CMA issues guidance to government on new pro-competition regime

09.12.2020

The Competition and Markets Authority (‘CMA’) has issued guidance to Government setting out its recommendations on the implementation of the new competition regime for digital markets. The CMA plans to shape the behaviour of platforms with significant market power (‘strategic market status’) in creating a ‘modern regulatory regime fit for the digital age’. The guidance has been produced by the Digital Markets Taskforce, a group commissioned by the government and led by the CMA (supported by the expertise of Ofcom and the ICO).

As set out in our previous post, the CMA has called for the introduction of greater scrutiny and regulation of digital platforms in the UK. Following the Furman Report on unlocking digital competition, the CMA published its market study on ‘online platforms and digital advertising’ which established a lack of competition in digital markets, resulting in higher prices and reduced choice for consumers. The CMA recommended the creation of the Digital Markets Unit (‘DMU’), a new independent regulatory body to implement and oversee enforcement of the regime. The CMA sets out in its advice that the DMU should be a ‘centre of expertise’ on digital markets, with the capability to understand the business models of digital firms, including the role of data and the incentives driving how these firms operate.[1]

The CMA sets out three key proposed pillars of the new regime:

Code of conduct

  • The DMU will design and oversee a new legally binding code to govern elements of tech firms’ business with other companies and users, which envisages significant penalties to address any concerns
  • The code will prevent firms with strategic market status from taking advantage of their powerful positions in the activities that give rise to their market power
  • Pro-competition and pro-innovation regulation

Pro-competitive interventions

  • These interventions would be designed to address sources of market power by allowing innovation in the market
  • The DMU will have the power to enforce remedies such as personal data mobility and interoperability, to address barriers to entry

Enhanced merger rules

  • The CMA the opportunity to review transactions involving firms with strategic market status; transactions that meet clear-cut thresholds should be subject to mandatory notification, with completion prohibited prior to clearance
  • Competition concerns should be assessed using the existing substantive test but to a lower and more cautious standard of proof

The advice stresses the importance of the ‘ex-ante’ nature of the regime, to proactively prevent harm in the digital market. The CMA intends to balance a compliance culture with strong deterrents and tough sanctions for harm, with a participative approach where the DMU can engage with companies to achieve effective results.[2]

The CMA guidance comes just weeks before Brexit, after which the CMA will have wide powers of intervention in the UK. The CMA awaits the government’s commitment to consult on proposals for a new pro-competition regime in early 2021 and to legislate for the establishment of the DMU, with the intention that work will begin in April 2021.

The European Commission is also set to publish new regulatory plans for powerful tech companies on 15 December, in the form of the Digital Services Act and the Digital Markets Act, which will focus on addressing illegal content and unfair behaviour.

Whilst the application of this new regime is focussed on digital markets, a number of these proposals will give rise to fundamental differences in how competition law is applied in the UK. It will mean the introduction of a mandatory prior notification merger regime in the UK for the first time in respect of those firms with ‘strategic market status’, coming hot on the heels of the proposed mandatory notification requirements under the Government’s new National Security and Investment Bill. It remains to be seen whether these are the first step to broader reforms in the merger space as the CMA flexes its post-Brexit muscles.[3]

[1] Advice of the Digital Markets Taskforce, paragraph 6.
[2] Ibid., paragraph 14.
[3] National Security and Investment Bill, paragraph 6.

Stephen Smith

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Isobel Thomas

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