The long-awaited Digital Markets, Competition and Consumers (DMCC) Act received Royal Assent on 24 May. It is the most significant overhaul in years of the UK's competition and consumer law regimes. We look at the key points arising from the Act, and what actions businesses should take before it comes into force.
What is the DMCC Act?
The key features of the Act are as follows:
- Introduction of a digital markets regime. The Act allows the Competition and Markets Authority (CMA) to impose unique obligations on firms deemed to hold Strategic Market Status (SMS), similar to the obligations on the core platform services of gatekeepers under the EU Digital Markets Act.
- Competition law reforms. The Act reforms the general competition law framework with amended merger control thresholds and broader powers for the CMA to enforce against anti-competitive conduct.
- Consumer law reforms. The Act introduces new consumer protection measures targeting auto-renewing subscriptions, fake reviews and purported hidden costs in online purchases. It also brings the CMA's consumer law enforcement powers to the same level as the competition enforcement regime, with the CMA able to fine businesses up to 10% of their global turnover for infringing UK consumer law.
We cover each of these areas in more detail below.
Introduction of a digital markets regime
Scope of the regime
The Act empowers the CMA (through the Digital Markets Unit) to designate firms as having SMS in a digital activity. A firm will have SMS where it:
- carries out a digital activity – i.e. the provision of a service by means of the internet or the provision of digital content (such as internet search, app distribution or an online marketplace);
- with a link to the UK (e.g. the activity has a significant number of UK users);
- meets a minimum turnover threshold – i.e. in a defined 12-month period, the firm's UK turnover exceeds £1bn, or global turnover exceeds £25bn; and
- in respect of that digital activity, holds substantial and entrenched market power and a position of strategic significance – this requires an evidence-based assessment of the firm's market power and of wider market conditions (e.g. does the firm have significant numbers of users and transactions, and is the digital activity important for third party businesses?).
The CMA can launch an SMS investigation where it has reasonable grounds to consider that a firm may meet the SMS conditions. It has nine months to complete an investigation and SMS designation lasts for five years.
SMS firms' obligations
SMS firms will face three categories of requirements under the Act:
- Conduct requirements.The CMA may impose one or more conduct requirements on a designated firm for the purpose of meeting one or more objectives of ensuring "fair dealing", "open choices" or "trust and transparency".
The Act prescribes permitted types of conduct requirements, including requiring an SMS firm to trade on fair and reasonable terms, have effective processes for handling complaints and provide clear, relevant, accurate and accessible information about the relevant digital activity to users.
There is a "countervailing benefits exemption" available to firms that are considered to be in breach of conduct requirements. This is similar to the exemption from competition law breaches under section 9 of the Competition Act 1998 (CA1998). The firm must show that its conduct gives rise to benefits for users of the digital activity, that these outweigh the harm to competition arising from the conduct, that the conduct is proportionate to realising those benefits and that competition is not prevented or eliminated.
- Pro-competition interventions (PCIs). The CMA can make PCIs to remedy adverse effects on competition as a result of the firm's digital activities, which may take the form of structural or behavioural remedies and/or non-binding recommendations.
- Mandatory reporting of certain mergers. The Act requires the mandatory reporting by undertakings with SMS in relation to two possible merger situations. A report will be necessary where:
- the SMS undertaking (i) crosses the 15%, 25% or 50% thresholds with regard to the percentage of shares in another UK corporate body; and (ii) provides consideration of £25 million or above; or
- the SMS undertaking forms a UK joint venture where (i) the SMS undertaking holds at least 15% of the shares in this venture; and (ii) the total value of capital and asset contributions and/or other consideration from the SMS undertaking to the UK joint venture amounts to at least £25 million.
The CMA's investigation, monitoring and enforcement powers
The CMA will have new powers to require information, interview individuals, carry out raids on business premises and require reporting from SMS firms.
It will also have powers to monitor SMS firms' compliance with competition requirements, monitor the effectiveness of existing requirements, and assess whether to impose, vary or revoke existing requirements.
SMS businesses that breach a regulatory requirement (a PCI order or conduct requirement) without a reasonable excuse can face penalties of up to 10% of worldwide turnover, as well as smaller penalties for breaches of administrative requirements. Non-compliance can also result in significant consequences for individuals – the CMA can take actions against senior managers or nominated officers, and in certain circumstances seek to disqualify directors.
Competition law reforms
Amendments to the jurisdictional thresholds for merger
control
The Act:
- increases the level of the existing target turnover test from £70 million UK turnover to £100 million UK turnover (adjusting the existing thresholds to account for inflation);
- adds a condition into the existing share of supply test that requires the target or any other merging enterprise concerned to have UK turnover of more than £10 million (this is hoped to assist with alleviating the regulatory burden on smaller businesses that merge); and
- introduces a new threshold which will grant the CMA jurisdiction to review transactions where one party has a UK share supply of at least 33% and UK turnover exceeding £350 million (this enables the merger control regime to capture so-called "killer acquisitions", where large firms acquire small start-ups that would not otherwise engage the jurisdictional thresholds).
Amendments to the Chapter I prohibition
The Chapter I prohibition in the CA1998 will be amended to state as follows:
'agreements between undertakings, decisions by associations of undertakings or concerted practices which have as their object or effect the prevention, restriction or distortion of competition within the UK and which:
(a) in the case of agreements, decisions or practices implemented, or intended to be implemented in the United Kingdom, may affect trade in the UK, or
(b) in any other case, are likely to have an immediate, substantial and foreseeable effect on trade within the UK;
are prohibited unless they are exempt.'
The new wording is intended to ensure that UK trade and businesses and consumers based in the UK are protected from the detrimental effects of anti-competitive conduct, regardless of where that conduct takes place, even when an agreement is implemented in another jurisdiction.
Expanding the CMA's investigation powers
Greater investigative flexibility for the CMA in the age of remote working is another theme in the Act. Central to these greater powers is the CMA's ability to "seize-and-sift" documents when inspecting under a warrant on domestic premises and to interview any person relevant to the investigation. The Act also strengthens the CMA's powers to obtain electronic information stored remotely when exercising a warrant (e.g. in the cloud), to safeguard the CMA's ability to conduct its investigations effectively, given the increasing trend for businesses of all sizes to store documents and other information remotely.
The Act empowers the CMA to serve notices on, and require documents from, those that are outside the UK, if they are party to a merger or competition investigation and they have a UK nexus. This means that the CMA will consider itself empowered to compelproduction of information and documents from companies and people outside the UK in the course of UK competition law investigations.
There are also amendments to the scope and procedure for market investigations. For instance, the CMA will no longer be required to consult on a market investigation reference within the first six months of a market study.
Finally, the CMA will be able to require businesses to trial proposed remedies before setting a final remedy package. Whilst providing flexibility to the CMA, this approach means that firms may have to invest time and resources in a proposed remedy, before potentially having to unwind any changes and adhere to an alternative finalised remedy package. The CMA will also be able to amend any remedies within ten years of an adverse effect on competition finding in a market investigation.
Consumer law reforms
New and expanded consumer rights
The Act expands UK consumer rights, including in the following areas:
- Fake Reviews. The Act outlaws commissioning or incentivising fake reviews. In addition, businesses operating online platforms will be required to take reasonable and proportionate steps to remove and prevent consumers from encountering fake reviews; and to prevent any other information presented on the platform that is determined or influenced by reviews from being false or misleading.
- Subscriptions. Subscriptions that
automatically renew will now be regulated by a new set of rules:
- Consumers must be able to end their subscription contracts in a way that is straightforward and without any steps which are not reasonably necessary.
- Businesses must provide consumers with all key pre-contract information as close in time to entering the contract as is practicable.
- Businesses must allow for a 14 day 'initial cooling-off period' and a 14 day 'renewal cooling-off period' during which a consumer has the right to cancel a subscription in any circumstances and not subject to any conditions.
- Consumers must be issued with reminder notices before a free-trial or low-cost offer terminates as well as when renewal payments fall due. This notice can be sent to the customer with other information, but it must be more prominent.
- Drip pricing. Businesses will be (a) prohibited from presenting a headline price for goods or services which does not incorporate in the price any fixed mandatory fees that must be paid by all consumers (for example, booking, administration or handling fees for tickets); and (b) required to disclose the existence of any variable mandatory fees and how they will be calculated (for example, delivery fees).
- Secondary ticketing. The Act imposes specific obligations on secondary ticketing facilities. For example, they must not permit tickets for resale unless the trader or business has provided evidential proof of purchase to the ticketing facility.
- Consumer savings schemes. Schemes where a consumer makes a payment to a trader and this is credited for redemption at a future date, must include insurance or trust arrangements so as to protect consumers. Consumers must also be provided with specified information about such protections.
Overhauling consumer law enforcement
The CMA will now have the direct power to enforce consumer protection law (having previously been required to go to the courts for this). These powers include the ability to issue infringement notices, make directions and require enhanced consumer protection measures.
Where infringements are established, the CMA will be able to fine companies up to 10% of their global turnover, and individuals up to £300,000.
What does the Act mean for your business?
Many of the provisions of the Act are expected to come into force in October 2024.
The consumer law reforms will have the widest impact. Businesses offering subscription services, which host reviews or which operate in certain sectors (such as secondary ticketing) face significant new obligations. However, all business to consumer (b2c) firms could be at risk of substantial penalties for breaching existing consumer laws. This materially heightens the risk profile of practices that may be deemed non-compliant.
The competition law reforms will in practice affect businesses considering a merger or joint venture, or which going forward, face investigation by the CMA and need to understand the CMA's jurisdiction.
The digital markets regime is the narrowest in its application, and will be of most immediate relevance to firms that consider they are likely to meet the SMS thresholds in respect of any their digital activities. This may only be a handful of businesses.
How to prepare for the Act coming into force
We recommend that businesses with b2c operations take the opportunity to assess the extent to which their existing practices are fully compliant with the UK's current consumer law framework, particularly given the heightened enforcement risk as a result of the Act.
The CMA will consult on aspects of its powers under the Act, which will help to shape how it enforces the Act. It is currently consulting on the digital markets regime, and is seeking responses by 12 July 2024.
With thanks to trainee Dan Bishop for his contributions to this article
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.