SOON TO BE IN FORCE – NEW COMPETITION LAWS TO REGULATE DIGITAL MARKETS AND PROTECT CONSUMERS


The Digital Markets, Competition and Consumers Bill (the Bill) introduces long awaited reforms which are expected to come into force in the second half of 2024. While the upfront regulation of digital markets has been the main headline, some fundamental changes are afoot in the consumer protection sphere, combined with enhanced powers to investigate companies that breach competition law. In this briefing, we cover the key developments which your business needs to be aware of to ensure timely compliance with the new rules. 

Digital Markets

Regulation of individual companies active in digital markets


Companies active in the digital space need to be aware of new powers included within the Bill enabling the CMA to regulate certain individual digital companies.  These were introduced on 25 April 2023 as part of the long-awaited draft Bill and will likely come into force in the second half of 2024.

Unlike the existing general competition law rules, the new digital powers enable the CMA, through its new Digital Markets Unit (DMU), to impose regulation on certain individual companies "ex ante" without prior evidence of a breach of the competition law rules.

Will my company fall within the scope of the new digital regime?

The new rules will only apply to very large businesses (with global turnover exceeding £25bn, or UK turnover exceeding £1bn).  Above these thresholds, companies will be caught if they are engaged in "digital activities linked to the UK"; a very broad term that captures the provision of services using the internet as well as the provision of digital content.  However, businesses that rely on these large companies e.g. to sell online or reach customers, or those that compete with them, may benefit from an ex-ante regime that will apply to their interactions.

If within scope, what does this mean for my company?

For businesses that fall within the scope of the rules, the DMU will have the power to designate (following a short investigation) individual companies as having Strategic Market Status (SMS). Having designated a firm as having SMS, the DMU will then impose (following public consultation) a bespoke Code of Conduct regulating the firm's activities and may impose sanctions (including corporate and individual fines) should the firm breach the Code requirements.

The DMU will also be able to tackle the root causes of competition issues in digital markets by carrying out targeted interventions (Pro-Competitive Interventions), opening up new paths for start-ups or smaller firms that have previously struggled to grow and compete in these markets.  These could include, for example, an Order for an SMS firm to break down restrictive technical barriers that block users from using products on different devices or an Order to ensure separation of business units to stop a firm favouring its own downstream business.

What factors will the DMU take into account in deciding whether a firm has SMS?

SMS is based on whether a firm has “substantial and entrenched market power” and “a position of strategic significance”. In determining whether market power is "entrenched", the CMA will be required to look ahead by at least 5 years and consider potential market developments. This no doubt will be one area where there is scope for divergent views. In practice, it is expected that the DMU will start by designating the largest tech companies that the CMA has already been scrutinising in recent years through market studies and competition investigations.

What types of behaviour with be included with a Code of Conduct?

Codes will likely include requirements on a SMS firm to provide more choice and transparency through for example instructions to open-up their data to rival search engines, or to increase the transparency of how their app store or marketplace review systems work. Notably, the CMA's ability to create bespoke Codes of Conduct differs from the EU regime recently introduced via the Digital Markets Act, where conduct requirements are already prescribed and will be the same for all designated firms.

So if my company is not in scope, are there any implications for my company?

For start-ups and smaller digital companies, the reforms provide opportunities and consideration should be given as to how best to influence the DMU on its priorities for SMS investigation and the contents of any subsequent Code of Conduct.  The same may be true of businesses that rely on tech companies to reach their customers.

If my company is likely to be in scope, should we be doing anything now in anticipation of the new rules?

The largest tech companies will already be mindful of the on-going compliance and commercial implications of having to comply with a potential SMS Code of Conduct.  The investigation period for the DMU to determine SMS designation is incredibly short, so firms likely to be on the DMU's priority list would be wise to start work sooner rather than later to be well placed to influence the DMU's investigation and subsequent code provisions.

Consumer Protection

Significant new powers to enforce consumer protection laws


What is going to change?

The headline change is that the CMA will be equipped with much stronger enforcement powers in the field of consumer protection. Whereas under the current regime, the CMA can only enforce consumer protection indirectly – by threatening or making a Court application, the new rules will allow the CMA to enforce consumer laws directly. Specifically, at the end of investigations, the CMA will be able to issue infringement notices, impose sanctions and negotiate consumer compensation. Sanctions for consumer law breaches will be subject to a maximum fine of up to 10% of global annual turnover for companies and up to £300,000 for individuals.

Alongside this, the new rules will consolidate the existing list of unfair commercial practices and add new consumer protection offences and duties in relation to subscription contracts, savings schemes and fake reviews. The Secretary of State will also have the power to add more practices to the list in future, to ensure the law keeps up with new market developments.  

What consumer legislation will the CMA be able to enforce using new powers?

Schedule 14 of the Bill provides a helpful list of the relevant consumer legislation which the CMA will have power to directly enforce. This includes consumer protection rules contained in the Consumer Rights Act 2015, the Consumer Credit Act 1974, the unfair commercial practices currently contained in the Consumer Protection from Unfair Trading Regulations 2008 (which are being incorporated into the Bill) as well as the new consumer protection offences and duties mentioned above which are covered under the Bill (e.g. regarding subscription contracts).

The devil is in the detail, so it is imperative for firms to ensure they are familiar with the consumer legislation that is applicable to their business. By way of example, the CMA will have authority to directly enforce consumer information requirements against merchants who do not accept all types of card payments, which is currently covered under the 2015 Interchange Fees Regulation (as amended).

What will be the CMA's enforcement priorities?

To the extent unfair commercial practices have a bearing on the cost of living crisis, we expect the CMA to prioritise these as this would be in line with its annual plan of work. For further insights on the CMA and other UK competition regulators' priorities for 2023/24, see our April 2023 publication highlighting common trends.

Over the past 18 months, the CMA has already signposted some consumer protection areas of key interest, with ongoing investigations under its current powers including:

We also anticipate that the CMA will be keen to use its powers in relation to the new unfair commercial practices being targeted pursuant to the Bill, namely aspects relating to subscription contracts, consumer saving schemes and fake reviews – the latter are already the subject of an ongoing investigation against Amazon and Google.  

Other authorities currently have the ability to enforce consumer protection laws – will this remain the case once the Bill is enacted?

Yes – although the Bill arguably shifts the balance towards the CMA (since only the CMA will have direct enforcement powers), and whilst the new rules will require other enforcers to notify the CMA when they take certain steps, there is no reciprocal requirement on the CMA.

Can consumers seek redress via the CMA?

Consumers can raise concerns with the CMA, and this may prompt the CMA to open an investigation if the case meets its enforcement prioritisation principles. Whilst awarding damages to consumers is not part of the CMA's regulatory toolbox, under the Bill, consumer compensation may be awarded via court order or negotiated through undertakings. The Bill also seeks to encourage the smoother resolution of consumer disputes by introducing new requirements in relation to the use of Alternative Dispute Resolution (ADR) mechanisms.

Should my company be doing anything now in anticipation of the new legislation?

Yes – while the Bill has only just been introduced in Parliament, we would expect its passage to be relatively smooth, as the reforms have already been widely consulted on. Now is a good time to ensure you are familiar with the consumer protection rules relevant to your particular sector and to review your consumer contracts and applicable T&Cs – in particular, any subscription provisions and ADR mechanisms. You should also revisit your risk management and mitigation – and consider training, processes etc. – given the new risk profile.

Competition Law

Enhanced powers to investigate companies that breach competition law


What are the key changes I should be aware of?

As anticipated, the DMCC also introduces changes to the existing competition regime.  These include changes that further expand the CMA's role to capture extraterritorial antitrust conduct and others that bolster the CMA's investigation powers.   

The reforms also extend to the merger control rules, where new jurisdictional thresholds are introduced, and to the market inquiry regime, where the CMA will be able to extend or supplement remedies without opening a new investigation and will also have the power to issue fines of up to 5% of turnover for breach of existing orders and undertakings. This will be of particular relevance to banks, supermarkets, insurers and certain organisations in the health sector.

What are the key new powers of investigation?

Firms will need to refresh dawn raid procedures to deal with the CMA's new seize and sift power at domestic premises (with a warrant) and power to obtain information remotely (without a warrant).

Businesses caught up in a CMA investigation will face the prospect of significantly increased corporate fines for failure to cooperate and the CMA will also have the power to interview employees from third party competitors and customers.

Are there any implications for businesses active outside the UK?

In short yes, the Chapter I prohibition will be amended to apply to agreements implemented outside of the UK, where there are (or are likely to be) direct, substantial, and foreseeable effects within the UK.  This will empower the CMA to take enforcement action in situations where EU companies engage in conduct (e.g. price fixing, resale price maintenance, geo-blocking) that is implemented in the EU but has anti-competitive effects in the UK.

Are there any changes to the merger control rules?

The merger control rules will remain voluntary and non-suspensory.  The main change is the introduction of an “acquirer-focused” jurisdictional threshold that will be met if one of the parties supplies at least 33% of goods or services in the UK and has UK turnover of over £350m, and the other party is a UK business.  This will enable the CMA to investigate acquisitions of start-ups or potential new entrants by powerful market players (so called "killer acquisitions") as well as the acquisition of businesses active in an upstream or downstream market.

Key Contacts

Rona Bar-Isaac

Rona Bar-Isaac

Partner, Head of Competition, Co-Head of Retail & Consumer Sector
London, UK

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Al Mangan

Al Mangan

Partner, Competition & Regulation
London

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Mark Crane

Mark Crane

Partner, Competition
Manchester

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Sarah Randall

Sarah Randall

Partner, Competition
London

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Victoire Binchet

Victoire Binchet

Senior Knowledge Lawyer, Competition
London

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