Lawyers in our Competition, Regulation and Trade practice have come together to predict what’s on the horizon in the competition space in the UK and beyond in 2024 – identifying the key themes and trends that businesses will need to navigate in the coming year.
This is Part 1 of 2 in our predictions series – part 2 will follow later this week.
Digital Markets
New digital markets regime: a step change for regulating digital technology companies in the UK
Stephen Wisking and Christon Shenolikar
A key development for 2024 will be the commencement of the UK’s new regulatory regime relating to digital markets, set out in the Digital Markets, Competition and Consumers Bill (DMCC Bill). Once in force, the digital markets regime will be a step change in the way large digital technology companies are regulated in the UK. This development will be of significant importance not only for the companies which will be subject to the new regime, but also to their users and competitors.
The Bill is a flagship piece of legislation for the current UK Government, and is among its key legislative priorities set out in the recent King’s Speech on 7 November 2023. Assuming its passage through Parliament is not interrupted by a General Election, the DMCC Bill is expected to receive Royal Assent around spring 2024.
The new regime will enable the UK Competition and Markets Authority (CMA) to set – and enforce – wide-ranging ex ante rules (known as “conduct requirements”) governing the conduct of digital technology companies which have “strategic market status” (SMS). The CMA will also be able to launch “pro-competitive interventions” in relation to SMS firms, and these firms will also be subject to a new mandatory merger reporting requirement.
The regime will be overseen by the Digital Markets Unit (DMU), a function within the CMA that has already been operating on a non-statutory “shadow” basis for around two and a half years. The proposed legislation reflects an ongoing trend across jurisdictions of growing regulatory scrutiny of so-called “Big Tech” firms – for example, the European Commission designated a number of digital technology firms as “gatekeepers” under the European Union’s Digital Markets Act (DMA) earlier this year.
We expect that the DMU will seek to move swiftly once the legislation is in force by consulting on, and issuing, guidance on the new regime, and starting the designation process in relation to the key digital activities of well-known technology companies (as well as considering conduct requirements and pro-competitive interventions).
We anticipate some early skirmishes (particularly between the CMA and digital technology firms) as the regime commences and the CMA begins to use its powers, but litigation testing the fundamentals of the regime – for example, challenges to CMA decisions, or disputes between SMS firms and their users – is more likely to follow in 2025 and beyond. In the European Union, we are already seeing challenges by some digital technology firms of designation decisions by the European Commission under the DMA.
The House of Commons recently approved amendments to the Bill to provide for a merits-based review of CMA penalty decisions, as well as closer oversight of the CMA. The Bill is now before the House of Lords, who will also give detailed consideration to its provisions, including whether to accept these amendments and/or propose additional ones. Stakeholders should keep a close eye on developments in this space, to ensure that their views are taken into account as the UK’s digital markets regime takes shape.
Consumer Law Enforcement
New CMA powers to enforce consumer legislation directly – and an improvement and modernisation of consumer rights for the 21st century
Natalia Rodriguez and Kristien Geeurickx
The Digital Markets, Competition and Consumer Bill includes a number of provisions that will make important changes to the existing consumer protection regime. Under the new regime we can expect to see greater focus by the CMA on consumer protection and increased enforcement, using its new direct enforcement powers. Businesses should consider whether existing compliance policies and consumer contracts / subscription models need updating in light of the changes, and whether to provide training on the new requirements for relevant business sections. Some of the reforms also require pro-active steps to be taken by companies, such as sending reminder notices for subscription contracts and it will be necessary to integrate these requirements into business processes.
The Bill creates a new direct enforcement regime for the CMA, under which it will be able to enforce consumer legislation directly (as opposed to indirectly through the courts, as is currently the case) with the same powers of investigation (information requests, dawn raids) and enforcement as it currently has for competition law. Where the CMA concludes there has been a breach of the legislation it will be able to impose very significant penalties – of up to 10% of worldwide annual turnover of the companies involved.
The Bill also includes a number of changes to existing consumer rights. Its aim is to improve and modernise consumer rights to make sure they keep pace with market developments, in particular the trend towards online retail and online advertising. The focus here is on so-called ‘subscription traps’: the new legislation will impose new duties on businesses operating subscription contracts, including the provision of prescribed information at the start of the contract and sending reminder notices to alert consumers that a contract is due to renew. Fake reviews are also very much on the radar: the Government is currently considering legislation to expressly prohibit the buying and selling of fake reviews, and to require businesses to take steps to ensure the reviews they display reflect genuine consumer experiences.
Consumer welfare and the cost of living
CMA to continue scrutinising competition closely in sectors accounting for significant consumer spend
Susan Black and Sam Tappenden
In 2023 we have seen the CMA step up its work in the consumer welfare space, and particularly in sectors of considerable importance to household spending during the cost of living crisis. This is a trend we expect to continue in 2024.
Some key developments we anticipate over the coming year include:
Ongoing monitoring in the groceries space: in May, the CMA launched a review (under its general review functions) into competition in the groceries sector, amidst sharp rises in prices, headlines accusing retailers of ‘greedflation’, and heightened political scrutiny. An initial update in July found that price rises were unlikely to have been driven by competition issues at the retail level. In the CMA’s second update (published in November), the CMA identified potential concerns around upstream price competition in certain product categories, and in particular in the supply of infant formula. The CMA will continue to probe this as part of the next phase of its review, which will also include a review of retailers’ loyalty scheme pricing. With no statutory end date or strictly defined scope to the CMA’s monitoring of the groceries sector (in contrast to a formal market study/investigation), we expect this work to continue and to evolve well into 2024.
Continued focus on the veterinary sector: tying in with the CMA’s pledge to focus on areas of essential spending – and following merger reviews in the veterinary market earlier in the year – in September the CMA commenced a market-wide probe of aspects relating to pricing, and transparency around treatment options and costs. An update on the CMA’s findings and next steps is expected in early 2024. As with groceries, this is being assessed under the CMA’s general review functions: with no certainty as to timetable or remit, we may see this review extend in length and scope as the year progresses.
Housing will remain a hot topic: we expect the CMA to continue to be active in this sector in 2024, having called out accommodation as a specific area of focus in its Annual Plan for 2023/4. The CMA is continuing to progress a consumer protection project launched this year in the private rental market (which again relies on voluntary provision information without engaging the CMA’s formal powers). While we await an anticipated update by the end of 2023, this too may carry on into the new year. The CMA’s housebuilding market study is also due to conclude by the end of February 2024, with key themes in its final report expected to relate to housebuilders’ land banking practices, management of public amenities, the planning system, and housing quality – areas that are the subject of a number of working papers published and roundtables held by the CMA in the late autumn / early winter of 2023. At the end of the market study, the CMA will have the option of launching a full market investigation into the sector, to make recommendations to government (e.g. for legislative or policy changes), or to take no further steps.
For further information, please contact:
Stephen Wisking, Partner, Herbert Smith Freehills
stephen.wisking@hsf.com
