UK Digital Regulation: time to get into the detail

The UK government has published its White Paper on the new regulatory regime for firms with Strategic Market Status (SMS), which is very likely to capture firms such as Google, Apple, Facebook and Amazon. The new legislation is therefore now officially government policy.

At first glance, it will be a sigh of relief for the Competition and Markets Authority (CMA) because all of its main recommendations are in there – even the more controversial ones such as lowering the standard of proof for blocking mergers by SMS firms. 

However, a second glance makes me wonder why the White Paper is so short on details seven months after the Digital Markets Taskforce report and twelve months since the online platforms and digital advertising market study report. 

Perhaps the government chose a high-level consultation in July rather than a more detailed one in the Autumn? That may even be a good choice when looking at the end-to-end timing for implementing the new regime. In any case, the lack of detail means there is still much to play for. 

I will focus on two points for this blog post. We may return to the White Paper in future blog posts.

1. Who sets the rules?

The government is asking who should have a greater role in setting the rules: Parliament or the expert regulator (the Digital Markets Unit (DMU), which is now confirmed as being housed in the CMA)? The former would be more democratically legitimate, it would give SMS firms more clarity upfront as to what rules they will be subject to, and it would avoid the risk of a power-crazed regulator. The latter would enable more detailed and flexible rules that are tailored to each SMS firm. 

The Digital Markets Taskforce proposed a three-tiered approach.  The legislation would set out the high level “objectives”, with the detailed “principles” to be written by the DMU, and with extremely detailed “guidance” also to be written by the DMU.  Each SMS firm would get its own principles and guidance, although it is likely that they would have common features.  This would undoubtedly give the DMU an enormous amount of discretion, although it would be subject to judicial scrutiny and plenty of internal checks and balances.

To my mind, it is essential to base the regime on the DMU’s evidence-based analysis and I had always thought that this was a strength of the UK proposals when compared with the EU’s Digital Markets Act. The DMU needs to adapt the rules as it gathers experience in these fast-moving and complex markets. Reducing the DMU to a law enforcement role would be clearly sub-optimal. 

The government’s proposed approach departs a little from the Taskforce’s proposals by moving the “principles” into the legislative remit, but giving the DMU the ability to add firm-specific principles where it can justify them.

The new German law also gives the Bundeskartellamt a role in specifying the obligations that apply to the firms it designates. If the UK regime ends up being similar to the German model, then that might be a decent compromise even if it is not quite what the Taskforce recommended.  I hope that the DMU would still be allowed to play a leading role in writing the principles that would go into the legislation because the DMU is where the deep knowledge of these markets currently resides.

2. Just how certain is the government about its proposals?

Apart from a lack of detail, a closer look at the White Paper reveals that some aspects of the proposals are actually still up for debate. For example, in the section on a special regime for SMS mergers, the consultation is asking fairly open-minded questions on whether to include a special SMS merger regime at all. This contrasts with the tone in other parts of the document, which are quite implementation-focused. 

Most people will not read the lengthy impact assessment that accompanies the consultation, but if they did, they would read the following:

“The government is supportive of a dedicated SMS merger regime. However, a detailed policy position in relation to the mergers regime is not proposed at this stage. Not including the SMS merger regime in the preferred option, does not mean that the inclusion of this policy option is rejected.”

That does not sound like the SMS mergers regime is bolted down yet, does it?

The deadline for responses is 1 October 2021.  Now we’ve got many of the big questions as settled government policy, it’s time to get into the detail.

The UK government also published today a wider consultation on reforms to the competition and consumer law regimes. This is full of noteworthy things, but this is a platform law blog, so I’ve focused on the DMU issues.

[Disclosure:  Tom previously worked at the CMA and led the legal teams on its digital advertising market study and Digital Markets Taskforce reports referred to above. A number of Geradin Partners’ clients are interested in these reforms.]