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CMA Publishes Digital Markets Taskforce Advice to UK Government on the Design and Implementation of a New Regime for the Regulation of Digital Markets

9th December 2020

On 8 December 2020, the Competition and Markets Authority (CMA) published the advice of the Digital Markets Taskforce (DMT) to the UK Government on the design and implementation of a new pro-competition regime for digital markets. The advice is still fairly high level and as always, the devil is in the detail. This is unlikely to emerge until the Government publishes a consultation document in early 2021.

The UK Government had previously asked the CMA to establish a Digital Markets Taskforce incorporating expertise from Ofcom and the Information Commissioner’s Office, to consider the practical application of the recommendations of the Digital Competition Expert Panel (the Furman Review) on certain pro-competitive measures relating to digital platforms and the recommendations in the CMA’s final report on the market study into online platforms and digital advertising. The Government has previously given the green light to both bodies’ recommendations.

The Taskforce’s advice primarily relates to the establishment of a Digital Markets Unit (DMU) responsible for a new regime for regulating digital firms with “Strategic Market Status” (SMS) otherwise known as the Platforms Regulator which will sit within the CMA.

So, what firms will have SMS? The DMT suggests that the procedure for assessing whether a particular firm has SMS should be based on an evidence-based economic assessment as to whether a firm has substantial, entrenched market power in at least one digital activity, providing the firm with a strategic position. It defines strategic position as meaning the effects of its market power are likely to be particularly widespread and/or significant on customers or consumers or the market as a whole. It hopes this method of assessment will focus on the very factors which may give rise to harm, and which motivate the need for regulatory intervention.

The Taskforce’s principal recommendations were as follows:

  • A new, legally binding code of conduct, tailored to each firm found to have SMS, designed and overseen by the DMU. The code will help to shape the behaviour of powerful digital firms/platforms. It stated that the DMU should have a range of powers to address any concerns, including the potential for significant penalties. The DMT singles out a number of areas where action needs to be taken based on existing evidence and experience. These areas include:
    1. action to address unlawful or illegal content, such as fake online reviews and scam advertisements, hosted on platforms which could result in economic detriment to consumers and businesses;
    2. action to enable effective consumer choice in digital markets, including by addressing instances where choice architecture leads to consumer harm; and
    3. stronger enforcement of the Platform to Business Regulation which lays down certain obligations on Platforms about how those who sell goods via their platforms.
  • Pro-competitive interventions that seek to address the sources of market power and drive longer-term dynamic changes in these activities, opening up opportunities for greater competition and innovation.
  • Enhanced merger rules, which would enable the CMA to apply closer scrutiny to transactions involving SMS firms. This would include mandatory pre-notification of certain transactions by SMS firms, imposing a block on completing a deal until the CMA had investigated, and a reduced threshold of proof based on the likelihood of harm to consumers.

The Taskforce has set out recommendations relating to each of the above elements, as well as on the objectives of the DMU, its DMU’s monitoring and enforcement powers, and its procedures and information-gathering powers.

The DMT also recommended that the DMU be given a wider duty to monitor digital markets generally and take action, including making market investigation references. In addition, the Taskforce makes recommendations for reforms to the existing consumer protection rules and the competition rules (particularly in relation to markets) to allow action to be taken in relation to firms without SMS

So, what happens next?

The DMT welcomes the Government’s commitment to establish the DMU from April 2021 within the CMA. It also recognises that the Government has committed to consult on proposals for a new pro-competition regime in early 2021.

However, it urges the Government to move quickly to put the DMU on a statutory footing mindful of the fact that there is likely to be considerable pressure on Parliamentary time. It states that this should be done sooner rather than later. It makes the point that similar action is being pursued across the globe and there now is a clear opportunity for the UK to lead the way in “championing a modern pro-competition, pro-innovation regime for the UK economy.”

Author: Robert Bell, Head of Competition & Regulatory