Large or strategic tech firms will need to be aware of the risk of falling within the new regime, as it could result in additional obligations and scrutiny, with significant penalties for non-compliance. This new regime tackles similar issues in the UK to the EU's Digital Markets Act (DMA) and will be enforced by the Digital Markets Unit (DMU) in the Competition Markets Authority (CMA).

This article focuses on the following key changes specific to digital markets:

• New SMS regime – the DMU will have the power to designate strategic market status (SMS) entities and impose additional obligations on firms with such status in the UK (SMS Firms).
• Mandatory merger reporting – mandatory reporting of certain transactions to the CMA for SMS Firms.
• Investigative and enforcement powers – the DMCC gives the CMA extensive powers to investigate suspected infringements by SMS Firms.

New SMS regime

The DMU will have the power to designate firms as part of the SMS regime if they have:

1. Annual global turnover of over £25bn or over £1bn UK turnover, and
2. "substantial and entrenched market power" and "a position of strategic significance".

Designation can only take place following a formal investigation in which the CMA concludes a firm has SMS in respect of a digital activity in the UK (i.e. the provision of a service via the internet or the provision of digital content).

Each SMS Firm will have to comply with its own specific set of conduct requirements that will be developed and enforced by the CMA.

SMS Firms may be subject to “pro-competition interventions” (PCIs) by the CMA, aimed at reducing any anti-competitive effects. This could include behavioural obligations (e.g. around granting access on fair and reasonable terms or interoperability requirements) or structural (e.g. divestment) remedies. PCIs can only be imposed after an investigation which may take up to 9 months. It may also take a further 4 months to make a PCI after a decision notice. 

Transaction reporting

SMS firms must also report proposed mergers and acquisitions to the CMA where:

• The SMS Firm will acquire a 15% equity or voting share as a result of the transaction. Additional increments where their shares exceed 25% or 50% are also caught and, will trigger an additional duty to report.
• The total value of the consideration of the transaction is over £25 million (this includes all assets and economic benefits that flow from buyer to seller), and
• The target or joint venture is a "UK connected body corporate" (i.e. it carries on activities or sells good or services in the UK).

The rules seek to capture significant transactions, and the duty to report applies to all transactions meeting the above reporting requirements.

The CMA may decide it does not have jurisdiction to review a reported transaction if it does not meet the jurisdiction thresholds.

On receipt of a report, the CMA has five working days to determine whether it is complete, and a further five working days from confirming completeness during which the transaction cannot complete without CMA consent. The CMA must inform SMS acquirers within this timeframe whether it will open an investigation, and will do so where it believes there is a “reasonable chance” that a phase 2 merger investigation will be required. Reports can be refused on the basis that they are incomplete, which restarts the timeline.

Where the CMA decides to investigate, it may provide acquirers an option to notify the arrangement but, where completion is imminent, will likely issue an enquiry letter. The remainder of the CMA’s review will follow that of any merger investigation under the Enterprise Act, 2002. 

These new rules are a key part of the CMA digital toolkit, enabling them to detect and review “killer acquisitions” in the digital sector (see our previous article on this). The CMA guidance notes that it may consult both with competition authorities outside the jurisdiction and with other sectoral regulators where they have industry specific knowledge. 

Investigative and enforcement powers

The DMCC gives the CMA extensive powers to investigate suspected infringements by SMS firms, including the ability to demand information, conduct dawn raids, and impose substantial fines for non-compliance of up to 10% of a company's global annual turnover.

The CMA can also enforce orders, take court action, and seek the disqualification of company directors for up to 15 years.

What should businesses do now?

Guidance on the CMA's approach to the digital markets regime was published on 19 December and took effect on 1 January 2025. Separate guidance for merger reporting by SMS firms and on the CMA’s approach to administrative penalties has also been published. 

• Tech companies of all sizes will need to consider how the new SMS regime will impact their own business and create a ripple effect across the digital market space.
• Firms with over £25bn global turnover of £1bn UK turnover should assess the risk of a CMA SMS designation.
• Consider whether your team requires updated DMCC-specific training, in particular legal and deal teams.
• Firms considering transactions with a tech or digital services element should be mindful whether it could increase the risk of a CMA SMS designation.

DACB's competition team is experienced in advising clients and navigating them through competition law queries and any engagement with the CMA. Our expertise informs our proactive commercial advice to clients on compliance and the management of regulatory intervention.

If you would like to discuss the issues raised here, please get in touch with us.