Dirk Auer is the Director of Competition Policy at the International Center for Law & Economics
A far-reaching bill currently before Parliament would turn the UK Competition and Markets Authority (CMA) into one of the world’s most powerful tech regulators. Unfortunately, taking the lead on regulation would almost certainly threaten Britain’s status as a leader in tech innovation.
The timing of the bill—the Digital Markets, Competition and Consumers Bill, or DMCC—is ill-chosen. Britain’s economy has performed poorly since at least the financial crisis, with the United States now over one-third richer on a per capita basis.
This sobering state of affairs has led UK political leaders to call for significant reforms that aspire to bring the nation back to the technological frontier. From Boris Johnson’s “Build Back Better” proposal to Rishi Sunak’s declaration that he wants to “cement the UK’s place as a science and technology superpower by 2030”, ensuring that the UK tech sector serves as a global powerhouse has become a mainstay of political debates.
Seemingly ignoring these ambitions, the UK is currently on the verge of kneecapping its tech sector. Indeed, as explained in a report co-authored by scholars from the Institute of Economic Affairs (IEA) and the International Center for Law & Economics, the DMCC bill threatens instead to turn the UK into a “tech turn-off”.
Reasonable people can disagree on the merits of digital markets regulation, but several aspects of the DMCC are beyond the frontier of reasonable debate. In fact, some provisions go even further than those of the EU’s Digital Markets Act (DMA), which is widely regarded as the most onerous regulation in this space.
The DMCC would give the CMA extremely broad powers without the usual substantive guardrails or procedural checks and balances, granting the agency nearly unfettered discretion to reshape digital markets according to its idiosyncratic preferences. This certainly flies in the face of the Government’s rhetoric about cutting bureaucracy and red tape.
CMA decisions would be subject only to so-called “judicial review”. This essentially means that companies would only be able to challenge the process that leads up to CMA decisions, rather than whether its factual assessments are accurate. This is bad for everyone involved, from Big Tech to those trying to challenge their alleged dominance.
Conservative MPs across the party have raised concerns about this lack of substantive accountability. This includes Sir Robert Buckland, the former Justice Secretary, who commented that the CMA will be ‘given free rein to make unchallengeable decisions that affect large swathes of the economy’. Richard Fuller labels the powers ‘too broad, too ill-defined and too restrictive to challenge’. Stephen Hammond MP warns that the Bill could stifle British tech innovation.
The bill’s backers retort that the judicial review standard is a mainstay of market regulations in the UK. This argument is far from convincing. Judicial review may be appropriate when regulators and courts have acquired significant experience policing an industry—which is often the case in other regulated industries. But the CMA is a competition enforcer, not a sectoral regulator. It has no experience regulating digital markets, which evolve much faster than traditional industries.
The problems do not stop at the weak judicial review standard. The DMCC is also worryingly short on limiting principles. Hundreds of companies risk falling under the bill’s extremely broad definition of “digital activity”. These could include supermarkets and other retailers, banks, insurance companies, telecom operators, and pharmaceutical firms.
The conduct requirements that the CMA could mandate are alarmingly broad, as it could effectively impose any obligation it deems necessary for a digital market to remain “fair”, “open”, “trustworthy” and/or “transparent”. Worse still, these concepts are not defined in the bill, and courts will not be able to flesh them out because of the weak judicial review standard.
The bill also includes a “final offer mechanism” that marks a fundamental incursion on freedom of contract for private businesses. In a nutshell, this could force firms with digital activities to deal with third parties under terms so unfavourable that they would rather not do business with them.
Finally, and perhaps most worryingly, the bill’s interoperability requirements and prohibitions of self-preferencing could severely undermine user privacy and data security. It could open the likes of iMessage and WhatsApp up to the risk of serious security flaws, endangering our communications. Yet the DMCC ignores these crucial tradeoffs.
In short, while Brexit may be a distant memory, it appears the UK has not given up the EU’s unfortunate proclivity to regulate at all costs. In the case of the DMCC, this cumbersome regulation will undermine investment in the UK digital sector, and associated innovation. The UK’s position as a ‘science and technology superpower’ will thus be undermined