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Digital developments in focus
| 2 minutes read

UK Government taking forward plans to regulate digital markets

The Government has today confirmed that it is taking forward plans to establish a new pro-competition regime for digital markets. Amongst the key points to note in respect of the new regime:

  • It will be implemented and enforced by the Digital Markets Unit (DMU), and targeted at a small number of firms with substantial and entrenched market power which gives them a strategic position ("Strategic Market Status" or "SMS") in one or more activities. The DMU will also need to establish a UK nexus, to ensure a focus on competition in the UK. In response to feedback from the consultation, the Government will introduce a minimum revenue threshold to make it clearer which firms are out of scope of designation, and will set out an exhaustive list of criteria for assessing whether a firm has a strategic position. 
  • Once a firm is designated as having SMS, the DMU will set out how that firm is expected to behave. The Government has taken on board feedback that such conduct requirements should be tailored to the firm in question and, while it will specify categories of requirements in legislation, it will allow the DMU to determine the precise (binding) conduct requirements for each SMS firm. The DMU will also publish guidance on how each firm's conduct requirements will operate in practice. SMS firms will be able to put forward evidence that conduct that would otherwise breach a conduct requirement brings about benefits to consumers.
  • The DMU will be empowered to tackle the root causes of entrenched market power through targeted pro-competitive interventions. To this end, it will have broad discretion to design and implement remedies following a robust, evidence-based investigation (including ownership separation remedies where other remedies are insufficient).
  • The DMU will be able to impose financial penalties of up to 10% of a firm’s global turnover for breaches, and will be able to prevent individuals guilty of serious misconduct from acting as directors of UK companies. It will also be able to impose civil penalties on senior managers who fail to ensure their firm complies with requests for information. 
  • SMS firms will have to report their most significant merger transactions to the CMA prior to completion - the Government has in mind that this should be when: (i) the SMS firm acquires over a 15% equity or voting share; (ii) the value of the SMS firm's holding is over £25m; and (iii) the transaction meets a UK nexus test. The Government is not taking forward proposed changes to the Phase 2 threshold for intervention, which would have represented a significant change without sufficient evidence to support it.

While publication of the Government's response gives the appearance that plans for digital regulation in the UK are moving forward apace, the response is notably silent on when legislation on these issues will be put forward, sticking instead to the non-committal trope "when parliamentary time allows". Recent press reports that these proposals have been shelved from the Queen's speech next week may well therefore still turn out to be accurate.

Compared to other emerging international regulatory regimes, we are building a more flexible and targeted regime that can better support innovation. This more proportionate approach will ensure that the UK remains a great place to start, grow and invest in tech businesses.