In May 2024, the Digital Markets, Competition and Consumers Act (the Act) received royal assent in a legislative move designed to bolster the UK economy by promoting competition across both digital and traditional markets, while also safeguarding consumers against unfair practices.
The Act aims to enhance the powers of the Competition and Markets Authority (CMA), including the establishment of a stronger framework for the Digital Markets Unit (DMU).
This article highlights the three key areas of focus of the Act and advises how businesses should prepare for the new legislation.
Key areas of focus
Consumer protection
The Act seeks to enhance consumer confidence and safety in the marketplace. Under the new Act, the CMA will no longer need to go through lengthy court processes to enforce consumer law. Instead, it will have the authority to impose fines directly on businesses that violate consumer protection laws, up to 10% of their global turnover and make senior managers personally responsible for ensuring their company complies with the DMU’s requests. This change aims to expedite the protection process and deter unfair business practices such as:
- Fake reviews. Businesses will be prohibited from:
- Publishing reviews in misleading ways or concealing that a review has been incentivised.
- Posting consumer reviews without taking ‘reasonable and proportionate steps’ to check they are genuine.
- Offering or advertising to submit, commission or facilitate fake reviews.
- ‘Subscription traps’ in which businesses make it difficult to exit a contract will also be stopped. Under new rules, businesses must:
- Provide clearer information to consumers before they enter a subscription contract, including information about how the business might change its pricing, automatic renewals, how to terminate the subscription contract and how much notice is needed to terminate.
- Issue a reminder to consumers that a free trial or low-cost introductory offer is coming to an end, and a reminder before a contract auto-renews onto a new term.
- Allow an initial 14-day cooling-off period during which consumers can cancel the subscription contract and receive a full refund, and a further 14-day cooling-off period after any free or reduced cost period and on any renewal that commits the consumer to a renewal term of a year or more.
- Ensure consumers can exit a contract in a straightforward, cost-effective and timely way.
- Drip pricing occurs where a consumer is shown an initial price for goods or services which does not accurately reflect the actual price the consumer will need to pay for the goods or services, as further costs are added later. Businesses must:
- Ensure that initial pricing is clear and details all unavoidable fixed charges, fees, taxes or other payments that the consumer will incur. For example, if a business is selling tickets online to consumers, it must be upfront about any booking charges or delivery charges, including whether they are payable per transaction or ticket.
- If there are mandatory charges, but these are variable (eg delivery charges depend on the consumer’s delivery location) and so cannot be specified initially, these charges should still be drawn to the consumer’s attention at the outset, with an explanation of how the charges will be calculated later. Discretionary optional fees are currently excluded from these requirements.
- Saving schemes are also tackled whereby a consumer pays a sum of money to a trader which is credited to an account from which they can use the funds to redeem goods or services.
- The Act will require businesses operating schemes to ensure consumer funds are fully safeguarded, for example, by having the funds insured and notifying the consumer of these details.
- Inertia selling, whereby an unsolicited product is supplied to a consumer, will result in the consumer having no obligation to pay for it.
- If the product was never requested, then consumers are advised to treat it as a gift and businesses will not have the ability to demand the return, payment or safe storage of that product.
In addition to the above, and to ensure that the legislation keeps up to date with evolving unfair commercial practice, the Secretary of State will also have the power to amend the list of business practices considered unfair under the Act.
Digital markets
The Act introduces a new, targeted regime for digital markets, overseen by the DMU within the CMA.
Designation of SMS: This regime is designed to prevent large firms with Strategic Market Status (SMS) from using their size and power to limit competition and innovation. Firms with ‘substantial and entrenched market power’, in at least one ‘digital activity’ linked to the UK, providing them with a ‘position of strategic significance’, will be designated with SMS. Therefore, a threshold will apply meaning that only firms with a global turnover above £25bn, or UK group turnover above £1bn, will be in scope.
Conduct requirements: The CMA will be able to impose proportionately tailored conduct requirements on the SMS-designated firms for the purposes of one or more of the following objectives:
- Fair dealing - users or potential users of a relevant digital activity must be treated fairly and able to interact, directly or indirectly, with the SMS firm on reasonable terms.
- Open choices - users must be able to choose freely and easily between digital services and content provided by the SMS firm and those provided by other firms.
- Trust and transparency - users must have the requisite information to enable them to understand the digital services and content provided by the SMS firm, and the relevant terms on which they are delivered, as well as to make properly informed decisions on how to interact with the SMS firm.
The Act contains a list of prescribed permitted conduct requirements that may meet one or more of these objectives. This includes the requirement to trade on fair and reasonable terms, to have effective complaints handling processes, and to provide clear, relevant, accurate and accessible information about the activity to users.
Pro-competition interventions: The DMU will be granted the power to impose pro-competition orders where, following investigation, it considers that an SMS firm’s designated digital activity is adversely affecting competition in a relevant market. These may take the form of behavioural or structural remedies, such as divestiture, and will be aimed at addressing ‘the root causes of entrenched market power’.
Failure to comply with these conduct requirements will attract heavy fines of up to 10% of the business’s global group turnover.
Competition:
The Act extends the CMA’s investigative and enforcement powers, enabling quicker and more flexible responses to anti-competitive behaviors. This includes the ability to:
- Conduct faster competition investigations, including carrying out remote interviews.
- Grant immunity from prosecution to cooperating individuals.
- Obtain evidential documents, via dawn raids, that are ‘accessible from’, rather than simply ‘on’, the business or domestic premises, including those stored on remote servers.
- Introduce a more rigorous and proactive requirement on third parties to preserve evidence if they know or suspect that a CMA investigation is likely.
- Impose a fine for non-compliance, increased from a fixed cap of £30,000 to a cap of 1% of global turnover, while daily penalties are increased from £15,000 to 5% of global daily turnover.
Other competition-boosting measures include:
- Flexibility - firms may be told to give customers greater flexibility when purchasing products online and to break down restrictive technical barriers that block users from using products on different devices and systems.
- Transparency - firms may be given instruction by the DMU to open up their data to rival search engines, or to increase the transparency of how their app store or marketplace review systems work.
How can businesses prepare for the Digital Markets, Competition and Consumers Act?
In July 2024, the CMA closed its consultation on the draft guidance.
Most of the substantive provisions of the Act are expected to come into force in Autumn 2024, alongside the associated guidance. Following this, the DMU will make its first designations of businesses it considers to be captured by the new SMS.
The SMS designation process can take several months, so significant changes in the digital markets are not anticipated until 2025. However, both the ‘big tech’ firms that are likely to be designated as having strategic market status, and those smaller firms that interact with them or are affected by their activities, should be prepared to start engaging with the DMU as soon as the new regime commences in order to shape its decisions.
Beyond the digital markets, businesses in general should prepare for the new legislation:
- Consumer-facing businesses should be ready for the new consumer protection rules.
- All businesses should update their competition compliance policies and dawn raid preparations to align with the CMA's new powers.
For further advice, please contact the commercial team.
