The direction of the proposals is clear, although there is still scope to shape the future merger regime
The long-awaited consultation is here: On Tuesday, the UK Government published proposals to overhaul the competition framework for the digital economy. This missing piece of the jigsaw had been expected, since the Government had already made clear its intention to follow the advice of the Digital Markets Taskforce (DMT) led by the Competition and Markets Authority (CMA). In December of last year, the DMT proposed to introduce a regime to identify firms with Strategic Market Status (SMS) and make them subject to a mandatory code of conduct to prevent anti-competitive behaviour among Big Tech. The DMT called for the creation of a new Digital Markets Unit (DMU) within the CMA, to oversee the SMS regime. While the DMU has already been operating in non-statutory form since April, it is yet to gain any real powers.
The proposals diverge from the DMT’s advice in some areas: For example, the Government disagrees with the proposal to give full concurrent powers to Ofcom and the FCA citing additional complexity and potential for uncertainty. With regard to the scope of the new regime, the Government proposes to limit it to activities where digital technologies are a ‘core component’ rather than restricting it to ‘digital activities’ as advised by the DMT. This should avoid an excessively broad scope which some tech firms had feared. The Government also wants to give additional powers to the DMU on the Code of Conduct. The high-level principles identified by the DMT (fair trading, open choices, trust and transparency) should be enshrined into law, but the DMU should also be able to develop additional legally binding requirements for individual firms.
Important aspects of the new merger regime are yet to be defined: SMS designated firms would be subject to a new reporting requirement, so that the CMA is informed of all mergers. The CMA would also have clearer jurisdiction to review mergers among those with SMS through the introduction of a transaction value threshold and a ‘UK nexus’ test. The Government is minded to set the threshold between £100m and £200m so that only larger and more significant acquisitions are subject to review. The ‘probability threshold’ currently used by the CMA in phase 2 investigations (i.e. the likelihood that a harm could arise) would be lowered from the current 50%. The Government has not yet reached a firm view on these aspects, which leaves the door open for stakeholders to propose a different course. The consultation is open until 1 October.
