This last year has undoubtedly been a busy and challenging one for the Competition and Markets Authority (CMA). It has seen additional activity arising from its response to the Covid pandemic, the further responsibilities it has taken on post-Brexit (see our related blog: #Brexit, the CMA and competition enforcement), and its work concerning the design and implementation of a pro-competition regime in digital markets. This article looks at its recently published Annual Report and Impact Assessment, calls for change, and the work it has been doing in relation to digital markets.
Annual Report 2020/21
The competition regulator has recently published its 2020/21 Annual Report and Impact Assessment. It highlights the CMA’s successes over the last 12 months, estimating that its work resulted in consumer savings averaging at least £2billion of the year 2020/21 and £7billion between 2018/19 to 2020/21. It refers to a “record number” of competition enforcement decisions and a “significant jump” in director disqualifications. Other developments include its review of 600 mergers and acquisitions, the commitments secured to refund customers for holidays cancelled (due to the pandemic), and the securing of other formal commitments for consumer protection issues. The report outlines the steps taken in response to the Covid pandemic, and the market studies that have been published on a number of sectors.
There have been calls for reform at the CMA for some time now (see our related blog: Carrying on as we are is not a prudent option, says the Competition and Markets Authority), and the report addresses some of the changes in progress, including in relation to its work in the digital markets sector. Notably, the report outlines the steps taken in response to the advice of the Digital Markets task force (see below).
The Annual Report follows a report published in early July - by the Centre for Policy Studies in conjunction with the Policy Institute at Kings College London - which outlined concerns about the effectiveness of the regulator, suggesting policy changes and recommendations for improvement. That report, authored by Rt Hon Lord Tyrie (former Chair of the CMA from 2018 – 2020), set out a number of challenges facing the CMA and amongst other things, highlighted a “growing appreciation that traditional tools of competition policy… are ill-equipped to deal with the challenges posed by digital platforms, and that wide-ranging reform is probably needed, including regulation and ex-ante scrutiny.” Lord Tyrie’s report talked about the importance of getting the reform agenda over the line, noting recommendations for improvement (which includes new functions and powers for the CMA, including powers to investigate), some of which could only be brought through statutory reform.
One area undergoing reform is the CMA’s framework for digital markets. The Digital Markets Unit (DMU) was established within the CMA earlier this year and holds responsibility for enforcing the UK’s new digital regulatory regime. This followed an independent review on the state of competition in digital markets (commissioned by the Government in 2018), and subsequently the CMA’s own market study, with the final report published in July 2020. The CMA’s Annual Plan 2021/22 highlighted the risk of harm to consumers in this sector and that the DMU would enforce a new code to govern the behaviour of platforms that currently dominate the market (see our related blog: “A Global Competition Authority” The future of the CMA).
Whilst the DMU has begun work on a non-statutory footing, the Government has recently announced its consultation on proposals for a new pro-competition regime for this market and has committed to legislating when parliamentary time allows. Feedback is sought on a number of proposals, including the criteria and mechanisms to apply when identifying firms that fall within the scope of the regime (with proposals to designate digital firms with strong and entrenched market power as holding strategic market status (SMS)) and the objectives for the DMU. It considers the DMU’s approach to pro-competition interventions, and the powers that the DMU will need to ensure the new regime is effective: although the focus will be on resolving issues through engagement with firms, it will inevitably require sufficient powers to enable it to address non-compliance and to act as a deterrent.
Where it comes to information gathering tools, businesses can expect this to be similar to those currently held by the CMA. For example, it is proposed that the DMU will have powers to require the production of information (through the provision documents and/or attendance at compelled interviews), search and seizure powers, and the power to compel evidence collection. The power to impose significant penalties for non-compliance with these requirements is also proposed, and the paper addresses appeal requirements and asks what standard of review should apply.
It is expected that the DMU will have discretion when deciding whether to rely on a ‘participative’ approach as opposed to opening a formal investigation, noting that general guidance on this should be published. Financial penalties, along with other enforcement mechanisms (such as court orders and senior management liability) are also being considered. For businesses, clear guidance on what is expected by the DMU, its approach to investigating compliance and the enforcement mechanisms available is essential.
The consultation paper also notes the roles that existing regulators play in regulating digital markets, including the Information Commissioner’s Office (ICO), Financial Conduct Authority (FCA), and Ofcom, and the overlap between remits, interaction between regulators, and the need for effective coordination. It asks whether those existing regulators should also be afforded new powers to deliver elements of this new regime (where they are best placed to do so), or whether informal arrangements would suffice. In any event close regulatory coordination will be essential, although the paper warns against full concurrency powers in cases where functions are inherently cross-economy; to do so carries the risk of complexity and uncertainty for businesses.
Where it comes to international enforcement, it is anticipated that the DMU will work with regulators in overseas jurisdictions to ensure effective collaboration.
The Government is seeking views from a broad cross-section of organisations, including start-ups, charities and small businesses, technology companies of all sizes and descriptions, civil society organisations, and law firms and other professionals working in this arena. The consultation closes on 1 October 2021 and organisations can respond to the proposals here.
In the meantime, the DMU will be focussing on preparing for the new regime including formulating draft guidance, evidence gathering on digital markets, using its existing powers to investigate harm to competition and engaging stakeholders. We can expect to see significant further developments for those operating in this sector in the near future.