New amendments to the Digital Markets, Competition and Consumers Bill signal a lighter touch approach towards CMA enforcement action

How do amendments to the Digital Markets, Competition and Consumer Bill (DMCC) impact the Competition and Markets Authority’s (CMA) ability to take regulatory enforcement action against companies designated as having Strategic Market Status?

The question

How do amendments to the Digital Markets, Competition and Consumer Bill (DMCC) impact the Competition and Markets Authority’s (CMA) ability to take regulatory enforcement action against companies designated as having Strategic Market Status? 

The key takeaway

Under new amendments to the DMCC, the CMA will be required to ensure that any enforcement action is proportionate and does not impose unnecessary burdens on businesses operating within the UKs pro-competition regime. 

The background

As well as marking the beginning of a new era of enhanced consumer protection in the UK, the DMCC is also set to introduce a new regulatory regime to address concerns around competition in the UKs digital industry and to regulate the companies active within it. 

Under the DMCC, the CMA will be able to designate large digital companies as having Strategic Market Status (SMS) where: (i) its activity is linked to the UK and meets conditions of having substantial and entrenched market power, and a position of strategic significance; and (ii) it has a turnover exceeding £1billion in the UK or £25billion globally. Where a company is designated as having SMS, they will also be required to abide by the DMCC’s code of conduct. The CMA will also have powers to make Pro-Competitive Interventions (PCIs) in order to address potentially adverse effects on competition. PCIs will allow the CMA to intervene in the market quickly and flexibly to promote competition. PCIs can take the form of an order from the CMA that imposes a conduct requirement on a company or a recommendation to a regulator of steps that should be taken in order to address a competition concern. 

The development

Recent amendments proposed by the UK Government have solidified proposals for the introduction of an appeals process for all regulatory decisions (excluding fines). This means that tech firms designated as having SMS will be able to challenge PCIs on proportionality grounds. This approach enables regulators and relevant tech firms to work together to ensure that competition is maintained throughout the market on an ongoing basis by virtue of ongoing discussions, rather than allowing legal challenges to cause the pro-competition regime that the DMCC seeks to introduce, to become bogged down as challenges to regulatory decisions work their way through the court system.

Furthermore, under the DMCC, the CMA has the ability to impose significant fines for anti-competitive behaviour that could reach into the billions of pounds. The amendments will allow companies to challenge these fines “on their merits” as a means of ensuring that regulatory fines are properly balanced by allowing significant checks and balances. The updates to the DMCC will also allow firms to challenge fines on the substance of the decisions, as well as scrutinising the process taken in order to reach the decision. 

Another core element of the proposed legislation is limiting the CMA’s ability to impose a conduct requirement or a PCI unless it is demonstrably proportionate to do so. The CMA must also be able to present significant evidence that suitably demonstrates the proportionality of the CMA’s decision. 

Why is this important?

The proposed updates to the DMCC highlight the Government’s “functional” regulatory approach that seeks to work with businesses rather than stifling the pro-competition environment the Government seeks to foster. Additionally, the proportionality requirements for enforcement action taken by the regulator will ensure that any enforcement action does not have an overly restrictive effect on companies within the digital environment. 

Any practical tips?

Whilst those companies that are likely to be designated as having SMS will already be aware of this, it is becoming increasingly important for companies to monitor the DMCC’s progress through Parliament to ensure that they are adequately prepared to comply with their incoming obligations. These new amendments will be particularly well-received by the platforms who do not want investigations or enforcement action to unnecessarily slow down their business plans, noting that many have already built in – or are building in – processes, including establishing specific working groups, to work with the CMA in the event of a PCI or a fine. 

Winter 2023