Digital Markets Unit raises uncertainty for UK tech
19 Oct 2021
In this blog, DRD Associate, Edward Bowie, reviews where the new Digital Markets Unit fits into the wider regulatory landscape.
The CMA’s form points to it being a busy new regulator.
Status Anxiety: How the Digital Markets Unit will raise uncertainty over the UK’s tech future
Despite having a Conservative government at the helm, the UK’s regulatory frameworks are subject to restless political activity at present – the latest of which is the establishment of a Digital Markets Unit (‘DMU’) to sit within the Competition & Markets Authority (‘CMA’). With the Government considering responses to its consultation on how the DMU will function, now is a good time to step back and consider how the proposed regulatory regime fits into the wider environment.
The proposals that have caused the most concern during consultation were those for a Strategic Market Status (‘SMS’) designation, and the design and implementation of a Code of Conduct. On the former, the proposal is that certain firms will be designated with SMS where the DMU concludes that the firm has “substantial and entrenched market power in at least one activity, providing it with a strategic position”. On the latter, an enforceable Code of Conduct is proposed for firms with SMS. The Code will set out how firms are expected to behave, and it would be applied to the activity (or activities) that led to a firm being designated in the first place.
It is not too hard to see why this has caused some concern. There’s a natural fear over mission creep. We all know that newly minted bureaucracies and regulators have a habit of taking on a life of their own: and here, there’s a certain looseness and scope for improvisation – not usually helpful for those being regulated.
What is in scope?
On the face of it, the DMU will exist to oversee a new regulatory regime designed to promote competition and innovation as regards the most powerful digital firms. The premise makes sense: governments around the world are looking to crack down on Big Tech in whatever way they think will get a headline. In the UK, that includes Online Harms legislation, getting corporations to ‘pay their fair share’ in tax, protecting consumer interests – and now this.
The difficulty, however, is in defining and understanding exactly what the DMU is designed to do. The very premise of the DMU is broad. What aspect of the economy isn’t digital, these days? What firms or sectors don’t engage technologies and digital innovations in their practices?
While the consultation sought to provide some guardrails to the DMU’s work around SMS and the Code of Conduct, the definition of ‘entrenched market power’ and a ‘strategic position’ will ultimately be the DMU’s call, and it will be using measurements that are not always clear. The proposal not to have the DMU provide quantitative thresholds – even indicative ones – in determining SMS designation will pose challenges for some businesses wanting to assess whether their activities will be in scope.
For politicians, this new unit within an already energetic CMA may be both a blessing and a curse. While wanting to look proactive against the power of Big Tech, the Secretary of State responsible for this new unit is Kwasi Kwarteng – one of the Cabinet’s leading free-marketeers. He will be uncomfortable establishing a unit that interprets its brief so widely. We already know that the CMA was concerned and defensive when the DMU was first announced: it was far from clear that the DMU would sit within the CMA, and it viewed with suspicion the Government’s consideration to place it elsewhere.
Pure interpretations vs solutions
Now that the CMA does indeed ‘own’ the DMU, we are likely to see the free-ranging spirit of the CMA extend to this new unit, even with the recent appointment of David Stewart as Executive Director of Mergers and Markets and reappointment of Jonathan Scott as interim Chair. Indeed, it may well overcompensate in order to demonstrate to its political masters that the CMA is the competent body. In addition, legal practitioners report the influence that economists now have at the CMA, meaning that sometimes ‘pure’ interpretations win the day, rather than the more practical and solutions-focused outcomes that the regulator should be known for. That may play into one of the findings of DRD’s recent survey, which discovered that 75% of dealmakers consider that the CMA is already over-extending itself in order to impress its political masters.
Culturally, then, the CMA is not a close fit with Kwarteng’s instincts.
Against the backdrop of a Conservative party leadership that is at once pulling in both directions, the DMU arrives at an unpredictable moment for the sector, and the road ahead following the consultation will be closely watched.
Photo Credits: UK Government