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UK Digital Markets Unit to start operations in April

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27 November 2020

UK Digital Markets Unit to start operations in April as Government takes forward CMA’s calls for new regulatory regime for online platforms.

The UK Government is committed to taking action to protect businesses and users from the potential harms associated with enduring market power in digital platform markets. This is the clear message coming out of its response to the Competition and Markets Authority (CMA)’s findings in the market study into online platforms and digital advertising markets. The upshot: a new Digital Markets Unit (DMU) will, from April 2021, introduce and enforce a code of conduct for digital platforms designated as having “strategic market status” (SMS) and will have powers to impose remedies to tackle the sources of market power.

The CMA’s recommendations: a brand new regulatory regime

The CMA’s final market study report, published on 1 July 2020, found a number of concerns over the way the market operates – in short, that the strong market positions of Facebook and Google, combined with market characteristics that inhibit entry and expansion, mean that rivals cannot compete on equal terms, leading to weakened competition (see our alert for more details). However, rather than open an in-depth market investigation, the CMA chose instead to make a number of recommendations to the Government, building on the proposals set out in the 2019 Furman Report and calling for an entirely new regulatory regime to address the issues it identified.

The Government’s endorsement

The Government endorsed the recommendations made by the Furman Report in March 2020. Now, the Government has (in most respects) accepted the CMA’s market study findings and its proposals. In particular, it accepts that existing competition tools are insufficient to tackle the harms in these markets. It therefore supports:

1. The introduction of an enforceable code of conduct to govern the behaviour of platforms designated as having SMS.

The Government notes that code will provide designated SMS firms with clear expectations over what behaviour is acceptable when interacting with customers, users and competitors. It will address anti-competitive behaviour and enhance choice and control for consumers. Also, in line with recommendations in the Cairncross Review, the code will promote greater fairness in relationships between platforms and their business customers, including news publishers – a key step, says the Government, in “ensuring the sustainability of high-quality journalism and news publishing”. As for the definition of SMS and which firms will be designated as such, the Digital Markets Taskforce – commissioned by the Government earlier this year and formally launched by the CMA alongside its publication of the market study findings – will provide advice on these points, as well as on the potential design and implementation of the code. The Taskforce is due to report by the end of the year.

2. A DMU to introduce and maintain the code

The idea is that a newly established DMU will carry out the SMS designation, maintain the code and produce supporting guidance. There had initially been some uncertainty as to where the DMU would sit. In its response, the Government is clear that it will be established within the CMA. It will operate from April 2021, and the CMA’s budget will be increased in order to reflect its new responsibilities. The Government plans to consult on the DMU’s form and function in early 2021. It will be interesting to see if (like the Taskforce) it will be comprised not only of CMA staff, but also officials from other regulators, such as Ofcom and the Information Commissioners Office (ICO). More generally, coordination amongst regulators is clearly important to the Government – it notes that it will work with the Digital Regulation Cooperation Forum (set up by the CMA, Ofcom and the ICO to work towards a joined up regulatory response across the broader UK digital economy) to ensure that the new regime is coherent and effective.

3. The DMU having powers to enforce the code

These include the ability to suspend, block and reverse decisions of firms having SMS. There will be financial penalties for non-compliance. However, the Government recognises the need to carefully consider how the DMU’s powers fit into the existing regulatory landscape (ie the competition, data protection and telecoms/media regulation regimes). We expect the consultation to seek views on this point.

4. The DMU also having powers to introduce “pro-competitive interventions” 

The CMA recommended various types of intervention designed to tackle the sources of market power by overcoming barriers to entry and expansion. These include data-related remedies, greater interoperability, intervention to introduce consumer choice and address the power of defaults, and, most radically, structural separation. When the CMA published its market study report, we queried what the Government would make of the structural separation power (recognising that this is not unprecedented in the UK given the CMA’s powers to require divestment and separation as a remedy following a market investigation reference). In its response the Government remains unconvinced. While it agrees in principle with giving pro-competition powers to the DMU, it notes that “these interventions are complex and come with significant policy and implementation risks”. It goes on to say that more work is needed to understand the “likely benefits, risks and possible unintended consequences” of the range of proposed interventions. It will be very interesting to see where the Government comes out on this particular proposal.

Next steps

The Government is keen to get the new regime up and running as soon as possible. It “recognises the need for urgent action”. Timing is likely to be tight – the Government must consider the advice of the Taskforce (which, as noted above, is due out by the end of 2020), consult on the parameters of the new regime and pass legislation for its establishment. All before April 2021. But it has the full support of the CMA, which has welcomed the Government’s response, saying that it “stands ready to support the setup” of the DMU. However, there is a sting in the tail of the CMA’s press release: it repeats previous warnings that, after the work of the Taskforce has concluded, the CMA will assess whether it thinks the Government is doing enough to address the issues raised in the market study. If it concludes it is not, the CMA will consider taking direct action. According to an interview by CMA CEO Andrea Coscelli with the Financial Times in October, this may include opening market investigations into Facebook and Google.

The wider picture

Looking beyond the UK, other antitrust authorities and governments are progressing their own reform initiatives in the digital space. In the U.S., for example, a Department of Justice suit against Google has been hailed as the most significant U.S. antitrust case against a tech firm since 1998. In Germany, proposals for rules which would enable the Federal Cartel Office to act against firms with “paramount significance for competition” are currently making their way through Parliament. And on 9 December the European Commission will publish its much anticipated Digital Markets Act (alongside its Digital Services Act), which is set to establish a new tool to address structural competition problems in digital markets (akin to the UK’s market investigation regime), and introduce a digital platform regulation setting out a list of prohibited or problematic practices and enabling the Commission to impose remedies on a case-by-case basis.

A final word on the UK competition regime: the Government notes in its response that these steps to regulate digital markets will form part of wider work to improve the UK’s approach to competition policy. This will be music to the ears of the CMA, which has been calling for reforms for the past two years. The Government says it will consult on these during 2021. As the UK gets ready for a post-Brexit world, it is clear that the Government wants to ensure that it retains its reputation as a leader on the global antitrust stage, with a competition regime to match.