New digital competition reforms receive royal assent

The Digital Markets, Competition and Consumers (DMCC) Act establishes a new regime for digital competition in the UK. The Act also updates the Competition and Markets Authority’s (CMA) powers to enforce existing competition law and resolve consumer disputes, and protects consumers from unfair commercial, subscription, prepayment and saving schemes. The Act received royal assent on 24 May. In this blog, we discuss the new ex-ante competition regime established by the Act and what companies should expect as the CMA begins to enforce the legislation. The blog examines how the UK general election might influence the enforcement timeline. 

Background to the Act  

In 2021, the UK Government proposed a new regime for digital markets to boost competition and innovation to benefit consumers. The regime would tackle ‘the harmful effects and sources of substantial and entrenched market power’ of the ‘most powerful digital firms’. The government committed to legislate on the regime when parliamentary time allowed. In the interim, it established a Digital Markets Unit (DMU) within the CMA on a non-statutory basis, which was tasked with preparing for the new regime. 

The government introduced legislation in April 2023, which members of both Houses of Parliament largely supported because it reflected the government’s earlier proposals. However, the government made changes to the bill during report stage in the House of Commons which met significant opposition in the House of Lords and from some MPs. These amendments included revisions to the appeals standard against penalties issued by the CMA and the criteria firms must meet to seek an exemption from certain requirements imposed by the CMA. Despite attempts by the House of Lords to reverse these changes, the bill passed with the government’s amendments on 23 May. The bill received royal assent on [placeholder for date, expected 24 May.  

The Act explained 

The DMCC Act places the DMU on a statutory footing. The DMU will be responsible for designating firms as having strategic market status (SMS) in relation to a digital activity if they meet the following criteria: have ‘substantial and entrenched market power’; ‘a position of strategic significance’; and a global turnover of more than £25 billion or UK turnover of more than £1 billion. The criteria for designation suggest that only a few firms will be designated as having SMS. Once a firm is designated, the DMU can impose conduct requirements (CRs) for how the firm should operate in relation to that activity. CRs are intended to guide the practices of an SMS firm to address not only existing competition concerns but also prevent it from taking advantage of its powerful position in ways that would further undermine fair competition or exploit consumers and businesses. For example, the DMU could prevent an SMS firm from ‘using data unfairly’ or ‘applying discriminatory terms, conditions or policies to certain users or potential users’. 

The DMU will also be able to investigate whether there are factors underpinning a firm’s market power that undermine competition and which could be remedied through ‘pro-competition interventions’ (PCI). PCIs might include requiring different products and services to work with each other (known as interoperability) or giving people the power to easily transfer their data from one provider to another. The DMCC Act imposes additional reporting requirements on SMS firms’ mergers and acquisitions, which will enable the DMU to oversee transactions that could harm competition before they are completed.  

The DMU will have the power to impose financial penalties of up to 10% of a firm’s global turnover for regulatory breaches and to apply to the court to disqualify individuals from holding director roles in the UK. The DMU will be able to apply civil penalties to named senior managers who fail to ensure that their firm complies with requests for information. Firms will have the opportunity to appeal the DMU’s decisions to the Competition Appeals Tribunal (CAT) under judicial review standards, except on penalties, which firms can appeal on the merits. A judicial review assesses the legality and procedural fairness of a decision, while a merits review evaluates the substance and correctness of the decision itself. 

Next steps 

The Act received royal assent two days after Prime Minister Rishi Sunak announced a general election on 4 July. The election might delay the legislation’s implementation, partly due to the dissolution of parliament. However, since the main political parties broadly support the Act, it is likely that a new government will swiftly proceed with implementing the Act via secondary legislation. Additionally, the DMU is expected to continue its preparations to enforce the Act, including publishing consultations. Consequently, any delays could be minimal. Given these factors, we can expect the following in the next year: 

Consultation on guidance 

The DMU expects to consult on draft guidance relating to the main components of the competition regime imminently following passage of the Act. The consultation will present a valuable opportunity for stakeholders to provide feedback on the DMU’s proposals and shape final guidance (see below). For example, ‘challenger firms’, smaller or newer companies that aim to challenge the market power of established SMS firms, may wish to review how the DMU intends to define what a digital activity is to ensure that it can accurately identify digital activities in which challenger firms operate. SMS firms may wish to scrutinise how the DMU will determine whether firms have entrenched market power in the fast-moving and disruptive digital sectors in which they operate. The DMU expects to publish its final guidance in 2024, after considering stakeholder feedback and receiving approval from the Secretary of State for Business and Trade (SoS).  

SMS investigations following commencement of DMU’s powers 

Following commencement, the DMU will begin investigating firms and digital activities. By August 2025, the DMU plans to conduct three or four investigations to designate firms as having SMS. The DMU is required to notify a firm when it commences an SMS investigation and publish the notice ‘as soon as reasonably practicable’ thereafter.  

The DMU will publicly consult on any decisions resulting from an SMS investigation. It retains the discretion to close an investigation at any point. Should the DMU choose to designate a firm as having SMS or extend its investigation, it must notify the firm and publicly release the 'SMS decision notice ‘as soon as reasonably practicable’. The DMU must publish the decision notice within nine months of beginning an SMS investigation. While conducting these investigations, the DMU may concurrently consult on any CRs it contemplates imposing on designated firms. The DMU has indicated its intention to consult on CRs between commencement of its powers and August 2025. 

Challenger and potential SMS firms should closely track the DMU's activities, especially as the regulator lays the groundwork for the new competition regime in the coming year. Firms should consider participating in the regulator's consultations on draft guidance and decisions. This will not only enable firms to shape the DMU's enforcement of the Act but also help firms align their future business strategies with regulatory expectations. 

Inline Policy helps innovative companies at the cutting edge of their field to understand and influence policy and regulation. If you have any questions about the DMCC Act or any other piece of UK tech regulation, please contact Mitali.sud@inlinepolicy.com.