Regulatory interventions in platforms market should be linked to consumer harm, says UK authority

Jason Freeman, director of consumer law at the Competition and Markets Authority (CMA), told a parliamentary inquiry into online platforms earlier this week that it is important policy makers and regulators consider the benefits consumers derive from using platforms when assessing whether new rules are required to regulate them.

In general, regulatory interventions into markets should "connect … with an assessment of is there a problem, is there harm", he said.

"To focus on the benefits is very important in this discussion because at the moment people are getting benefit from the sharing economy, they are getting benefit from the platform economy, so therefore any intervention needs to think very carefully about where is there harm, where is there a problem that is arising," Freeman said.

"Traditionally we have focused on consumer complaints, and we try to do that in sophisticated ways so that we are finding consumer complaints, but if people are not complaining about something but instead they're benefiting from it, then it's important we don't assume that they should be complaining about something which actually they're not worried about," he said.

Freeman said that a CMA call for information on the subject of commercial use of consumer data earlier this year found that there is a "disconnect between consumers' stated concerns about privacy and their data and how they actually behave in practice". This issue would need to be "overcome" if a new "regulatory solution" is to be introduced to control platforms' data collection and use.

Freeman said that one problem is getting people to be engaged with what is happening to their data. He said that regulators could constrain "the level of data that is collected" but said platforms are already subject to consumer, competition and data protection constraints that limit their data collection.

The CMA has recommended businesses take steps to improve "consumer trust" in how their data is used, he said.

"We identified that consumer trust is to some extent fragile," Freeman said. "The risk is that consumers disengage from data collection or the market doesn't grow in a way that it could or should grow because consumers fear what is going to happen, they become suspicious, and therefore they don't download the app that they would really like to download because they're unclear what it is going to be collecting. We think there are three areas where the market can be improved."

"One is around transparency, so businesses being clearer with consumers what it is they do with their data. If you look at a privacy policy they are notorious for being difficult to read, lengthy and potentially incorrect. So transparency, what is being collected, by whom and for what purpose. The second element is choice. Can consumers exercise any effective choice about what is collected or not, so some form of actual consent to the transaction. The third aspect is control – can consumers exercise control over what data they're disclosing, what data they're sharing," he said.

"We think that if these factors are present the market will work well and in that sense you wouldn't need to concentrate too much on the data protection regulatory space because the market is working effectively," Freeman said.

The regulator said that principles-based legislation when "effectively enforced" helps markets to "work well". He said that "having prescriptive legislation" risks the law becoming "rapidly out of date" in "a fast-moving economy".

Freeman said that there are existing "cross sectoral" UK consumer protection laws that could be applied to online platforms' data use. Rules that prohibit businesses from relying on unfair contract terms could be applied to privacy polices, whilst rules banning misleading commercial practices could be engaged if businesses are not truthful with consumers "about what is happening to their data", he said.

Freeman said being too prescriptive with new regulations could "have a detrimental effect on the development of markets".

"You can constrain in such a way that hinders innovation in a way that you haven't thought about because we don't know what people are going to do in 1 or 2 or even perhaps 6 months' time, and as the timescales get longer it is even harder to predict what is going to happen, so we have to be careful before we go down a prescriptive regulatory route," Freeman said.

Regulators face a challenge when deciding whether to intervene in "fast-moving" markets, where new business models emerge, Freeman said. Whether "loopholes" need addressed, or "a particular interpretation" of existing laws is necessary are among the "different things that we need to think through as different factual situations present themselves," he said

"But importantly we have to consider whether there is actually harm taking place, and from our perspective that would be harm to consumers' economic interests," Freeman said. "We wouldn't be concerned so much with other issues to do with morality or people's opinions on how things should be."

The European Commission recently opened a new broad consultation into "the economic role of online platforms".

At the time, financial services and technology law expert John Salmon of Pinsent Masons, the law firm behind Out-Law.com, said: "Regulators see a number of social benefits that need to be addressed in the context of digital commercial dealings. Greater transparency is needed and online platforms need to achieve a greater level of trust both in terms of how they use data and in terms of how they build reputations and interact with customers."

"Personalised pricing, contractual tie-ins and the impact of reputation systems, from user reviews to third party certifications, are all matters that are largely subject only to high-level legal principles or laws that do not quite address the unique aspects of online engagement. When engaging in legislative reform the Commission and others need to think carefully about the extent to which these aspects of online engagement should be regulated and, if they are, the form that regulation should take," he said.

Last month, UK culture minister Ed Vaizey told the House of Lords' EU Internal Market, Infrastructure and Employment Sub-Committee that the push for tighter regulation of platforms is motivated by the fact the platforms are largely major US-based technology companies and not companies "based or grown out of" the EU. He said EU countries pushing for stiffer regulation of online platforms should be forced to explain the rationale for their views in more detail.