DMU Insights #8: Rubber meets the roadmap for the UK's Strategic Market Status regime

With the Digital Markets, Competition and Consumers’ Bill (DMCC) going to Committee stage in the House of Lords next week, last week’s request from Government that the CMA prepare a roadmap on its proposed approach to administering the Strategic Market Status (SMS) regime was timely. Under the DMCC as drafted, the CMA is set to get broad new powers and to have near unfettered discretion in how it exercises them. With what may be the final Parliamentary scrutiny of the DMCC imminent, it is not surprising the CMA has been busy preparing for the introduction of its new powers and barely let the ink dry on the request before responding. The key message the CMA wants Parliament to take from its roadmap, published on Thursday, can be summarised very briefly: you can trust us. 

The Roadmap is not official guidance – we’ll have to wait until after Royal Assent for a published consultation to provide fuller guidance on the key aspects of the regime. However, it does provide a glimpse into how the regime may operate in practice once the CMA’s new powers come into force. We summarise here some of the interesting highlights from the Roadmap and key areas to keep an eye on as the regime takes shape.

Indicative timetable: more detail on the CMA's plans and priorities 

In line with expectations, the Roadmap confirms that the CMA is planning on the basis it will get its powers in Autumn 2024 (though of course this is all still subject to the Parliamentary timetable). Beyond Parliamentary timing, the Roadmap also provides a bit more colour than previously on the post-commencement timeline and what we may expect to see, in particular:

• The CMA will waste no time in getting started. The CMA plans to launch its SMS investigations “very soon” after commencement and sets an expectation of 3 - 4 SMS investigations within the first year (i.e. by October 2025), which may not all necessarily be into separate companies. This can be contrasted to the EU’s comparable Digital Markets Act, which has already designated 6 companies as gatekeepers across a total of 22 core platform services. 
   
• While not unexpected, the CMA also gives the strongest indication to date that the initial focus of the regime will likely be on digital advertising (including search and social media) and mobile ecosystems.
   
• As expected, Conduct Requirements (CRs) are likely to be drafted / consulted on in parallel with the first SMS investigations, for maximum efficiency of the timetable and ensuring the CMA's actions are implemented asap.
   
• The CMA also suggests potential Pro-Competition Intervention (PCI) investigations may be launched within the first few months of commencement, activating the full range of tools at the CMA’s disposal at an early stage.

More detail on conduct requirements

Much of the Roadmap is simply a user-friendly summary of the key elements of the regime,  recapping the DMCC Bill / information already in the public domain. However, it does provide limited additional detail on the key elements and principles of how the DMU will implement its new powers. In particular:

• Conduct Requirements: the Roadmap provides new detail on the different types of CRs that the DMU can impose and a principles framework within which the CMA will determine which to apply. The CMA clarifies they will have outcome focused CRs (i.e. that specify the outcome the firm must achieve) and action focused CRs (i.e. that specify actions the firm must take to achieve the relevant outcome). The CMA will focus on the former where the outcome is readily measurable, but the latter are better suited to where the outcome focused CR is not appropriate or sufficient to achieve the intended aim. Action focused CRs will likely be set out as high-level requirements initially (i.e. allowing greater flexibility in the specific steps the firm needs to take to comply). Where necessary, the CMA will impose more detailed CRs that may impose more prescriptive requirements (e.g. where a firm has failed to comply or clear persistent harms have bee identified).
   
• SMS designation: the Roadmap doesn’t provide much detail upfront, but indicates that we should expect prospective SMS guidance to cover (i) how the CMA will assess the substantially entrenched market power (SEMP) and Strategic Market Status (SMS) tests in the DMCC Bill; (ii) how the CMA will identify the scope / boundary of a digital activity; and (iii) the procedural approach to SMS investigations.
   
• PCIs: While the Roadmap also provides limited information on PCIs, it confirms that their purpose is to tackle the “source of a firm’s market power in a digital activity” and suggests (as expected) that data portability and interoperability may be potential focuses for PCIs.

Operating principles

The Roadmap sets 11 initial “operating principles” (subject to development / refinement) for how the CMA will focus its resources and undertake its digital markets role. These principles are clearly drafted with an eye to assuring Parliament that the CMA can be trusted with its broad new powers. The CMA says that in administering the regime it will be:

1. Targeted and proportionate (principle 1): this first principle emphasises a key theme throughout the Roadmap, with the CMA keen to present itself as pro-innovation, taking a tailored and proportionate view on its oversight of digital markets to avoid stifling innovation. Indeed, this aversion to stifling digital innovation has been confirmed by CMA CEO, Sarah Cardell at a Tech Antitrust Conference in Palo Alto this week.
    
2. Focused on positive outcomes (principle 2 and 3): these principles focus on ensuring the CMA takes a considered approach to regulation, monitoring and learning from its actions to ensure the best outcomes.
    
3. Address and prevent harms quickly and sustainably, primarily through competition (principle 4 - 8): these principles focus on ensuring the CMA acts in a manner best-suited for digital markets, including by focusing on the speed and future-proofing of interventions, while robustly facilitating competition and complementing the CMA’s wider functions. In particular - and in line with the CMA's stated approach in its AI Foundation Models work - the CMA highlights that it will prefer to guide markets to positive outcomes through protecting competition, rather then force outcomes through intervention. 
    
4. Participative, transparent and coherent with other regulations (principle 9, 10 and 11): in line with recent messages from the CMA across its functions, these principles focus on the CMA’s wider engagement with stakeholders to ensure the regime is participative, transparent and also coherent with other regulations and regimes.

Stakeholder engagement

The Roadmap reinforces the CMA’s intentions to build productive relationships with SMS firms as well as wider stakeholders and other regulators / authorities to ensure the regime functions effectively.

An interesting new feature to support wider stakeholder engagement is the CMA’s intended plan to set up two representative panels, one for consumers and civil society, and one for businesses and investors. The exact detail of these panels has yet to be determined, but may be an important area for wider stakeholders, keen to engage or participate with the regime, to keep a keen eye on. 

Accountability

Accountability and oversight of the CMA’s far reaching new digital markets powers has been a key focus of Parliamentary debate on the DMCC Bill (including, as we’ve previously explained, with regards to the DMU appeals standard). 

The Roadmap sets out the CMA’s perspective on the five key means by which the CMA’s actions will be reviewed / how it will be held to account (guidance; consultation and coordination; decision-making; review by the courts; and reporting and Parliamentary oversight).

On these features, the Roadmap offers little to assuage concerns for supporters of greater oversight of the CMA’s vast new powers, other than largely reiterating (in a more user-friendly manner) what is already in the DMCC Bill. However, it does provide some limited new detail on potential indicators for the CMA to be assessed against including: outputs (e.g. SMS investigations undertaking / CRs imposed); outcomes (e.g. positive changes to T&Cs, number of services available); impact e.g. (estimate of financial benefit to consumers); and health of UK digital markets (e.g. levels of growth and investment). The DMU's work will be reported to Parliament as part of the CMA's Annual Plan.

The CMA's key message: you can trust us… 

The primary intended audience for the Roadmap is clearly Parliament - for example the clarity that the CMA expects only 3-4 designations in the first year will no doubt be repeated frequently to assuage concerns that the regime could open the floodgates to double-digit designations, or make the UK “more highly regulated” - and therefore less competitive internationally than the EU. The CMA’s well-considered principles framework and target outcomes, have all the hallmarks of an agency keen to persuade of its pro-innovation as well as pro-competition agenda, which will handle digital markets with appropriate care and consideration. 

However, while the Roadmap provides some new insights into the CMA's emerging thinking, there remains significant uncertainty about precisely how the CMA's broad new powers will be interpreted and used - for that, we'll need to wait for guidance, which is expected to be consulted on after Royal Assent in the Spring.