Digital regulatory departments in UK government are gearing up for the implementation of new legislation and this will impact the digital industry giants. The aim is to promote economic growth while protecting consumers, and the legislation will carry severe penalties for technology organizations that fail to comply with the regulations.
David Deegan, 27 June 2023
Major technology companies are acquiring smaller businesses and dominate the market. The need for regulation of the digital sector has never been more pressing. The United Kingdom (UK) has proposed legislation to attempt to address this.
The UK Digital Marketing, Competition and Consumers Bill was introduced on 25. April 2023, and its remit will be enacted by a newly created UK government department, the Digital Markets Unit (DMU). There are common themes between the DMU and the November 2022 EU Digital Services Act, which goes into effect by 1 January 2024. The UK bill is set to become law by the spring of 2024.
The UK government describes the aim of the bill as promoting competition within the digital technology sector while simultaneously protecting consumers. Both the UK and EU initiatives seek to ensure there is growth and innovation crucial for countries’ economic advancement and development, and at the same time protect users from harm.
The UK bill targets the proliferation of fake reviews and disinformation. It also acts to prevent users from being caught in costly subscription traps which the UK government says costs consumers around GBP1.6 billion per year. The bill seeks to enable consumers to opt out of subscriptions more easily.
The bill is also intended to promote competition within the digital market. Companies with a turnover of either GBP 25 billion globally or GBP 1 billion in the UK. will be designated by the DMU as having “strategic market status” and will have to follow code of conduct which prevents them from using their “market power and strategic position to distort or undermine competition” between users of their services.
The DMU will be able to order organizations to divest smaller companies who have been absorbed through mergers and acquisitions. They will also be required to provide information to their consumers on how customers’ personal data is being harvested and why particular content is being recommended to them.
The EU Act also targets disinformation, and online providers will need to make it easier for users to challenge illegal and inappropriate content. The Act also requires providers to redesign their sites in ways which will create better privacy for users, and enhance safety for children.
Both carry consequences for organizations which fail to comply. In the UK, organisations which fail to comply could face fines of up to 10% of global turnover and the disqualification of their directors. In the EU, organizations could be fined up to 6% of global turnover and/or be banned from operating in the EU.
Naturally there has been criticism and lobbying against the regulations. The UK bill will take months to travel through the relevant parliamentary committees, the Parliament and the House of Lords, so there is potentially time for the technology firms to lobby for changes. But the initial attempts have so far been unsuccessful and instead seem to have entrenched UK ministers’ positions.
Tech firms lobbied to change the terms of appeal when decisions are made by the regulator. It was thought the process would be on the basis of a “Merits Appeal”, where the appeal challenges the correctness of the decision made by the regulator.
The lobbying activity appears to have led to UK ministers now favoring a tougher standard of appeal called “Judicial Review”. With a Judicial Review, companies can only make an appeal if the regulator, a branch of the Competition and Markets Authority, has failed to follow the correct decision-making processes, rather than appeal on whether they believe the decision itself to be correct. This appeal standard will leave tech companies with fewer avenues for overturning decisions.
The larger tech companies are continuing to protest, claiming that the appeal standards are unfair and will damage business and growth, but the UK government’s position so far has not changed. They highlighted that Judicial Review is already been employed by another powerful UK regulator, Ofcom, which regulates standards of radio, television and online communication services.
No technology organization is likely to publicly criticise the laudable intentions of the UK Bill and the EU Act: the promotion of innovation and consumer protection. The digital giants will also be aware that a fine resulting from transgressions will not be the only thing that harms their business. Reputations and brands could also be severely damaged by high-profile cases.
It is ironic that this type of reputational damage will be facilitated by the speed and breadth of the tech giants own social media services. As the UK Bill and the EU Act move forward to becoming reality and the inevitable cases against transgressors begin to emerge, Big Tech may unwittingly find itself the victim of its own success.