The UK's Digital Markets Unit – a milestone for online markets regulation?

The UK Government has launched the Digital Markets Unit (DMU), a new tech regulator intended to oversee plans to promote greater competition in digital markets, give consumers more choice and control over their data, and protect online consumers and businesses from unfair practices. 

Purpose of the DMU

The DMU has been created at a time when both the EU and UK are committing to major advancements in the regulation of tech giants. For example, the European Commission published its proposal for an EU Digital Markets Act focused on regulating "gatekeeper" online platforms in December 2020. Meanwhile, the DMU has been set up as an independent watchdog to develop and enforce the UK's own regime targeting powerful tech firms.
 
These developments have resulted from a recognition that although online platforms bring economic benefits, the growing concentration of power amongst a small number of firms could lead to harms for the businesses and consumers that rely on them.

Powers of the DMU

The DMU has so far operated in "shadow form" within the CMA, in order to prepare for the implementation of the new statutory regime.  Although the Government hailed its launch as a major milestone for online market reform, the scope of the new statutory regime and the DMU's forthcoming formal powers is yet to be finalised.

However, the Government's Digital Markets Taskforce has given extensive advice on how the DMU should operate in practice. This has included the following recommendations for its powers:

• The ability to designate firms as having "strategic market status", based on factors including revenue, market capitalisation, number of users, the availability of alternative products, and entry barriers to the market. 
• Enforcement of a new code of conduct applying to firms with strategic market status, which sets out rules designed to prevent the exploitation of their powerful positions.    
• The ability to undertake pro-competitive interventions such as: 
  • Imposing obligations requiring firms with strategic market status to provide third party businesses with access to operating systems and online marketplaces on fair and reasonable terms.
  • Making data-related interventions to support greater consumer control over data.
  • Imposing separation remedies so that different units within a firm are required to be operated independently of each other.
• Responsibility for a new merger control regime, which would be tailored to transactions taking place in digital markets. Notification of mergers by firms with strategic market status could be mandatory in all cases, irrespective of the turnover of the target, or the parties' "share of supply" in a market. 
• The power to fine firms with strategic market status up to 10% of global turnover, where breaches of the statutory code of conduct are deemed to cause serious harm.

Next steps

It is likely that the DMU will need to work closely with other regulators including the Information Commissioner's Office (ICO). The CMA and the ICO have this week published a joint statement that sets out their shared views on the relationship between competition and data protection, particularly in light of the important role that data plays in the digital economy.

The Government intends to consult on the form and function of the DMU this year and to legislate when Parliamentary time allows, which is now not expected to be before 2022.

Comment

If the new regulatory regime does resemble that envisioned by the Digital Markets Taskforce, the effects will likely be significant – albeit the main direct consequences will be for the largest tech firms that are designated with strategic market status.
 
A penalty of 10% of global turnover would result, for example, in a potential fine of over £12bn for Google, and £5bn for Facebook. While the DMU would not have the power to break up the ownership of tech firms, the ability to impose operational and functional separations could still assist to reduce the hegemony of a few firms in particular markets. The proposed merger rules would also be significant in capturing strategic acquisitions of small start-ups and entities whose early stage business model is to initially offer "free" services to consumers, which are unlikely to be covered by the existing regime.
 
However, even though the DMU came into existence earlier this month, it will be a long time before its impact is felt in UK digital markets. Whether its creation heralds a "major milestone" in tech regulation will depend on how far the final regulatory regime follows the recommendations of the Digital Markets Taskforce, or if the DMU's proposed remit changes following consultation.

Co-authored by Liah Roberts a Trainee Solicitor in the Regulatory group.