Reforms aim to protect small businesses from predatory practices and give consumers more choice and control over their online experiences
In July 2021 the government launched a consultation on its proposals for a new pro-competition regime for digital markets, including the powers that the Digital Markets Unit will need to ensure the regime is effective. The government has now published its response to that consultation and confirmed the statutory powers the DMU will have.
The government says that it will introduce legislation to put the Digital Markets Unit on a statutory footing in due course. It was launched in non-statutory form within the CMA in 2021.
Under the proposed new regime, it will have the power to designate some of the world’s most powerful tech firms with ‘strategic market status’. It will then be able to enforce codes of conduct on such firms, with the aim of ensuring that consumers have open choices about the digital services they use.
For example, the DMU will be able to stop companies limiting consumers to pre-installed software on their devices, making it easier for smartphone users to choose which search engine or messaging apps they use. People will have more power to make decisions about how their data is used and handled by tech firms, for example, by opting out of targeted personalised advertisements.
Big tech firms which fall within the scope of the new regime will have to meet new expectations around trust and transparency - such as informing businesses using their services of significant changes which could affect them.
For example, the government points out that search engines exert huge control over which websites consumers can find. Any changes in their algorithms could mean that traffic is steered away from certain websites and businesses which could have a negative effect on their revenue.
The DMU will also intervene to tackle the root causes of market dominance. Potential interventions include forcing firms with strategic market status to share more data with smaller competitors to help them overcome the advantages of bigger firms.
The requirements will also set out how dominant firms should trade with content providers such as news publishers. The DMU will have powers to resolve pricing disputes so that news providers are paid fairly for their online content. It could increase the bargaining power of national and regional newspapers, and force social media platforms to be more transparent on how they position publishers on their platforms, and what algorithms are being used.
The DMU will have various enforcement powers, including the power to levy fines of up to ten per cent of annual global turnover and additional penalties of five per cent of daily global turnover for each day an offence continues.
It will be able to suspend, block and reverse behaviour by firms that breaches their conduct requirements, requiring them to take specific steps necessary to resolve a breach. Senior managers will face civil penalties if their firms fail to engage properly with requests for information.
In addition, organisations designated with strategic market status will have to report takeovers before they complete so the CMA can conduct an initial assessment of the merger to determine whether further investigation is needed.
Only a small number of firms with substantial and entrenched market power in the UK will be designated with strategic market status. The government hopes that this will ensure that the regime holds the most-powerful businesses to account for their behaviour. The government will define the digital activities and conduct requirements for firms in scope of the regime when it brings forward the legislation.