CMA publishes provisional approach to new digital markets regime

In the document, the CMA sets out its provisional thinking on how it will exercise its digital markets functions under the DMCC Bill. The stated approach is not detailed and is subject to change as the DMCC Bill progresses through parliament. However, it does provide some interesting points to note on process and when we can expect further detail from the CMA.

As part of a series of briefings on the DMCC Bill, this briefing discusses some key takeaways from the document and future dates to note.

Key elements of the proposed regime 

The digital markets competition regime will apply to firms designated by the CMA as having Strategic Market Status (“SMS”) in relation to one or more digital activities. Once the CMA designates a firm with SMS, through Conduct Requirements (“CRs”), the CMA will be able to steer the behaviour of the firm and, through Pro-Competition Interventions (“PCIs”), address factors underpinning the firm’s market power in a particular activity. Additional merger reporting requirements on SMS firms will ensure the CMA has sight of mergers and acquisitions involving SMS firms that could harm competition before they are completed. For an overview of the key elements of the DMCC Bill, please see our earlier briefing here.

Notably, the CMA currently expects the number of firms designated as having SMS to be “very limited”, with approximately 3-4 SMS investigations within the first year of the regime coming into force. This is because only firms that satisfy the conditions in the DMCC Bill may be designated as having SMS (ie substantial and entrenched market power in a digital activity which is linked to the UK; a position of strategic significance; and global turnover of more than £25 billion or UK turnover of more than £1 billion). In addition, a SMS designation can only be made following a thorough evidence-based investigation with a time limit of 9 months.

Following Royal Assent, the CMA will publish draft guidance for consultation setting out its proposed approach to imposing and monitoring compliance with CRs and PCIs, and its approach to enforcement.

CMA’s operating principles 

The document contains the following list of 11 “operating” principles underpinning how the CMA will fulfil its new digital markets role:

1. Tailor its actions to the specific problems it identifies, considering their proportionality and likely effectiveness.
2. Focus its actions where it can have the most impact for people, businesses and the economy.
3. Measure its impact, outcomes and outputs to learn from experience.
4. Stay abreast of developments and seek to deal with harm quickly
5. Promote competition as the primary lever to deliver better outcomes for users
6. Prevent abuses of market power more directly where steps to improve competition alone will not suffice
7. Seek to intervene in a technology-neutral way
8. Ensure the Digital Markets competition regime complements other CMA tools
9. Engage with a wide range of stakeholders who are affected by or have an interest in its work
10. Operate with transparency
11. Work with its domestic and international counterparts to minimise unnecessary duplication 

Described by the CMA as an initial set of proposed principles to help inform its engagement with stakeholders as it refines its approach, the principles are uncontroversial in nature – much will depend on how the CMA seeks to implement them in practice.

Key takeaways and dates

The conduct that the CMA decides to tackle, and how, will ultimately be driven by its prioritisation principles. However, we can expect that the CMA’s early work may include those markets and activities which it has already studied (eg digital advertising, mobile ecosystems and cloud computing). The CMA will set out its areas of focus for 2024/2025 in its Annual Plan to be published by the end of March 2024. The draft plan, which is currently under consultation, states that the CMA will focus on (among others) taking action to ensure that competitive, fair-dealing businesses can innovate and thrive, including enabling innovating businesses to access digital markets such as cloud services, e-commerce and digital advertising. Emergent markets are also singled out, including the development and deployment of artificial intelligence models.

The CMA acknowledges that it still has to develop its understanding of how SMS firms operate in relation to the digital activity for which they are designated as having SMS, both technically and in terms of their business models: “[i]n many cases it will be for the SMS firms to decide on the actions they take to comply with any requirements [the CMA] places on them.” We can therefore expect the CMA’s Digital Markets Unit (“DMU”), established to administer the digital markets competition regime, to continue to engage with a wide range of stakeholders, including major tech players, but also challenger firms and users.

The DMU already has around 60 people and, consistent with the CMA’s stated ambition of building and reinforcing critical capabilities, is scaling up with the objective of having around 200 people by commencement, which the CMA is currently assuming will take place in October 2024. This is based on the DMCC Bill receiving Royal Assent in April 2024. The CMA’s draft guidance will be published “as soon as possible” after that, with the final guidance to be published after commencement in October. The first SMS designations are expected in July 2025.

Momentum towards the enactment and commencement of the DMCC Bill is clearly growing, with multiple new developments expected in the coming months. The CMA has stated that it is “crucial that we continue to engage widely with a range of stakeholders, from the major tech players to challengers and users”. Firms with an interest in this area should therefore keep a keen eye out for development, as there will be opportunities for interested parties to provide their views on how the CMA intends to operate the regime.