CMA advises government on new regulatory regime for tech giants

The CMA has issued advice to government on the design and implementation of the UK’s new pro-competition regime for digital markets.

The advice has been produced by the Digital Markets Taskforce, commissioned by the government in March and led by the Competition and Markets Authority (CMA), working together with the UK's Ofice of Communications (Ofcom), the Information Commissioner's Office (ICO) and the Financial Conduct Authority (FCA).

It outlines a modern regulatory regime fit for the digital age – one that is forward-looking, targeted and enables quick results to harness the full potential of digital markets, driving greater competition and innovation.

If implemented, the new regime will govern the most powerful tech firms – those with ‘strategic market status’ (SMS) – meaning those with substantial, entrenched market power and where the effects of that market power are particularly widespread or significant. A new ‘Digital Markets Unit’ (DMU) will ensure the ‘rules of the game’ are clear up-front, and work with powerful tech firms to ensure they comply with them.

The three key proposed pillars of the regime for SMS firms are:

• A new, legally binding code of conduct, tailored to each firm and to where the evidence demonstrates problems might occur, designed and overseen by the DMU. The code will help to shape the behaviour of powerful digital firms, up front, and govern elements of how they do business with other companies and treat their users. There will be a range of powers available to the DMU to address any concerns, including the potential for significant penalties.

• Pro-competitive interventions, which can be used to address the sources of market power, allow competition to flourish and unlock the potential for transformative innovation by others in the market. An example of such an intervention could be imposing interoperability requirements on tech firms and better enabling consumers to control and share data.

• Enhanced merger rules, which would enable the CMA to apply closer scrutiny to transactions involving SMS firms. This would include it being mandatory to notify the CMA of a transaction, imposing a block on completing a deal until the CMA had investigated, and a change to more cautious legal test when looking at the likelihood of harm to consumers in order to address concerns about historic under-enforcement of mergers involving big tech firms.

The government announced last week that the DMU would sit within the CMA. The new regime will become part of a wider regulatory framework for digital markets, including the new regime for harmful online content, and data protection laws. The CMA is now working with Ofcom, the ICO and FCA through the Digital Regulation Cooperation Forum, to consider the steps that should be taken to ensure adequate coordination, capability and clarity across all digital regulation.

Following receipt of this advice, the government has committed to consult on proposals for a new pro-competition regime in early 2021 and to legislate to put the DMU on a statutory footing when parliamentary time allows. The taskforce has urged government to move quickly in taking this legislation forward, to take advantage of the clear opportunity for the UK to lead the way in championing a modern pro-competition, pro-innovation regime.