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New Digital Regulators on the 2023 Horizon: the Digital Markets Unit and the European Centre for Algorithmic Transparency

02 December 2022. Published by David Cran, Head of IP & Tech and Chris Ross, Partner and Leonia Chesterfield, Of Counsel

Laying the DMU's foundations 

For a number of years, the UK Government has been laying the groundwork to bring in a digital markets regime to regulate digital firms designated as having ‘strategic market status’ (SMS). To be designated as having SMS, a firm must have 'substantial and entrenched market power' in at least one activity. Companies having SMS are likely to include the largest tech firms such as Amazon, Apple, Google, Microsoft and Meta (the so called 'GAMMA' firms). 

Building on the recommendations set out in the Furman report, these reforms establish a new digital markets regulator, the Digital Markets Unit (DMU) within the CMA, able to designate firms as having SMS and require adherence to codes of conduct. The DMU will also have the power to implement pro-competitive interventions (PCIs). See our earlier post on the new regime for digital markets.

The proposed consequences of non-compliance are significant. Where there are failures to comply with a code of conduct or PCI orders, it is proposed that the DMU will have the power to impose fines up to a maximum 10% of a firm’s global turnover for the most serious offences, with further daily penalties of up to 5% of daily worldwide turnover for continued breaches. Fines of 1% of global turnover may be imposed for information offences supported by further daily penalties of 5% of worldwide turnover for continued non-compliance.

Operating in the shadows

The DMU has been a long time coming and has already been operating in shadow form since 2021, undertaking preparatory work, gathering evidence and engaging with stakeholders across industry and government.  The shadow form DMU will also have had the benefit of the in-house expertise from within the CMA, including through its existing Data Technology and Analytics (DaTA) unit.   

However, the DMU still requires legislation to enable it to be fully operational and gain its formal statutory footing.  After various delays, momentum to finalise the legislative underpinning of the DMU is now underway. In May 2022, the Queen’s Speech announced a Draft Digital Markets, Competition and Consumer Bill to provide new powers to the DMU, promote competition, strengthen consumer rights and create new competition rules for digital markets and the largest tech firms in the UK. Following this, a report was published in late October 2022, by the Business, Energy and Industrial Strategy Committee which urged the Government to publish the draft Digital Markets, Competition and Consumer Bill ‘without delay’.  Our earlier post looks at the wider competition and consumer regime reforms included in that Bill. 

DMU coming into force - autumn 2023?

Chancellor Jeremy Hunt's announcement in the 2022 Autumn Statement referred to the Government’s intention to advance the progress of the Digital Markets, Competition and Consumer Bill to "foster more competitive digital markets; make changes to the competition framework that will include streamlined decision making and updating merger and fine thresholds; and protect consumers in fast-moving markets by tackling ‘subscription traps’ and fake reviews online.”  

The Government is aiming to publish the bill for legislative passage in the current Parliamentary session before introducing the bill in the session starting in May 2023.  It is expected that the DMU may come into being by October 2023. It has been reported there will be a DMU hub in Manchester as part of the CMA's wider presence there. 

A new European Centre for Algorithmic Transparency 

There are further institutional changes at EU level too. The EU's Digital Services Act (DSA), along with the Digital Markets Act (DMA), is part of the package of European legislation to regulate digital markets (see our post here in relation to the status of their implementation). The main aim of the DSA is to implement a new framework of obligations applying to all digital services to keep users safe from illegal goods, content or services, and to protect their fundamental rights online (see our previous post on the DSA). 

The DSA is now in force with implementing regulation firmly on its agenda. In further developments, last week, the Commission announced it is launching a new European Centre for Algorithmic Transparency, intended to provide support to the Commission as it enforces the risk management obligations under the DSA. The centre will be based mainly in Seville and is expected to be fully operational in the first quarter of 2023. The new body will support the enforcement of the new DSA rules and is reportedly in the process of recruiting.

Different UK/EU approaches

As the Digital Markets, Competition and Consumer Bill makes its way through Parliament, there are likely to be further changes to the final legislation.  However, as it stands, the UK approach to regulating digital markets is likely to be markedly different to the EU's regime.  The proposed UK regime is lighter on the detail as to what would be prohibited conduct. It is arguably more flexible in its approach and may allow for a more nuanced enforcement regime than as laid down in the EU regime which is far more prescriptive.  

With significant institutional changes on the horizon at both UK and EU level affecting the regulatory and enforcement landscape for digital markets, 2023 certainly looks to be a significant year in terms of reforms affecting the tech sector.