Out-Law News 4 min. read

CMA sees new legislation as essential for UK economy in digital age

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The UK’s Competition and Markets Authority (CMA) is gearing up to embrace the broader powers and enforcement tools it will have to boost competition as well as enhance consumer protection in the digital age, according to its submissions to parliament on the Digital Markets, Competition and Consumers (DMCC) Bill.

The CMA reiterated its view that all provisions in the DMCC Bill are required for an effective regulatory regime to support competitive markets, promote innovation and investment, and boost consumer protection, in its written evidence to the parliamentary committee scrutinising the Bill. The regulator said that the current legal and enforcement framework is not fit for purpose, particularly given that the UK economy is becoming increasingly technology-reliant, and the DMCC Bill is necessary to establish a flexible and future-proofed approach to regulating digital markets.

Legal experts at Pinsent Masons said that the DMCC Bill will not only introduce new rules concerning digital markets but, just as importantly, will provide much needed upgrades to competition and consumer protection laws as consumers now increasingly interact with businesses through digital means.

“The widespread digitisation of the economy permeates all aspects of the DMCC Bill, and this is reflected in the CMA’s submission,” said competition law expert Alan Davis.

“While the digital markets rules in the DMCC Bill will regulate only the largest digital firms, the amendments to competition and consumer protection laws – which the Bill will also bring about - are likewise influenced by the shift to a digital economy and are intended to equip the CMA with appropriate legal powers and enforcement tools that are suitable for the challenges that all businesses and consumers may increasingly encounter in the digital age,” he said.

The Bill will give the CMA stronger enforcement powers and new tools under the proposed regime to boost competition and consumer protection. For example, the CMA will be directly empowered to decide when consumer protection laws have been broken, and will be able to set fines at up to 10% of a company’s global annual turnover for breaching consumer laws. These new powers and enforcement tools are not limited to digital markets and apply to all industries.

The tougher sanctions the CMA will be able to impose will mean costs associated with non-compliance for businesses will increase substantially. The regulator said these powers put consumer protection law on a par with competition law and “should alter the incentives for traders to the benefit of consumers as well as the vast majority of businesses who currently play by the rules.”

The CMA praised the revisions to the existing competition regime proposed in the DMCC Bill, describing it as having been drafted “with the modern high-tech and global business world in mind”. The changes will enhance the CMA’s ability to obtain evidence in investigations – including where relevant data is stored on cloud servers outside the UK, issue financial penalties for firms that obstruct its investigations, and to trial and vary alternative market remedies to limit the potential harm to UK consumers.

Competition law and consumer protection expert Angelique Bret of Pinsent Masons said that the DMCC Bill covers three distinct but interrelated regimes – digital markets, competition, and consumer protection – although the proposals on digital markets seem to have attracted the most attention and publicity.

“From a consumer protection perspective, the CMA has pointed to several weaknesses in the existing regime and considers the proposed legislative changes will help it, and other regulators, to deliver stronger outcomes for UK consumers. The new powers and enforcement tools will cover commercial practices involving both online and offline channels, with some rules aimed specifically at digital activities by traders – for example, subscription contracts,” she said.

Alongside digitisation of the UK economy, Brexit is another driver of the changes proposed in the Bill. Bret said: “Following Brexit, the CMA now handles by itself complex international merger control and antitrust investigations which would have been handled by the European Commission when the UK was an EU member state. Such cases often involve sophisticated global businesses; accordingly the CMA considers its enforcement powers need updating to match the calibre and complexity of the cases that now fall within its remit.”

In its written submission, the CMA highlights three aspects of the Bill that it views as important to maintain an appropriate balance between its new powers, the existing arrangements, and judicial oversight.

It strongly supports retaining the current DMCC Bill proposals that CMA decisions, made under the new digital markets rules, can be appealed only under judicial review principles and not as a full-merits review. In the CMA’s opinion, compared to full-merits appeals, judicial review appeals strike an important balance between providing for an effective route for legal challenge without incentivising parties to take an excessively adversarial approach. Additionally, court hearings involving judicial review appeals are typically much shorter than full-merits review proceedings, leading to time and cost savings. I is proposed that appeals in relation to the consumer protection provisions should, however, be subject to a full-merits review.

The CMA agrees with and supports the new competition rules for digital markets that the Bill will introduce, and anticipates the new regime will be “nimble and targeted”. It disagrees with suggestions that the new rules should be narrowed, as this would undermine the regime’s effectiveness, and notes the safeguards and oversight mechanisms that will feature as part of the regime.

The CMA also highlights commercial practices in online markets that could harm consumers, and is supportive of the government’s proposed measures to combat such unfair practices. Proposed measures in the DMCC Bill include, for example, adding to the existing list of banned practices and tackling ‘subscription traps’ by requiring traders to send reminder notices before subscription contracts renew automatically. However, the CMA suggests the new rules in the DMCC Bill could be strengthened even further, such as by requiring an explicit opt-in to automatic contract renewals.

The submission also sets out CMA plans to achieve operational readiness in anticipation of its expanded responsibilities and enforcement powers. Its preparation efforts are twofold: building and leveraging relevant expertise, such as through its dedicated Data, Technology and Analytics (DaTA) unit and its recent appointment of external digital experts; and continuing to expand the CMA’s presence outside of London and across the UK, with a particular focus on Manchester.

The DaTA unit was established in 2018, and helps to ensure the CMA asks technology firms the right questions and that any remedies the CMA proposes are practical and proportionate. The unit also carries out research and horizon scanning to help the CMA remain up-to-speed on relevant sector developments.

The DMCC Bill is expected to be passed by the UK parliament in the next 12 months, and to come into force later in 2024 or 2025.

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