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Tech companies operating in the U.K. will face a new, specialized regulator that is expected to introduce rules around user data and consumer choice. It is set to curb the market power of companies including Google, owned by Alphabet (ticker: GOOGL), and Facebook (FB).

The move from the British government comes as tech giants face new challenges in the European Union within weeks, when draft proposals for legislation governing digital markets come on Dec. 9.

The back story. In July, Britains Competition and Markets Authority released the results of a year-long study into online platforms and the digital advertising market in the U.K. The study specifically investigated the market power of Google and Facebook, describing how the companies overwhelmingly dominate in online search, social media, and advertising, and enjoy incumbency advantages that protect them against rivals and reduce competition.

In March, the CMA was asked to lead a Digital Markets Taskforce to advise the government on the design of a new regulatory regime for digital markets. That task force is due to provide its proposals before the end of the year.

Whats new. The British government announced on Friday that it would set up a Digital Markets Unit within the CMA to oversee pro-competition reforms in the tech sector. The new unit will begin operating in April 2021.

Digital platforms like Google and Facebook make a significant contribution to our economy and play a massive role in our day-to-day lives, said Alok Sharma, Britains business secretary. But the dominance of just a few big tech companies is leading to less innovation, higher advertising prices and less choice and control for consumers.

Also read: Big Tech And Antitrust: Where Things Stand

The regulator will establish rules to govern platforms funded by digital advertising that have strategic market statusthe designation of which is another task of the new body. Its mandate includes introducing pro-competition interventions around user data, consumer choice, and could extend to breaking up businesses.

Andrea Coscelli, the CMAs chief executive, said that only through a new pro-competition regulatory regime can we tackle the market power of tech giants like Facebook and Google and ensure that businesses and consumers are protected.

Plus: Google Promises the EU It Wont Use Fitbit Health Data to Target Ads

Looking ahead. Make no mistake: the creation of a new tech regulator with a mandate to target companies like Google and Facebook is trouble for big tech. It comes as these same companies are already facing down the barrel of strict regulation across the English Channel making Europe stand out as a trouble spot.

Its difficult to tell how deep new intervention will run. The CMAs chief executive has been aggressive in calling out Google and Facebook, but the U.K.s business secretary was right to note the significant contribution these companies make to the British economy. Regulation like this could very well become a major political issue.

Email: editors@barrons.com

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Tech Giants Face a Tough New Regulator in the U.K. Heres Why it Matters. - Barron's