Significant reform to UK competition law and digital regulation to come into force on 1 January 2025

The new year ushers in significant reforms to the UK's merger control thresholds and a new digital regulation regime, when important sections of the Digital Markets, Competition and Consumers Act 2024 (DMCC) enter into force on 1 January 2025¹. The DMCC's provisions concerning consumer protection regulation will come into effect later in the year.

 

Merger Control

The CMA currently has jurisdiction to review mergers if: (i) the target has annual turnover of more than GBP70 million in the UK (the Turnover Threshold); or (ii) the merger creates or enhances a share of supply of 25% or more in the UK or in a substantial part of the UK. The CMA interprets the share of supply test flexibly to enable it to assert jurisdiction over many transactions it wants to review.

The changes introduced by the DMCC are:

• New threshold designed to catch so-called "killer acquisitions": The DMCC adds a new basis for establishing jurisdiction over deals where at least one of the parties to the merger or acquisition has: (i) an existing share of supply of 33% in the UK; and (ii) a UK turnover of at least GBP350 million – provided the target has a UK nexus (which is a relatively low bar). This means transactions in which there is no horizontal overlap in the UK may still be subject to a merger control review (ie purely vertical or conglomerate mergers can be caught by this threshold). Given how the share of supply test operates it is expected that the 33% share of supply test will be extremely broad and in many cases it will be hard to confirm that an acquirer does not have a 33% share of supply on some plausible segment of the relevant market.

• The turnover threshold is being increased: from GBP70 million to GBP100 million.

• Safe harbour: There will be a new safe harbour meaning mergers will be exempt from a review where both parties (one of which being the acquirer group rather than just the acquirer entity) have turnover of less than GBP10 million in the UK.

The DMCC also introduces some procedural changes to the Phase 2 process (such as an enhanced ability to "fast track" mergers with prima facie issues to Phase 2 and the potential to extend the Phase 2 review period) which, along with the CMA's own planned amendments to the Phase 2 process, are aimed at making the Phase 2 process more efficient for the merging parties.

 

Enforcement powers

The DMCC enhances the CMA's information gathering powers: (i) the CMA can request information and the production of documents from entities located outside of the UK if they are a party to a merger or subject to a competition investigation and they have a UK connection; and (ii) the CMA can impose higher penalties on firms which fail to comply with information requests during an investigation.

The DMCC also brings in a new duty to preserve documents akin to document preservation obligations in litigation. If a person knows or suspects that the CMA is likely to carry out or is carrying out an investigation, they must not falsify, conceal, destroy or otherwise dispose of relevant documents (or allow this to happen).

This change, along with other changes to the CMA's power to investigate (such as the ability to compel third parties to submit to an interview or produce documents), means the CMA will have even broader powers to investigate and enforce competition law breaches.

 

CMA's new Digital Regime

One of the most notable changes introduced by the DMCC, several years in the making, is the new regime for regulating large digital firms which will be overseen by a specialist unit with the CMA (the Digital Markets Unit).

The rationale behind the new digital regime is to create an ex-ante regulatory regime for digital markets which promotes competition in digital markets. The regime will regulate the conduct of firms designated as having "strategic market status" (SMS). The CMA can designate firms as having strategic market status in respect of digital activity (defined very broadly) that is linked to the UK where an undertaking has substantial and entrenched market power and a position of strategic significance in respect of a digital activity. This is intended to address the same competitive issues as the Digital Markets Act in Europe but there are key consequential differences between the regimes.

In order for a firm to be designated as having SMS it must meet one of the following turnover conditions:

• The total value of the global turnover of the undertaking (or where it is part of a group the global turnover of that group) exceeds GBP25 billion; or

• The total value of the UK turnover of the undertaking (or where it is part of a group the UK turnover of that group) exceeds GBP1 billion.

The regime is therefore only intended to target the very largest technology firms but will create enforceable duties for parties which are impacted by those firms.

The CMA will be able to open investigations as to whether to designate firms once the Act enters into force. The SMS investigations must be completed within 9 months (starting on the day on which the potential SMS firm is given notice). There will therefore be some delay between the DMCC entering into force in January and firms being designated as having SMS. We will likely see the first few firms designated in September 2025.

Unlike the EU Digital Markets Act, the DMCC doesn’t have a list of prohibited actions for digital companies and instead each designated firm will be subject to bespoke conduct requirements. Each individual conduct requirement imposed on a SMS firm must satisfy one of the three objectives set out in the DMCC: (a) fair dealing objective; (b) open choices objective; and (c) trust and transparency objective. Breaches will be subject to large penalties of up to 10% of global turnover.

 

Merger control for digital firms

For any undertaking which is designated as having SMS it will be mandatory to report mergers pre-closing involving a target with a UK presence where: (i) there is a change in the nature or level of ownership at 15%, 25% or 50% share ownership/voting thresholds; and (ii) the total consideration payable is at or above GBP25 million. This new duty to report will only apply if the transaction has not already been notified to the CMA under the standard merger control process. This will enable the CMA to monitor SMS firm's investment activities once they have been designated.

For new joint ventures, SMS firms will need to inform the CMA if they will hold at least 15% of the voting shares in the joint venture.

 

Increased litigation

The DMCC increases the risk of litigation for digital firms in the already litigious UK environment. Once a firm has been designed as a SMS it will owe a duty to any person who may be affected by a breach of a conduct requirement. Any interested party can enforce these rights directly in the Courts and are not required to wait for the CMA to carry out an investigation or come to a decision (which, if similar to the current competition regime, can be quite slow). If the CMA does reach a decision that a SMS firm has breached a conduct requirement the decision will then be binding on the Courts (ie can be used as evidence of conduct in litigation). Certain rules of the Competition Appeal Tribunal have also been amended to reflect the DMCC changes.

 

Impact of DMCC for businesses

It is important that all businesses are aware of the changes when considering new acquisitions or disposals, given the CMA's enhanced jurisdictional reach. We expect an increase in the use of UK merger control conditions precedent in deals and an increase in the volume of transactions being brought to the CMA's attention via briefing papers. Companies should also ensure their own compliance procedures are updated to reflect the CMA's new powers (including dawn raid guides).

The overall impact of the DMCC will depend on each business and its activities. In particular, the DMCC will see big changes for both digital firms likely to be subject to SMS status and for firms which interact with digital firms.

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¹ The Digital Markets, Competition and Consumer Act 2024 (Commencement No.1 and Savings and Transitional Provisions) Regulations 2024.