted, evidence-based, and proportionate approach under the new regime and flags that it will engage extensively with stakeholders and deal with problems quickly, transparently and in a technology-neutral way.

Once the legislation is adopted, the CMA will also consult on draft guidance relating to the main components of the regime, including on its assessment of substantial and entrenched market power and how it will assess whether a firm has a position of strategic significance, and on its proposed approach to imposing and monitoring compliance with conduct requirements and pro-competition interventions.

The new Digital Markets competition regime

The Digital Markets competition regime is a new ex-ante regulatory regime for digital markets, created under the DMCC Bill. It creates a new pro-competition regime for digital markets designed to proactively shape the behaviour of the most powerful technology undertakings which are designated with SMS.

Once an undertaking is designated with SMS, the CMA will set out how it is expected to behave in respect of the activities for which it is designated, through conduct requirements. These will typically relate to requirements to trade on fair and reasonable terms, having effective complaints and dispute resolution systems and providing clear and accessible information. In addition, the CMA will be able to impose pro-competition interventions which aim to address the root causes of an undertaking's entrenched market power, where there exists an adverse effect on competition. For a full overview of the new regime see our blog post here.

Indicative timeline

The DMCC Bill is currently before Parliament and is expected to receive Royal Assent in Spring 2024. The CMA's indicative timeline in its overview document is based on Royal Assent for the Bill in April 2024 and commencement of the legislation in October 2024, when the CMA is expected to launch its first SMS investigations. Under this proposed timeframe, the first SMS designations, and associated conduct requirements, are therefore anticipated for July 2025. The precise timing is subject to the Bill's progress in Parliament as well as the necessary secondary legislation.

The CMA expects that it will be launching around three to four SMS investigations during the first year of the new regime.

Operating principles

The CMA also uses the overview document to identify the principles that will underpin its approach under the new Digital Markets competition regime. The CMA will tailor its actions to the specific problems identified and will focus its actions where they can have the most impact for people, businesses and the economy. Outcomes will be measured and will inform the CMA's future decisions.

The CMA will continue to use its existing competition, markets, consumer and merger powers where these are better suited to dealing with harmful conduct by SMS firms, for example in order to tackle certain types of anti-competitive agreements that fall outside the scope of the regime, or where issues arise in digital markets as a result of behaviour by non-SMS firms.

A technology-neutral approach will ensure that the effectiveness of interventions does not rely on the use of current technology or supply chain structures and will help future-proof actions, allowing the market to decide what technology is best suited for achieving a particular goal.

The CMA is also committed to operating with transparency, by providing appropriate information about its activities and its decisions to stakeholders with an interest in and who are affected by its work, while protecting the confidentiality of those who provide the CMA with sensitive information.

Engagement with SMS firms and other stakeholders

The CMA intends to build productive relationships with firms designated with SMS status. While it considers that it has a good level of existing knowledge about digital markets, it acknowledges that it will need to develop an excellent understanding of how SMS firms operate in relation to the digital activity for which they are designated as having SMS. The greater the CMA's understanding of an SMS firm's digital activities, the better it will be able to design effective and proportionate interventions. In many cases, the CMA states that it will leave it up to the SMS firm to decide on the actions to be taken to comply with any requirements imposed under the regime.

The CMA will also request input from consumers, businesses, investors and wider third parties in delivering its role in order to understand their concerns and design appropriate interventions.

In order to maximise synergies and minimise unnecessary regulatory divergence, the CMA will liaise closely with regulators and other authorities across the world, including the US Federal Trade Commission and Department of Justice, the European Commission, the Australian Competition and Consumer Commission and many others.

Review of the CMA's actions

The CMA Board is directly accountable to Parliament for all CMA decisions (whether taken by the Board itself or delegated to CMA staff). The DMCC Bill specifies that several of the decisions taken by the CMA under the new regime must be made by the CMA Board or a Committee of the Board. For the Committee, the DMCC Bill requires that at least two members must be non-executive Board members and at least half of the members must be non-executive Board members or CMA panel members. These requirements will ensure that a range of experience and objective perspectives guide the most significant decisions in the regime, so as to improve the quality of decision-making and further guard against the risk of confirmation bias.

The standard of review of the CMA's decisions under the Digital Markets competition regime before the courts has been the subject of much debate, with certain stakeholders, including large tech companies, lobbying for a full merits appeal before the Competition Appeal Tribunal as opposed to a lighter touch judicial review approach. As the DMCC Bill currently stands, the CMA's decisions on SMS, the imposition of conduct requirements and pro-competition interventions and the decision on whether there has been a breach of a conduct requirement will be subject to appeal on judicial review grounds. However, following an amendment introduced at the House of Commons report stage, the CMA's penalty decisions under the new regime will be subject to a full merits appeal.

Operational readiness

Over the last few years, the CMA has built up considerable expertise in digital markets through some of its market studies (mobile ecosystems and online platforms and digital advertising) and a number of competition and consumer law enforcement cases related to digital markets. As part of the Digital Regulation Cooperation Forum it has collectively published research on a range of topics including Online Choice Architecture (see our recent related blog post here), Online Safety and Competition in Digital Markets and The Benefits and Harms of Algorithms.

The CMA has also grown its capacity and skills and has a phased recruitment plan to build up to a total of around 200 people working across the CMA to implement the new regime.

Comment

The Digital Markets competition regime is the UK's equivalent to the EU Digital Markets Act, which  is aimed at improving the contestability and fairness of digital markets, by imposing obligations and prohibitions on companies that provide “core platform services” and are designated as “gatekeepers” by the European Commission.

The government has made it clear that it has consciously taken a different approach to that under the DMA and has avoided setting out a list of prohibited actions for large digital firms.  Instead it intends to adopt a more tailored and flexible approach, focusing on resolving concerns through constructive engagement and ongoing dialogue between SMS firms and the CMA.  We will have to wait and see the regime in operation before it will be possible to compare the two regimes, but the CMA's provisional approach in its overview document clearly endorses this targeted and collaborative approach.