Tech giants may face billions of pounds in fines from new UK watchdog

The UK’s new tech regulator should have the power to fine Google, Facebook and other tech giants billions of pounds if they fail to stick to a new code of conduct, according to the competition regulator.

The Competition and Markets Authority (CMA), which will host the new dedicated Digital Markets Unit (DMU), has advised the government that the new regulator must have the power to impose huge fines as a final “backstop” or it will be unable to ensure the tech giants abide by the new rules, which are designed to create a fairer market for smaller rivals, newspaper and magazine publishers, and consumers.

New UK tech regulator to limit power of Google and Facebook

Under the new plans, which were fleshed out on Tuesday by the CMA in its recommendations to the government, the tech giants will have to follow a new enforceable code in dealing with third parties based on “fair trading and trust and transparency”.

This will include, for example, assessing whether the terms on which publishers trade with the tech giants, such as the commercial terms around the republishing of “snippets” of content, are fair to “prevent [them] from taking advantage of power and position”.

“To ensure the UK can continue to enjoy a thriving tech sector, consumers and businesses who rely on tech giants like Google and Facebook should be treated fairly, and competitors should face a level playing field – enabling them to deliver more of the innovative products and services we value so highly,” said Andrea Coscelli, chief executive of the CMA. “For that to happen, the UK needs new powers and a new approach. In short, we need a modern regulatory regime that can enable innovation to thrive, while taking swift action to prevent problems.”

The code will only affect those companies deemed to have “strategic market status”, or “SMS”. Althoughno tech giants have been officially awarded that status yet, the documents state that the DMU’s “prioritisation criteria” for companies to be included will be those that earn more than £1bn in UK revenues, or £25bn globally. Last year, Google made worldwide revenues of $160bn; Facebook made $70.6bn.

The advice highlights that Google controls 90% of UK search revenues, and Facebook accounts for more than half of the UK digital display ad market.

The competition regulator, which made up the taskforce alongside Ofcom, the Information Commissioner’s Office and the Financial Conduct Authority, said the maximum penalty for a breach by a firm designated an SMS, to be imposed as a last resort, should be 10% of worldwide turnover.

“When deciding if a cap is appropriate, and at what level it should be set, it is important to have regard to the size of the firms likely to be designated with SMS,” the advice to government states. “We therefore suggest it should be a maximum of 10% of the firm’s worldwide turnover. The DMU will need to adopt penalties which are proportionate to the breach it has found. The DMU should have the power to determine it as a fixed amount, an amount calculated by reference to a daily rate if the breach is ongoing, or both.”

The recommendations on the scope of the new DMU’s powers also includes beefed-up rules regarding mergers and acquisitions by tech giants. The report points out that between 2008 and 2018 the big tech giants – Google, Facebook, Amazon, Microsoft and Apple – made 400 acquisitions but “only a handful” were reviewed by competition regulators and none were blocked. The new rules will not allow the DMU to “implement full ownership separation” by breaking up a tech giant, that will be for the CMA, if necessary.

In its submission to the process, Facebook warned of the risks of regulatory intervention in the marketplace.

“Facebook encourages the taskforce to carefully weigh the potential trade-offs of intervention and ensure that the value created by Facebook is not destroyed, to the detriment of users and innovation,” the company said.

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