UK: An overview of the Digital Markets, Competition and Consumers Bill
In this Insight article, Dr. W Kuan Hon delves into the UK Digital Markets, Competition and Consumers Bill (the Bill), which aims to reshape digital markets, competition law, and consumer protection in the UK.
Introduced in April 2023, the Bill is designed to achieve the following objectives:
- Part 1 - Digital markets: Create a new ex-ante pro-competition regime in digital markets, via new powers and duties on the UK Competition and Markets Authority (CMA);
- Part 2 - Competition law: Modernize UK competition law by updating powers of investigation/enforcement; and
- Part 3 - Consumer law: Modernize UK consumer law by expanding powers to investigate and enforce consumer protection law and resolve consumer disputes; including protections for consumers in relation to unfair commercial practices, subscription traps, and prepayments to savings schemes.
The CMA is required to publish guidance on various aspects, such as how it will exercise its digital markets functions, and its general approach to conducting its direct enforcement functions under consumer law, following a consultation process.
The CMA, through its relatively new Digital Markets Unit (DMU), will have powers to regulate any company it designates, after investigation, as having strategic market status (SMS) in relation to its digital activities (essentially online services or digital content, free or paid), if the CMA considers that:
- the activity is 'linked to the UK,' i.e., a significant number of UK users, the company carries on business in the UK in relation to the digital activity, or the digital activity or the way in which it is conducted is likely to have an immediate, substantial, and foreseeable effect on trade in the UK;
- the company has substantial and entrenched market power and a position of strategic significance with respect to digital activity; and
- the total global turnover of the company or its group in the last 12 months exceeds £25 billion, or the total UK turnover of the company or its group exceeds £1 billion.
The CMA can:
- impose conduct requirements on such companies' relevant digital activities by providing notice, where deemed appropriate to achieve the objectives of fair dealing, open choices, and/or trust and transparency;
- investigate where there are reasonable grounds to believe that factors related to a digital activity may be having an adverse effect on competition and, following such investigation, make a pro-competition intervention (PCI), imposing a pro-competition order with requirements on the conduct of the relevant digital activity or other measures. Additionally, the CMA can make recommendations to public bodies on steps they ought to take in respect of the company, digital activity, or otherwise.
Also, designated SMS companies must:
- provide digital markets compliance reports to the CMA when required;
- appoint a nominated officer responsible for monitoring digital markets compliance, cooperation with the CMA, and ensuring such reports are provided; and
- report to the CMA planned share/voting rights acquisitions or proposed joint ventures that meet certain conditions before the event occurs.
Penalties for non-compliance could amount to 10% of the total turnover (including group turnover), with possible daily fines of 5% of the daily turnover.
In addition, if the CMA issues an information notice relevant to its digital markets function, it can require a senior manager to be named. The CMA may also impose a penalty of £30,000 or £15,000 daily on the named senior manager and/or nominated officer. This penalty may be imposed if the CMA determines that, without a reasonable excuse, they failed to prevent non-compliance or the provision of false/misleading information relating to the relevant information notice or compliance report. Such penalties may also apply to other individuals for obstruction, among other offenses. Consequently, these individuals may well seek indemnities or insurance before agreeing to be named or nominated!
Competition law more generally
This section broadly extends the CMA's powers regarding competition issues. It includes extraterritorial jurisdiction for agreements, practices, etc. likely to have an immediate, substantial, and foreseeable effect on trade within the UK, along with the power to issue information notices outside the UK.
The CMA's powers for investigation and enforcement will expand to include the ability to demand remote electronic information (with a warrant), interview a broader range of individuals, and exercise powers regarding domestic premises. Additionally, a new duty to preserve evidence will be introduced. For market investigations, the CMA will also be empowered to conduct implementation trials to assess the effectiveness of specific remedial actions.
Penalties for non-compliance will be heightened, potentially reaching 1% of annual turnover and/or 5% of daily turnover. For individuals, the penalties may amount to £30,000 and/or £15,000 daily for offenses such as failure to provide information, providing false/misleading information, or failure to comply with commitments, directions, undertakings, orders, etc., resulting in 5% of annual turnover and/or 5% of daily turnover penalties.
Among other changes, the threshold for mergers to be subject to CMA review will be reduced. Specifically, if one party has at least a 33% market share of relevant goods or services supplied in the UK and UK turnover exceeds £350 million, it will fall under the CMA's jurisdiction. However, there are also jurisdictional contractions: the target's turnover threshold will be increased to £100 million, and a safe harbor provision will effectively exempt cases where no party's UK turnover exceeds £10 million.
The CMA will possess various powers to enforce consumer law directly, instead of having to go through the courts. As with competition law, the CMA's powers will be more generally expanded, encompassing the authority to compel compensation payments to consumers and require other remedial actions.
Courts will be empowered to issue consumer protection orders, which can include undertakings alternatively. These orders may compromise interim orders, enforcement orders, or online interface orders regarding websites, apps, or digital content.
Furthermore, several authorities beyond the CMA will serve as public designated enforcers that can apply for consumer protection orders, including local British weights/measures authorities, the Financial Conduct Authority, the Information Commissioner's Office (ICO), the Office of Communications (Ofcom), utility authorities, and the Secretary of State. The Consumers' Association is a private designated enforcer, and can also seek enforcement orders, undertakings, and more.
Penalties are tiered depending on the infringement but could reach £300,000 or 10% of global turnover (via a court enforcement order or CMA final infringement notice). For non-compliance with certain undertakings/orders, lower ceilings of £150,000 or 5% turnover and a daily rate of £15,000 or 5% daily turnover apply. For information-related failing, penalties could be £30,000 or 1% turnover, with a daily rate of £15,000 or 5%.
The Bill will replace the Consumer Protection from Unfair Trading Regulations, including the addition of bans on further practices through secondary legislation.
Enforcement action can be taken against a commercial practice if it harms collective consumer interests, the trader has a place of business or carries on business in the UK, or the practice is directed at UK consumers and breaches certain consumer or other legislation.
New duties and rights regarding subscription contracts for goods, services, or digital content will be introduced including clearer pre-contract information, cancellation/cooling-off rights, reminders before free-trial/low-cost offers expire, and before contracts auto-renew. These changes aim to make it easier for consumers to exercise their rights to end contracts, with some exclusions in place.
Consumer savings schemes are also explicitly covered, including contracts where consumers make payments to a trader, and the trader credits those payments to an account held for the consumer. The credited payments form a fund for consumers to redeem as goods, services, or digital content in accordance with the contract's terms. There will be new provisions to protect consumers against the trader's possible insolvency, requiring traders to maintain insurance or make trust arrangements to hold payments. Additionally, specific information must be provided to consumers.
While there was discussion of fake reviews, the Bill doesn't prohibit them, although they could involve unfair commercial practices. The government is currently consulting on various consumer-related matters, including the potential legislation to expressly prohibit the buying or selling of fake or misleading reviews and failure to take reasonable and proportionate steps to ensure reviews reflect genuine consumer experiences. The preferred approach is to use legislation supplemented by dedicated guidance for businesses hosting reviews.
The Bill will also encompass expanded ADR provisions, replacing the Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations.
The Bill is not yet law; it is currently in the report stage and has yet to go through the third reading in the House of Commons before moving to the House of Lords.
This means that the summary provided above could change. For example, provisions were recently put forward on consumer rights and redress in relation to payment accounts" including current, savings, and credit card accounts, current account mortgages, and e-money accounts. These provisions ban discrimination and entitle consumers to damages for financial loss, emotional distress, and physical inconvenience and discomfort.
Currently, it seems unlikely that the Bill will receive Royal Assent much before early 2024. It will come into effect on a date determined by the Secretary of State through regulations, which is unlikely to be before late 2024 or early 2025, although the government has stated it will take effect "as soon as possible following parliamentary approval, subject to secondary legislation and the publication of guidance."
Dr. W Kuan Hon Of Counsel