Earlier this month, the government published its response to the July 2021 consultation on the new pro-competition regime for digital markets. In this publication, the government responded to feedback from a range of respondents (including technology firms, trade associations and academics) on the design of the new regime, indicating to businesses what the upcoming final legislation and associated guidance will look like.
Digital Markets Unit (DMU)
The DMU was established to lead the implementation and enforcement of the new pro-competition regime. In response to feedback, the government confirmed that the DMU will be an independent regulator within the CMA and that it will receive strategic direction from the government as to its wider steer.
The government also confirmed that the main objective of the DMU will be to promote competition in digital markets for the benefit of consumers and that innovation will not be a part of the DMU’s core principles. In addition, it will be statutorily obliged to work with other regulators, including the FCA, Ofcom, the ICO, the Bank of England and the Prudential Regulation Authority, where proportionate and relevant to enhance DMU’s specialist knowledge and manage overlaps in regulatory remits.
Businesses will also be glad to hear that, to avoid potential burden on firms and duplication of CMA pre-existing responsibilities, the DMU will not have broader monitoring powers beyond the regime's scope (contrary to previous suggestions).
Strategic Market Status
To be captured under the remit of the new regime, a business must be involved in “digital activities” and fall within the threshold for Strategic Market Status (SMS). “Digital activities” is currently undefined, but the definition will be “clear and easy to apply”.
SMS will only be given to a small number of powerful firms which meet the threshold based on an evidence-driven and focused assessment (which includes a minimum revenue threshold). The government indicated that the criteria used to assess whether a firm has a strategic position will be exhaustive and set out in legislation. The DMU must designate SMS firms within nine months (extendable by three months).
Conduct requirements and DMU actions
If a business is designated with SMS, it will have to abide by conduct requirements to prevent future harmful behaviour for consumers. The conduct requirements will be based on the objectives of "fair trading", "open choices" and "trust and transparency", with the government confirming that the categories of conduct requirements will be set out in legislation (but can be amended) and that the DMU will have the power to place individual requirements on specific businesses.
Conduct requirements will be subject to an exemption to ensure that conduct which brings about net consumer benefits will not breach conduct requirements.
The DMU will also have direction over pro-competitive interventions to be imposed on businesses with SMS, which will be proportionate, evidence-driven remedies to address an "adverse effect on competition" (e.g. the power to implement ownership separation).
Finally, the DMU will be empowered to impose fines up to a maximum of 10% of a firm's global turnover for serious breaches of the new regime’s regulatory framework and senior managers may be liable for civil penalties. This is caveated by the DMU decisions being subject to judicial review principles.
The new regime will be brought into force by legislation when Parliamentary time allows.