The UK Digital Markets, Competition and Consumers Bill: major reform of CMA powers

On 25 April 2023, the UK Government announced the introduction of the Digital Markets, Competition and Consumers Bill (the "Bill") into Parliament.¹ The Bill, which reflects a key government priority of increasing consumer choice and competition, provides for:

• Far-reaching new consumer protection powers to be conferred on the Competition & Markets Authority (the "CMA");
• The introduction of updated merger control and strengthened competition law enforcement powers, including investigation tools better adapted to a digital age; and
• The creation of a new competition law regime aimed at the digital sector, which will impose onerous new obligations on the largest technology companies and enable the CMA to make more rapid and tailored interventions in digital markets than to date.

The proposed new legislation contains one of the most significant sets of changes of recent decades to the UK competition and consumer protection regimes. It represents a major extension of the CMA's powers and responsibilities and will significantly affect the business landscape in which many companies operate.²

The proposed new powers are particularly relevant to UK and overseas businesses that sell products or services to UK consumers, are considering the acquisition or disposal of a UK business, or are active in digital markets in the UK.

This update summarises the key proposed changes which will now be vigorously debated during their passage through Parliament.³ The Bill is expected to enter into force in the second half of 2024.

1.  Consumer protection

The Bill implements two major proposals from the UK Government's 2021 consultation on Reforming competition and consumer policy⁴ to strengthen the enforcement of consumer protection legislation and protect consumers from unfair "subscription traps". It also paves the way for the CMA to take more powerful action in respect of fake reviews.

Strengthening the enforcement of consumer protection legislation

The CMA is to gain new powers to impose sanctions directly for breaches of certain consumer protection laws, without the need to go to court (as is currently the case).⁵ In particular, the CMA will be able to impose fines for breaching consumer protection law of up to 10% of annual global turnover (if any) or £300,000 (whichever is higher). It will also be able to impose financial penalties for other matters, such as breaching undertakings given to the CMA and failure to respond to formal requests for information. This model mirrors the powers the CMA already has in the competition sphere, where the largest fines that it has imposed on companies have exceeded £100 million. The court-based regime will remain in streamlined form alongside the administrative procedure.

New obligations on businesses offering subscription contracts

The Bill provides for the imposition of new obligations on businesses that offer subscription contracts to consumers in the UK. In particular, businesses will be required to:

1. Provide prescribed pre-contract information about the subscription (including the price, information about automatic renewals and the subscription cancellation rights);
2. Send reminders to consumers before a free or discounted trial period is about to end, or before any auto-renewal, and informing subscribers of how they can cancel the contract if they wish to do so;
3. Allow consumers to cancel the contract easily in a single communication and without having to take any steps that are not reasonably necessary for bringing the contract to an end; and
4. Give consumers the right to exercise early cancellation rights during the cooling-off period after the subscription or free trial starts, as well as after the free trial ends or each time the subscription is automatically renewed.

These new requirements will apply to business-to-consumer contracts for the supply of goods, services or digital content which are either renewed automatically after the initial period, or contain a free or reduced price period after which the consumer is liable to make payments that are higher than during the initial period. Certain types of subscription contracts are specifically excluded from the provisions of the Bill (such as financial services contracts, contracts for the supply of utilities and contracts regulated by Ofcom).

Businesses offering subscription contracts which fall within the scope of the Bill to consumers in the UK will have to review their customer journeys and implement the new requirements in their processes and their subscription terms and conditions.

Other changes to consumer protection legislation

More generally in relation to consumer protection, the Bill:

1. Revokes the Consumer Protection from Unfair Trading Regulations 2008 ("CPRs") and carries over the prohibition on unfair commercial practices covered by the CPRs into the Bill. In addition, the Bill would give a right to the Government to update the list of banned practices through secondary legislation. Specifically, the Government plans to consult on adding new banned practices relating to fake reviews during the passage of the Bill;
2. Requires businesses offering unregulated saving schemes (such as Christmas savings clubs) to comply with new rules to protect payments via a trust arrangement or insurance, and to provide prescribed information to consumers about how their payments are protected; and
3. Prohibits alternative dispute resolution ("ADR") procedures in respect of consumer contracts where the ADR provider is not accredited or exempt.

Businesses should review the potential impact of these new powers and obligations on their activities in advance of entry into force of the new regime, not least given the penalties for non-compliance.  They should be ready to act with great care if they are approached by the CMA in the exercise of its new powers and should also pay particular attention to the way in which they communicate with customers and advertise their products.

2.  Competition enforcement

The Bill introduces amendments across the competition law framework including in respect of merger control jurisdictional thresholds, market studies and investigations as well as other aspects of competition law. Key changes include the following:

1. In respect of merger control, the Bill notably introduces an "acquirer-focused" merger control threshold aimed at what have become known as 'killer acquisitions', but which will also allow the CMA to review purely vertical mergers where the turnover of the target company would not previously have met the UK turnover based-test (and where the ‘share of supply test’ is inapplicable). If the proposals become law, transactions meeting the following thresholds will fall within the CMA's jurisdiction:
   
   
   1. Either party has a share of at least 33% of the supply or acquisition of goods or services of any description in the UK or a substantial part of it; and
   2. That party has a UK turnover of more than £350 million; and
   3. The other party has a UK nexus i.e.: it is a UK business or body; at least part of its activities are carried on in the UK; or it supplies goods or services to a person or persons in the UK.
      
      
2. The current turnover-based jurisdictional threshold is increased from £70 million to £100 million.
3. The Bill also introduces a safe harbour that exempts from UK merger control any transaction involving only enterprises with a UK turnover of less than £10 million. In other words, a merger will only be subject to the jurisdiction of the CMA if at least one party to the merger has UK turnover of more than £10 million. This exemption will not, therefore, be available to acquirers with significant UK revenues.
4. In terms of behavioural investigations, the Bill clarifies the CMA's ability to enforce the Competition Act prohibitions of anti-competitive conduct which takes place outside the UK but which has an immediate, substantial and foreseeable effect on trade in the UK.
5. In relation to on-site inspections, the Bill expands the powers of the courts to grant a warrant to the CMA allowing it to obtain documents which are accessible from the relevant premises and not just on the premises. It also allows officials to operate equipment found on the premises for the purpose of producing relevant information in a visible and legible form in which it can be taken away.
6. More generally, the Bill provides for the CMA to have the power to gather information and to interview individuals remotely. This appears to pave the way for remote inspections by the CMA (which have occurred in certain other jurisdictions). The Bill also provides for increased powers of search and seizure at domestic premises. Both of these powers will need to be addressed in companies' dawn raid preparedness guidance.
7. The Bill provides for a new duty to preserve documents "where a person knows or suspects" that an investigation by the CMA "is being or is likely to be carried out". This may call for the introduction by companies of new or updated procedures on document retention and destruction.
8. It also broadens the CMA's power to interview individuals by extending it to cover any individual, including those not connected with the business.

3.  Digital Markets

The new regime is targeted at a relatively limited number of digital firms which undertake significant digital activity in the UK.  It will be operated by the Digital Markets Unit (the "DMU") within the CMA which is functioning at present on the basis of existing statutory powers pending the introduction of primary legislation granting new powers to the CMA.

The Bill provides that the CMA may designate certain undertakings as having "strategic market status" ("SMS") in respect of one or more digital activities in which they have substantial and entrenched market power and a position of strategic significance. This will require such firms to follow strict new rules. When the new regime comes into force, it is likely to reinforce further the CMA's reputation as a highly interventionist enforcer in the global technology sector. Key features of the new regime include the following:

1. The Bill focuses on areas where designated firms are particularly dominant, rather than containing a list of blanket prohibitions (by contrast with the EU's Digital Markets Act which presents a list of rules that 'gatekeepers' are obliged to follow⁶).
2. "Conduct requirements" will seek to manage the effects of market power by allowing the CMA to intervene in relation to activities of designated undertakings that are considered to be adversely affecting competition.⁷
3. The CMA will have the power to carry out targeted "pro-competition interventions", for example to open up new markets to start-ups or smaller firms.
4. In order to enable the CMA to review potentially problematic mergers in nascent markets, the Bill provides that designated firms will be required to report possible mergers (see also above re 'killer acquisitions').
5. The Bill provides for a series of investigatory powers and the production of compliance reports.
6. It also provides for the imposition of fines of up to 10% of a firm's global turnover for breaches of conduct requirements, as well as other civil and criminal penalties and disqualification of directors.

Companies may need to navigate both the EU and UK digital markets regimes, as well as other national regimes governing the digital sector, and reconciling their respective obligations under the different regimes may give rise to practical issues for such companies. For example, while the EU Digital Markets Act imposes a universal set of do’s and don’ts on gatekeepers, the proposed UK regime follows a more tailor-made approach enabling the CMA to impose conduct requirements specific to each company.

Moreover, the Bill provides for challenges of decisions of the CMA under the new digital markets regime to be brought by way of judicial review. Therefore, the UK courts, unlike the General Court of the EU, will be prevented from carrying out a reassessment of such decisions on the merits.

Next steps

It is anticipated that the Bill may receive the Royal Assent by Spring 2024. In the meantime, businesses should consider the steps that might be appropriate in preparation for entry into force of the new legislation.  The Antitrust & Competition, Consumer Protection, and IP and Technology teams at Mayer Brown are on hand to assist as required.