CMA publishes response supporting the Government’s establishment of the Digital Markets Unit and a new statutory code of conduct

UK – COMPETITION

Key date(s)

• 13 March 2019 – The Digital Competition Expert Panel Report on ‘Unlocking digital competition’ (the “DCEP Report”) (also called the ‘Furman Report’) is published which recommends that a Digital Markets Unit (“DMU”) is established.
• 8 December 2020 – The Digital Markets Taskforce (a function of the Competition and Markets Authority (“CMA”)) publishes advice to the Government which reiterates the need for a DMU be set up.
• 7 April 2021 – The DMU is launched in “shadow” form within the CMA and in future will be tasked with oversight of the UK’s new digital regulatory regime.
• 20 July 2021 – The Government launches consultation on proposals for legislative powers under a new pro-competition regime the (“Consultation”).
• 29 September 2021 - The CMA publishes its response to the Consultation (the “CMA Response”) which supports the creation of a new pro-competition regime for digital markets.

Status

• The formation of the DMU was first recommended in the Government-commissioned DCEP Report and subsequently accepted by the Government.
• The Government commissioned a further study by the CMA, published in July 2020, to investigate the lack of competition in digital markets. The CMA Report concurred with the DCEP Report and recommended to the Government that a DMU should be set up and given powers which the CMA does not currently possess to enable it to rectify competition concerns within digital markets.
• In light of the consistent recommendations (including from a Digital Markets Taskforce), the Government established the DMU in “shadow” form within the CMA in non-statutory form in April 2021 and published the Consultation in July 2021.
• The CMA published the CMA Response, supportive of the Consultation, and is currently working with other key regulators to carry out various activities tasked to the DMU, including: evidence gathering and engaging with stakeholders; preparing to support the Government on implementing the statutory regime; and assessing how codes of conduct could work regarding the relationship between digital platforms, small businesses, and advertising.
• It is anticipated that the Government will not table legislation until 2022 and accordingly the DMU will not be fully operational before then.

 What it hopes to achieve 

• The DMU will be set up within the CMA and work closely with other regulators such as Ofcom and the Information Commissioner’s Office.
• The focus of the DMU will be to oversee a new pro-competition regime for digital platforms including those funded by digital advertising.
• This pro-competition regime is seen as necessary to ensure that both consumers and smaller competitors are not disadvantaged by the practice of a small number of large technology incumbents which have amassed substantial market power and could potentially use such power to reduce innovation and curtail growth within the digital sector.
• The non-statutory DMU is tasked with both introducing and enforcing a new statutory code of conduct which will govern the behaviour of platforms it designates as having Strategic Market Status (“SMS”) within digital markets. Following the CMA Response, it is envisaged that the regime will be focused on firms with substantial and entrenched market power with the test being applied rigorously by the DMU.
• The CMA further supports the use of a code of conduct for SMS platforms and considers that the aims of the code would be best met by giving the DMU the power to devise legally binding obligations on platforms which can be tailored to the business models of each of them. The DMU could also be given powers to suspend, block, and reverse the actions of platforms who are designated as having SMS; be able to order such platforms to take actions which would bring about compliance with the code of conduct; and be given powers to impose financial penalties for non-compliance.

Who does it impact? 

• Digital platforms designated by the DMU as having SMS will be impacted through increased regulation by virtue of the statutory code of conduct.
• Smaller tech businesses also stand to benefit from increased competition in digital markets which the DMU will seek to bring about, while consumers will benefit by being given greater control over how their data is used.

Key points 

1. Tighter regulation for ‘Big Tech’

• • Although the exact form and function of the DMU in its non-”shadow” form is yet to be finalised (as well as the details of the code of conduct), digital platforms with considerable market power operating within the UK can expect to be subject to increased oversight and regulation.
  • The Government has acknowledged the significant contributions made to the economy by big technology platforms, however it is wary of the current concentration of power amongst a small number of such technology platforms and the impact this is having on growth in the sector

2. Greater consumer control over data

• • The Government hopes that the new statutory code of conduct will afford consumers greater choice and control over how their data is used. It is expected that the code will require platforms to be more transparent in relation to how consumer data is used.
  • It is also hoped that the improved competitive conditions brought about by the code will mean services will be forced to compete to offer better terms to consumers who do not wish to share their data. Currently, the lack of competition in search and social media markets means that consumers are left with little choice but to share their data, essentially a ‘take it or leave it’ offering

3. Benefits for small businesses

• • The Government has stated that the new regime will benefit smaller businesses by giving them fairer access to digital advertising and therefore allowing them to grow their online presence and promote their products online.

4. Wider digital policy
   • The Government intends for the new regulatory regime to complement other objectives of wider digital policy and regulatory interventions such as the new Online Harms regime and the National Data Strategy.

This blog post provides an overview of a key recent or upcoming development in digital regulation in the UK or EU as part of our horizon scanning timeline which can be found below.

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