Two years since the Government first announced the reforms, and over a year since its introduction into Parliament, on 23 May 2024 the UK Parliament passed the Digital Markets, Competition and Consumers (DMCC) Bill as part of the “wash-up” process after the surprise election news. The law is expected to come into force in autumn this year. The DMCC brings the most significant reforms to competition and consumer protection laws since the introduction of merger control over 20 years ago.
The Bill is expansive and covers important changes to:
- digital markets;
- merger control and antitrust rules; and
- consumer law.
We cover the key points, in particular flagging what has changed since our blog post on the draft Bill, and what businesses should be doing to prepare for the law coming into force later this year.
The changing world of Digital Markets: the Strategic Market Status (SMS) regime
A cornerstone of the DMCC is the introduction of the SMS regime. While there was much debate on the regime during the Parliamentary process, its core elements have not changed since the Bill was introduced.
The CMA’s Digital Markets Unit (DMU) will be handed power to designate firms as having SMS if they have “substantial and entrenched market power” and “a position of strategic significance” in relation to digital activities linked to the UK. While the drafting of the legal test is broad, in practice the SMS regime is only expected to apply to a handful of the largest tech companies.
Firms designated as having SMS will have to comply with a series of obligations.
- Codes of Conduct. The DMU will develop tailored, firm-specific codes to regulate each SMS firm’s behaviour in relation to the activities for which they have been designated (following a public consultation). The DMCC sets out “permitted” types of conduct requirements based on principles of fair trading, open choices and trust and transparency. The scope of permitted conduct requirements is incredibly broad, giving the DMU very wide discretion to decide what obligations should be imposed on each firm. The DMU will also have powers to enforce the conduct requirements it imposes, including by imposing fines of up to 10% of global turnover for breaches.
- Mandatory merger reporting requirements. SMS firms will be obliged to report all material (>£25m deal value) acquisitions to the CMA which will result in the SMS group having “qualifying status” (where shares/voting rights cross thresholds of 15%, 25% or 50%) in any undertaking that carries on activities in the UK, or supplies goods and services in the UK.
- Pro-competition interventions (PCIs). SMS firms could be subject to PCIs (which look similar to the CMA’s existing market study tool) where the DMU believes they are necessary to address the “root causes” of market power. This could include forcing structural and operational separation of firms’ different business units.
The DMCC bill has been subject to parliamentary ‘ping pong’ between November 2023 and May 2024. The most controversial issues in the debate around the SMS regime, that ran right to the finish line have been:
- the legal standard for imposing conduct requirements: the original text required that the DMU consider that a conduct requirement was “appropriate”, a Government amendment changed this to “proportionate” in November, reversed by the House of Lords, reinstated by the Commons and eventually accepted by the Lords resulting in a proportionality test for any conduct requirement the CMA imposes.
- the standard that should be applied to appeals of DMU decisions: the original text provided all DMU decisions (with the exception of certain procedural penalties) would be subject to a judicial review standard. Government amendments in November changed the appeal standard for penalties to full merits. Again, this was reversed in the Lords, rejected by the Commons and ultimately the Lords agreed that all appeals about the imposition of a penalty should be determined on the merits, while other decisions remain subject to a judicial review standard. The ending as we have written previously is that judicial oversight of many of the DMU’s most consequential decisions (e.g. to designate a firm as SMS and impose conduct requirements) will remain limited, both in itself and by comparison to comparable regimes.
- the countervailing benefits exemption: this exemption provides that no conduct breach will be found when the benefits to users outweigh the harms of the breach. The original text required the conduct to be ‘indispensable’ to the realisation of the benefits, while the Government amendments removed the criterion and required instead that the benefits ‘could not be realised without the conduct’. Again, this was reversed in the Lords, rejected by the Commons and ultimately the Lords agreed that with the exclusion of the indispensability criterion.
- timeframe for the Government to approve the CMA guidance: there was minor divergence in the timeframe originally proposed by the Lords (40 days) and subsequently by the Commons (30 working days). The Lords agreed with the Commons’ proposal, noting that it effectively achieves the same aims and would not unduly delay the operationalisation of the new regime.
The CMA has provided a roadmap on its proposed approach to administering the new SMS regime (which we’ve summarised here). Once the regime comes into force, it is expected that the CMA will conduct 3-4 SMS investigations in the first year, with parallel consultation on proposed Conduct Requirements. The CMA has also suggested that it might launch PCI investigations within a few months of the commencement of the new regime.
What the DMCC means for UK merger control and antitrust investigations
As noted previously, the DMCC introduces changes to the UK’s existing competition regime that apply across the economy, including to sectors outside of digital markets. Most notable are:
- Merger control: A new ‘no increment’ share of supply jurisdiction for any global deal where only one party has significant UK presence. An additional basis for establishing jurisdiction in the UK's voluntary regime, this amendment to the existing rules is aimed at capturing “so-called ‘killer acquisitions’ and other mergers which do not involve direct competitors”. Jurisdiction can now be established where at least one merging business has: (i) an existing share of supply of 33% in the UK; and (ii) a UK turnover of at least £350m – provided the target has a UK nexus.
This is perhaps one of the most significant of the DMCC’s amendments - as discussed previously, the 33% share of supply test is extremely broad, and as any seasoned adviser knows, it will be hard in most cases to establish that an acquirer does not have a 33% share on some cut of the market or permutation of supply that the CMA could use to establish jurisdiction. The threshold for the target to have a UK nexus is also extremely low.
- Merger control: A small impact change in turnover thresholds. The DMCC raises turnover thresholds in line with inflation from £70m to £100m. However, given that the share of supply test is now wide-reaching enough to catch non-horizontal or no-overlap deals, the increased turnover thresholds is unlikely to make any meaningful difference for most global M&A.
- Merger control: A new safe harbour. Mergers will be exempt from review where each party’s UK turnover is less than £10 million.
- Merger control: procedural changes. The DMCC introduces a number of changes to the CMA’s procedure including (i) allowing a fast-track Phase 2 reference on request from the merging parties; (ii) extending the Phase 2 timetable by consent of the CMA and the merging parties. Taken together with the CMA’s own planned changes to the Phase 2 process, parties subject to an in-depth review are likely to see procedural improvements overall.
- Antitrust: Extraterritorial enforcement. The Chapter I prohibition (which covers anti-competitive agreements) has been amended to apply to agreements implemented outside of the UK, where there is (or is likely to be) direct, substantial, and foreseeable effects within the UK. As we noted previously, this signals a reversal of the UK’s historical resistance to the extraterritorial application of its laws.
- Antitrust: The CMA’s enhanced investigative powers. The DMCC gives the CMA new evidence-gathering powers in Competition Act investigations, including some aimed at strengthening the CMA’s ability to investigate in remote-working situations, and others aimed at imposing obligations on third parties (such as requiring third parties to preserve evidence if they know or suspect that the CMA will be carrying out an investigation).
- Merger control and antitrust:
- Extraterritorial information gathering; the DMCC enables the CMA to serve notice on persons and require the production of documents held outside the UK where (i) the person is a party to the merger or subject to a competition investigation or (ii) has a UK connection.
- Stronger penalties for procedural infringements. The DMCC provides for stronger penalties, with fines for failure to comply with investigative requirements increasing from a £30,000 fixed cap (and/or £5,000 daily) to a cap of 1% of global turnover and 5% of global daily turnover. Similarly, fines of up to 5% of global turnover and 5% of global daily turnover can be imposed for breaches of undertakings, directions, commitments or orders under the competition and merger control regimes.
The impact of the DMCC on consumer protection
Alongside the changes to the Digital Markets and existing competition regime, the DMCC will also transform the consumer protection enforcement landscape in the UK. The final version of the DMCC has seen changes to a number of specific areas, especially the rules on subscription contracts, online reviews, pricing and secondary ticketing, but the essence of the consumer reforms remains unchanged: direct enforcement, the potential for big fines, and expansive rules (see here and here).
The CMA will be given the power to directly enforce consumer protection laws in the UK and sanction breaches – meaning that cases will no longer need to go through the courts. These new enforcement powers will apply across the economy to all businesses that sell to UK consumers and give the CMA powers on a par with its competition powers. The CMA will be able to make findings that businesses have breached consumer laws and impose significant fines (of up to 10% of global turnover) for the first time.
The CMA will be able to directly enforce an extensive suite of consumer rules, including the (existing) broad prohibitions on unfair contract terms in consumer contracts and unfair commercial practices which includes misleading consumers, acting aggressively, or contravening the requirements of professional diligence.
The DMCC also introduces some new rules, most of which have evolved out of recent decisional practice under the existing (court based) enforcement regime:
- Subscription contracts (which automatically renew for an indefinite or fixed period during which the consumer incurs liability until they exercise their right to cancel) are subject to specific rules requiring businesses to:
- provide consumers with specified pre-contract information to ensure they understand the nature of the contract;
- issue customers with clear reminder notices before a free trial or low-cost offer comes to an end, and at six monthly intervals thereafter; and
- allow customers to exit a subscription contract in a straightforward way, without having to take any steps that are not reasonably necessary. Amendments in the House of Lords changed the previous draft which proposed that consumers should be entitled to exit a contract through a “single communication” – now a customer must be able to notify a business of their intention to exit by “making a clear statement” setting out their decision to bring the contract to an end.
- Drip pricing. New rules will require an ‘invitation to purchase’ to set out the total price of a product, including any fees, taxes, charges, or other payments that the customer will incur if they make the purchase. If the total price cannot be reasonably calculated in advance, the existence of such additional costs and how they will be calculated must be set out to the customer. This is aimed at businesses who attract customers through a low “headline” rate, but ‘drip feed’ additional payments during the transaction process resulting in a much higher final price.
- Fake reviews. Schedule 19 of the DMCC includes a list of banned practices which will automatically be considered unfair. Many of these replicate Schedule 1 of the Consumer Protection from Unfair Trading Regulations which is being replaced by the DMCC (such as urgency claims), but there is a notable new inclusion for fake reviews. Submitting or commissioning fake consumer reviews, publishing consumer reviews that conceal the fact they have been incentivised, or publishing consumer reviews or consumer review information in a misleading way, will be automatically considered unfair. Not taking reasonable and proportionate steps to prevent the publication or removal of such reviews or information is also included in the list of banned practices.
- Secondary ticketing was the final point of contention that held up passage of the Bill earlier in May. The concerns around secondary ticketing stem from providers selling event tickets at significant mark-ups compared to the primary market or selling fraudulent tickets. Despite the House of Lords proposing specific provisions on secondary ticketing, the House of Commons instead put forward the inclusion of enforcement provisions of existing rules and regulations on ticket sales, which were subsequently passed.
- Additional rules protecting those who use consumer savings schemes, by requiring these schemes to be protected by insurance or trust arrangements, are also included.
All businesses that are consumer facing will need to consider the impact of the DMCC. The advent of direct enforcement and fining powers, coupled with the CMA’s focus on protecting consumers amid the cost of living crisis, means consumer protection compliance policies (relating to both existing and new rules) should be reviewed. Recent CMA enforcement in relation to green advertising claims and price urgency (among others) shows the rising importance of consumer protection on the CMA’s agenda and the DMCC will empower the CMA to take meaningful action where it finds the law has been broken.
What does this mean for UK businesses?
All businesses across the UK will need to get to grips with what the changes brought about by the DMCC will mean for them - and start planning for when it comes into force. This will be different depending on your sector and activities. Tech businesses of all sizes will, of course, be thinking carefully about the new SMS regime and its impact across their markets. For consumer-facing businesses (including tech firms), a consumer compliance audit may be due, while those active in M&A will want to take stock of the CMA’s enhanced jurisdictional reach and extra-territorial investigative powers.
Our competition and consumer experts are across the whole of the DMCC and already advising a number of clients on its impact. Over the next few weeks, we will be publishing a series of deeper dives on LinkingCompetition – stay tuned for more insights.