The impact of the DMCC Act on UK's e-commerce and digital services

Answer

The Digital Markets, Competition and Consumers (DMCC) Act 2024 marks a significant shift in the regulatory landscape for e-commerce and digital service providers in the UK. The legislation aims to address some of the challenges posed by the rapid growth of e-commerce and digital service providers by enhancing consumer protection, promoting fair competition, and ensuring that digital markets operate in a way that benefits consumers and businesses alike. The changes introduced by the DMCC Act will come into force in phases, starting from January 2025.

Overview of DMCC Act  

There are several key provisions that’ll be relevant to companies operating in the e-commerce and digital sectors:

Establishment of the Digital Markets Unit

• The Digital Markets Unit (DMU) is created within the Competition and Markets Authority (CMA). The CMA is the UK regulator for competition and consumer law. It’s a government body responsible for promoting competitive markets by preventing and addressing anti-competitive or unfair behaviour.
• The DMU has the authority to designate companies as having Strategic Market Status (SMS) in relation to a wide range of digital activities.
• Under the DMCC Act, there are five key criteria for designating a firm as having SMS, but this status will likely be reserved for tech firms that have the most power and influence in the digital market.
• Companies with SMS will be subject to specific conduct requirements to govern how they interact with both consumers and other companies – effectively operating as a form of bespoke regulation for each SMS firm, in particular to help prevent anti-competitive practices.
• The CMA will also be able to more easily intervene and scrutinise merger activities involving SMS firms.

Consumer protection changes

• The DMCC Act introduces stricter rules and regulations for consumer law compliance. For example, the existing rules relating to unfair commercial practices have been strengthened, and new rules have been introduced to tackle subscription traps and fake reviews.
• Under new subscription rules, businesses will be required to give consumers reminders about ongoing subscriptions and offer clear cancellation options for subscriptions.
• Under new rules designed to combat fake reviews, there are new obligations on businesses to verify consumer reviews before publication to ensure they’re not fake or misleading, as well as making it an offence to submit, publish or commission a fake review.
• Most significantly, the CMA has been given new powers to impose penalties against companies that don’t comply with consumer law (both existing and new under the DMCC Act). Under these new powers, the CMA will be able to impose fines of up to 10% of global turnover. Until now, the CMA has had very limited enforcement powers, tending to agree undertakings with non-compliant businesses in which they promise to change their behaviour.

Enhanced competition investigatory and enforcement powers for the CMA

• While there are no substantive changes to UK competition laws themselves under the DMCC Act, the CMA has been handed much tougher investigation and enforcement powers.
• These include extended dawn raid powers, which now allow the CMA to seize documents and devices from individuals’ homes where they’re suspected to be involved in a competition law infringement, as well as impose tougher penalties for obstructing a dawn raid.
• There has also been an extension to the scope of the CMA’s information gathering powers, enabling the CMA to require businesses to provide data and information during investigations that’s stored outside the UK if certain conditions are met, as well as serve information requests on overseas companies.
• In addition, there are now more significant penalties for failing to respond to a request for information from the CMA (up to 1% of global turnover and/or a daily penalty of up to 5% of global daily turnover).
• Finally, the CMA has new powers to impose penalties of up to 5% of global turnover on companies that breach commitments, undertakings or market investigation orders.

Impact on e-commerce and digital service providers

The regulatory changes introduced by the DMCC Act are expected to have substantial implications for companies operating in the e-commerce space in the UK.

Companies designated with SMS will be required to comply with new conduct requirements, which may include obligations to provide greater transparency in their operations, ensure fair access to their platforms and refrain from self-preferencing their own services. These measures aim to level the playing field for smaller competitors and foster a more competitive market environment. However, these SMS designations will likely apply only to the largest tech companies. In contrast, the new consumer rules will affect a vast number of businesses, significantly increasing the risks of non-compliance.

Perhaps of more significance to most consumer-facing e-commerce businesses, the CMA’s new consumer enforcement powers place more emphasis on consumer protection law compliance than ever before. Non-compliance with consumer law now carries significant risks, particularly the possibility for huge penalties. Businesses will need to ensure that, where necessary, they adapt their business practices to comply with the new regulations, which may involve substantial operational adjustments and increased compliance costs.

What next?

Looking ahead, the DMCC Act is set to play a pivotal role in the ongoing regulation of digital markets in the UK. As the digital landscape continues to evolve, the DMCC Act's provisions will require continuous enforcement and potential adaptation to address emerging challenges and opportunities. Businesses will need to stay vigilant and proactive in their compliance efforts, as the CMA's enhanced powers mean that non-compliance could result in substantial penalties. The future of tech and e-commerce regulation will likely see further developments aimed at ensuring fair competition and robust consumer protection, making it essential for legal professionals and businesses to remain informed and adaptable to these regulatory changes.

Georgina Hands is a trainee solicitor at TLT LLP.