Supplementary written evidence submitted by the Competition & Markets Authority
DCMS COMMITTEE INQUIRY INTO THE POWER OF INFLUENCERS: CMA RESPONSE TO DCMS FOLLOW-UP QUESTIONS
Question 1 – The BEIS ‘Reforming competition and consumer policy’ consultation and a general outline of the ‘admin model’
Under the current system, the CMA is required to go to court to enforce its consumer law powers at any stage of an investigation.
In short, the CMA believes it would be more efficient at responding to breaches of consumer law (including in respect of influencer breaches of the law) if:
1. the CMA had the power to make decisions directly, without the need to go to court (also known as an ‘administrative model’); and
2. the CMA had stronger powers, including turnover-based fines for frustrating enforcement procedures or breaking the law.
The CMA is pleased that BEIS recently published a consultation on reforms to consumer and competition policy. The consultation sets out a proposed administrative (direct decision-making) model for the CMA in addition to the existing court-based enforcement route. The consultation also proposes a significant upgrade to the CMA’s enforcement capability across both those routes (most notably through turnover-based civil financial penalties for breach of the law and for non- compliance with information-gathering and investigatory requirements).
The CMA strongly supports these proposals and will continue to work with BEIS as it develops the detailed policy proposals to implement these enhanced enforcement powers. It is important that a legislative slot is identified soon for these reforms to be enacted.
The proposed model will promote swifter resolution of cases and improve deterrence against breaches of consumer law and greater clarity for fair-dealing businesses. The proposed turnover-based financial penalties are an essential part of the new enforcement process: strong financial deterrence against non-compliance will force traders to take consumer law more seriously and the public will see appropriate punishment for firms that break the law. The appropriate safeguards to ensure fairness can be built into these proposals.
With stronger powers that can be deployed without a series of lengthy court actions, including fines for frustrating enforcement procedures or breaking the law, the CMA could shorten enforcement processes by many months or years, stopping harm to consumers far sooner, including in relation to unlabelled influencer endorsements.
Question 2: The CMA’s suggestions for legislative changes that would help address the new difficulties of influencer marketing.
1. Legislative changes to explicitly clarify platform responsibility
The CMA considers there would be significant benefit if the Consumer Protection from Unfair Trading Regulations 2008 (‘CPRs’) were explicitly clarified in respect of online platform operators’ obligations in relation to incentivised endorsements – and other forms of economically harmful illegal content – when it is present on or facilitated by their platforms.
The CMA considers that platform operators already have obligations under consumer law to prevent harm to consumers’ economic interests in certain cases: for example, in our enforcement work on unlabelled celebrity endorsements, we have required Facebook to take specific reasonable and proportionate proactive steps to tackle this content effectively.
In particular we consider that platforms that host or facilitate incentivised endorsements should abide by the following principles, namely that they need to:
be clearly identified as advertising and clearly distinguishable from other posts;
We are actively engaging with social media platforms in respect of these principles.
The CMA is of the view that, where platforms fail to take appropriate proactive steps to address this content effectively - including those described above - with the result that consumers are likely to be misled, they are at risk of infringing consumer law. In particular, the CPRs include a general obligation to exercise professionally diligence towards consumers under Regulation 3(3), CPRs, and an obligation not to mislead consumers under Regulations 5 and 6, CPRs.
However, in the CMA’s previous experience, platforms have often argued that, broadly speaking, they don’t have responsibilities for illegal third party content under consumer law and, to the extent they do have a responsibility to tackle that content, it is limited by the intermediary ‘safe harbour’ defences in the EU e-Commerce Directive e.g. they merely ‘host’ such content and are therefore not responsible for it and a requirement to take proactive steps may infringe the prohibition on ‘general monitoring obligations’. However, the CMA considers that requiring monitoring to ensure compliance with consumer protection law in a specific case is both permissible and appropriate. The legislation does not, however, make that expressly clear and that can often lead to delays in resolving consumer cases.
The CMA therefore considers that the law would benefit from being explicit in this respect. This could be achieved, for example, by creating an explicit free-standing duty of care in the CPRs requiring platform operators to take reasonable and proportionate steps to minimise the presence or accessibility of economically harmful illegal content originating from third parties (thereby requiring proactivity).
The CMA wrote to the Joint Committee on the Draft Online Safety Bill in September 2021. In line with the CMA’s views, the Joint Committee recently recommended that:
We agree with the Joint Committee’s recommendations, to the extent that such steps would explicitly clarify the law in this area and meet the Government’s aim of establishing a high level of consumer protection for consumers online.
2. A clear power to allow the statutory backstop to enforce compliance with the CAP code
While the ASA currently has a statutory backstop to enforce certain parts of its CAP Code, i.e. the Buckinghamshire and Surrey County Council's Trading Standards service (TS), TS can only enforce in respect of breaches to the CAP Code to the extent there is a corresponding breach of the CPRs (which is legislation TS are empowered to enforce). Therefore, generally, TS cannot act as a statutory backstop in respect of breaches to the CAP Code which do not constitute a corresponding breach of the CPRs. This creates certain problems:
Potential remedies for this include adding to the CPRs banned practices list (a schedule to the CPRs identifying practices that are always considered to be unfair) a prohibition which makes it illegal for a person, without reasonable excuse, to include content in an advert when they have already been subject to an ASA adjudication in respect of such content. The effect of this would be to enable an enforcer to obtain a court order to bring non compliant online advertisers into line without needing to prove any further breach of the law. Alternately a prohibition could go further and ban publishing any advert which contravenes an ASA adjudication, or make it clear that publishing an advert which is in breach of the CAP Code, is prohibited under the CPRs. All of these options would require further consideration and discussion with the ASA on the practical implications.
3. Legislative changes to address loophole for non-controlled content
Currently the ASA can only intervene where content is ‘controlled’ by the advertiser. This may create a loophole for some influencer posts, for example those posts which result from a ‘gift’ sent to an influencer from a brand, but where there was no agreement given in advance by the influencer that they would post about the product or service they received. This arrangement is very common in the influencer sector. The CMA considers this should be clearly identified as advertising.
One solution to this could be for the remit of the ASA to extend to cover such adverts. Alternately, this could be addressed to some extent by greater clarity on the face of the CPRs about the need for all advertising to be clearly identifiable as such, which is the next proposal we make below.
4. Clarity on the principle that advertising must be clearly identified as such
It should be made explicit in the CPRs that advertising must clearly be identified as such. ‘Advertising’ should have a broad meaning, and include any part of an advertising campaign. Unlike other forms of advertising, influencer advertising is mixed in with an influencer’s personal content. As such, unless adverts are clearly labelled, influencers may be creating the impression, by omission, that those posts are personal, as opposed to commercial.
We have seen numerous examples of posts by influencers about businesses which they have a close connection with, or own, where these posts are not clearly identified as adverts. Likewise, where influencers receive gifts from brands, these are part of marketing campaigns by those brands, but we have seen numerous examples of posts of influencers opening or using these gifts which are not clearly identified as adverts.
The CMA takes the view that these kinds of posts should be clearly identified as advertising, so that consumers can easily distinguish between commercial content and editorial content. The CPRs would be improved if it is clear on their face that advertising must be clearly identifiable as such. This could be achieved by adding a prohibited practice to Schedule 1 of the CPRs to the effect that it is unlawful to publish advertising unless it is clearly identifiable as such -perhaps by using the wording which is currently contained in regulation 6(1)(d) of the CPRs –“the commercial practice fails to identify its commercial intent, unless this is already apparent from the context.”
 TS could also intervene if there were corresponding breaches to other legislation that TS is empowered to enforce, but this is unlikely to be relevant to unlabelled endorsements.
 See footnote 1.
 Based on our experience, this also may not breach any other legislation TS is empowered to enforce.
 This wider version of the prohibition would mean in effect that traders would be at risk of a court order if they published an advert which contained content that the ASA had adjudicated against in relation to another advertiser.
 Such a prohibition would be similar in effect to that contained in paragraph 4 to Schedule 1 of the CPRs, and would treat the CAP code as one which all advertisers, by implication, have agreed to comply with.