Not just the GAFAs – broad reform proposed to address CMA concerns re consumer welfare in digital sector: the CMA’s Digital Taskforce Advice (Part 2)

Much of the coverage of the Competition and Markets Authority’s Digital Markets Taskforce advice on how to regulate Big Tech, has unsurprisingly focused on the proposals for a new regulatory regime for Big Tech (see our summary). But the reforms proposed in the DMT advice are not solely focused on enforcement against Big Tech. The DMT advice also recommends more general reforms to address the consumer harm that it says can arise in digital markets.

So, what consumer harm does the CMA want to address?
The DMT advice emphasises four key areas of consumer harm in digital markets:

• Barriers to effective and informed decision making: consumers receive information that is either too little, too much, too late or misleading and digital businesses present choices to consumers in a way that benefits the interests of the digital business.
• Digital content which leads to economic detriment for consumers and businesses: fake reviews, online scams and counterfeit goods.
• Barriers to customer switching and multi-homing: effective competition in digital markets lies in customers being willing and able to switch providers or to multi-home but a lack of data portability can mean consumers or businesses are less likely to switch.
• Coordination failures: innovation, emerging markets and business models are being held back because of a lack of beneficial coordination (e.g. the use of open standards).

What changes are required to address this consumer harm?The DMT advice stresses that stronger laws to protect consumers are needed to address these harms and reinforces Lord Tyrie’s call for modernisation of the CMA’s enforcement toolkit. It says:

• Existing consumer protection laws do not assist consumers to make informed choices. It calls for positive obligations on digital businesses such as imposing a duty on firms to take steps to reflect consumers’ interests in the design of their products and services.
• Powers need to be strengthened so that the CMA can tackle unlawful or illegal activity on digital platforms. It again calls for positive obligations on platforms to take steps to address unlawful or illegal activity on their platforms (e.g. introducing effective complaint mechanisms or using AI to identify illegal content).
• The current markets regime is not able to meet the challenges of dynamic digital markets. It requests changes to allow the CMA to: make a market investigation reference on the basis of adverse effects on consumers (not just on competition, which is the current standard); impose interim measures; adjust remedies if necessary; accept enforceable undertakings at an earlier stage; and issue fines for failures to comply with remedies.
• Enforcement of the newly introduced Platform to Business Regulation is required. The DMT advice suggests that the regulation (which provides a set of rules for a wide range of consumer facing online platforms such as search engines, social media sites, online market places and app stores) sets protections at an appropriate level but needs to be enforced by regulators such as the CMA in order to be effective.

Overall, the key areas outlined in the DMT advice are in line with the CMA’s shift to put consumer welfare at the heart of their enforcement policy and reinforce the CMA’s view that its current toolkit is not equipped to swiftly deal with the consumer harm that can arise in digital markets.

Critically, these proposed reforms would apply across digital markets rather than solely to those Big Tech businesses designated as having Strategic Market Status.

A strange sense of déjà-vu? 
Many of the proposals from the DMT advice are not new, but rather revive the recommendations made by the CMA’s former Chairman, Lord Andrew Tyrie, in a February 2019 letter to the Secretary of State for Business and Industrial Strategy. Without rehashing Lord Tyrie’s proposals in detail (see our analysis), the proposed reforms were sweeping, and designed to provide the CMA with additional enforcement powers and focus its work on more directly protecting consumers by imposing a new statutory duty on the CMA to prioritise the interests of consumers.

However, these proposals did not go any further before Lord Tyrie stepped down in September 2020 and nearly two years later, the Government has not responded to the Tyrie proposals. Readers could be forgiven for thinking the spectre of broad reform to the UK competition and consumer regime had faded into the distance, but the DMT advice revives many of its key proposals, in particular in relation to its focus on consumer welfare, and stresses that these reforms are key to addressing the challenges of the digital age.

Of course, these are recommendations only, but the revival of reforms proposed by Lord Tyrie suggests that the CMA is serious about its calls for strengthened powers to address consumer harm. We will watch with interest to see if the proposals are more effective at spurring reform than proposals from the CMA’s former Chairman.

Coming up 
In the next instalment of our series on the CMA’s DMT advice, we’ll return to the Strategic Market Status regime, focusing on the proposals for a new mandatory merger notification regime for Big Tech.