The Election Effect: potential impact on implementation of the DMCC Act and planned reform of UK investment screening rules

From a competition and foreign investment regulation perspective, the decision to call a general election earlier than previously anticipated has potential implications for two key areas in which important changes were planned under the current Government:

• The timing of implementation of the Digital Markets, Competition and Consumers (DMCC) Act 2024, which was pushed through Parliament on 24 May 2024 under the “wash-up” process; and
• The timing and scope of reforms of the UK's investment screening rules under the National Security and Investment (NSI) regime.

Timing of implementation of the DMCC Act

The DMCC Act is one of the few key pieces of legislation that made it through the two-day 'wash-up' period, receiving Royal Assent on 24 May 2024. The scope of the DMCC Act is wide-ranging, and includes:

• A new digital markets regime for the UK, which will see the most powerful technology firms with strategic market status (SMS) having their conduct regulated by the CMA and being subject to a new mandatory merger reporting requirement;
• Significant changes to the UK’s competition law regime, such as introducing a new merger control threshold and strengthening the CMA’s enforcement powers (including tougher penalties for failing to comply with statutory information requests); and
• Substantially strengthening the CMA’s role in the enforcement of consumer protection legislation, including enabling it to enforce legislation directly against companies rather than going through the courts. The DMCC Act also includes enhanced consumer protection rights, ensuring they keep pace with market developments, in particular the trend towards online retail and advertising.

For a detailed overview of the DMCC Act see our briefing here.

Most of the operative provisions of the DMCC Act have not taken immediate effect upon Royal Assent of the legislation and will need to be brought into force by implementing regulations.  The Act also provides for public consultation on the key legislative guidance, which will need to be signed off by the Secretary of State before it takes effect in final form.

In its provisional approach to implementing the new digital markets regime (see our blogpost here), the CMA's indicative timeline for the regime to take effect was October 2024, when it expected to launch its first SMS investigations. This remains the CMA's aim, with the first SMS designations and impositions of conduct requirements anticipated for July 2025.

The CMA is clearly keen to ensure there are no further delays to the new digital markets regime and managed to launch its consultation on the main draft guidance as soon as the DMCC Act received Royal Assent, and only hours before the end of the wash-up period when no new consultations can be launched unless there is special permission to do so.

The DMCC Act benefits from cross-party support so we do not anticipate any substantive issues or changes in policy approach as a result of the elections, but the timetable for its application will to a large extent now be determined by the next government.

Reform of investment screening rules

In April 2024 the UK Government confirmed its commitment to making pro-business changes to the NSI screening regime, in light of feedback from stakeholders gathered via a Call for Evidence issued in November 2023 (discussed in more detail in this blog post). In its response to the Call for Evidence the Government set out a series of next steps over a May 2024 – Autumn 2024 timeframe.

The first two of these steps – the publication of an updated statement on the exercise of the call-in power and updated Market Guidance Notes – were undertaken as planned shortly before the announcement of the general election (discussed in this blog post). However, there is now a degree of uncertainty as to the impact of the election on the remainder of the planned reforms – both in terms of timing and substance – namely:

• The launch of a public consultation originally planned for Summer 2024 on amendments to the definitions of the specified activities in 17 specified sectors which can trigger mandatory notification obligations under the NSI regime;
• The tabling of secondary legislation planned in Autumn 2024 to exempt the appointment of liquidators, official receivers and special administrators from the scope of mandatory notification requirements, with the Government also due to explore further the feasibility and impact of additional targeted exemptions for certain transactions, including internal reorganisations; and
• Consideration of further improvements to the NSI review process and ways to improve the online NSI notification portal.

We do not anticipate any significant change in the overall policy approach under the NSI regime whatever the outcome of the general election: it seems likely that a Labour government would seek to strike a similar balance between protecting UK national security and continuing to encourage investment into the UK.

However, the timing of any consultation on amendments to the mandatory notification sector definitions may well be pushed back, and it remains to be seen whether a Labour government would take a different approach to the narrowing or expansion of particular sectors. There is also uncertainty as to the timing and scope of any new targeted exemptions from mandatory notification under a Labour government.

More generally, it is also important for investors currently involved in transactions within scope of the NSI regime to be aware that the election may also result in delays in the review process in some cases, particularly where remedies or outright prohibition may be under consideration.

Our experience of dealing with the Investment Security Unit during changes of Secretary of State under the current government suggests that we are likely to see a slowdown in reaching a final decision for transactions currently under review or notified between now and 4 July 2024. This may increase the risk of a transaction being called-in for in-depth review at the end of the initial 30-day review period in circumstances where there has not been sufficient time to obtain input from other government departments under the "hub-and-spoke" assessment model and/or a final decision from a new Secretary of State.