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Preparing for the Digital Markets Competition and Consumers Act

Understanding and responding to the potential requirements

The UK Digital Markets Competition and Consumers Act (‘the Act’) received Royal Assent on 24 May, with the new regime expected to formally commence in Autumn 2024. After the long wait for the Bill to become law, the CMA is expected to move fast to operationalise the new regime. As the UK’s principal competition and consumer protection authority, it has much experience to draw on.

In our previous blog, ‘What’s in the DMU’s in-tray’, we outlined the digital activities that the CMA may prioritise under the new regime, on topics such as AI, cloud, digital advertising and app stores. For each activity, we also set out the types of regulatory issue that would likely be on the CMA’s radar.

In this follow up, we set out a non-exhaustive range of actions that affected companies can take to prepare for the CMA’s implementation of the Act. These are set out in the document that can be downloaded at the link above. This document covers requirements such as the analytical tests that need to be met for designation as a regulated company, potential rules that could be applied to guide conduct, and also responsibilities relevant to any CMA investigations, monitoring and enforcement.

There are benefits in pro-actively preparing for implementation of the Act. In the short-term, companies, anticipating potential designation, may want to assess which of their digital activities meet the Strategic Market Status (‘SMS’) conditions. For activities that could lead to SMS designation, they may want to identify the range of requirements that could be imposed by the CMA and define their positions in respect of each. Preparation is key to engage in the ‘participative’ approach that is envisaged by the CMA. It will also be essential for the regulatory investigations and associated data requests that are expected to be a key element of how the new regime is implemented. Potentially affected companies may want to start evaluating the likely impacts on overall strategy and specific activities, given the potential requirements in the Act, considering questions such as:

  • What analysis and evidence can be shared with the CMA on whether a company has ‘substantial and entrenched market power’ and ‘a position of strategic significance’, both required elements of an SMS designation?
  • Which digital activities may lead to SMS designation and what would be the impact on business model and operations?
  • Which company conduct may be seen by the CMA as strengthening the market power or strategic significance of activity likely to be designated, and what other (non-designated) activities may come under scrutiny, including tied and/or bundled activities?
  • What conduct requirements could be imposed by the CMA and what changes would result from these?
  • What teams (e.g., compliance, strategy, product or legal teams) should understand the implications of the the Act and its implementation?

Once a company is designated as having SMS, it will need to put in place the appropriate governance, take a controls-based approach to achieve the required regulatory outcomes, formalise reporting strategy (underpinned by effective data governance) and set up monitoring activities. Therefore, in the medium term, there is also much that can be done to prepare, given the new potential requirements in the Act, considering questions such as:

  • How can SMS companies evidence outcomes of their compliance to the CMA?
  • What types of testing could the CMA require the company to undertake to demonstrate compliance with a conduct requirement, such as the functioning of an algorithm or the effect of online choice architecture?
  • Who should perform the role(s) of a nominated officer, responsible for demonstrating compliance with each competition requirement to which the company is subject?
  • What is the optimal frequency and scope of the compliance reports that must be submitted by the company to the CMA, and potentially published, in relation to each competition requirement?
  • More generally, have the conduct requirements been effective in driving competition in the market and promoting innovation?

The approach under the Act is more tailored than under the EU Digital Markets Act, as the CMA will consider specific requirements from the start to guide the behaviour of SMS designated companies. This contrasts with the situation in the EU, where there is a common set of core platform service obligations which may be interpreted by designated gatekeepers in different ways (of course, subject to ongoing European Commission oversight). Companies have an opportunity to set a coherent UK/EU compliance strategy, in light of differences between the prevailing UK and EU regulation.

There are also benefits in planning for engagement with the CMA on how this new regime should apply. The CMA has stated that it intends to operate the regime in a transparent and participative manner, engaging with a wide range of stakeholders. Putting in place an engagement plan, relevant to the timing of the various procedural stages of the regime, can help facilitate an effective dialogue with both the CMA and also any third-party stakeholders who may be affected by the implementation of the Act.

As experience of implementation evolves, it will be necessary to reflect on learnings and update company capabilities accordingly. Given the fast-moving nature of digital markets, the CMA will also be responsive to market developments, and will seek to prioritise where it can have the most impact. This is also something that companies can keep under close review.