European Union adopts the Digital Services Act

Tuesday 1 November 2022 14:00 CET | News

The Digital Services Act has been published in the Official Journal of the European Union, sweeping in a new era in the regulation of digital services.

The DSA complements the Digital Markets Act (DMA) which entered into force on November 1, 2022. Together, the DSA and the DMA are designed to regulate digital services in the EU, along with already existing laws.

The Digital Services Act (DSA) applies to providers of digital services, including those based outside the EU that provide services to users in the region. Most companies will have until February 17, 2024, to comply with the DSA. However, for very large online platforms (VLOPs) and very large online search engines (VLOSEs), the DSA will apply four months after their designation by the European Commission (EC), which could take place as early as in the first half of 2023.

The DSA builds on, but does not replace, the existing ecommerce Directive. For example, the DSA adds to the trader transparency requirements in the ecommerce Directive.

Intermediary services will be regulated by national regulators, coordinated by one Digital Services Coordinator in each Member State. The DSA also creates a new ‘European Board for Digital Services’ to help ensure consistent enforcement of the DSA across the EU.

Who does the DSA apply to?

The DSA applies to providers of conduits, caching services, and hosting services. The obligations to which a company will be subject vary according to their nature and size. Online platforms are subject to more extensive obligations than other intermediary service providers.

The DSA was published in the Official Journal of the European Union, sweeping in a new era in the regulation of digital services.

Companies that are not established in the EU but offer services to individuals or companies in the region will need to designate a representative who could be held individually liable for cases of noncompliance with the DSA, independently of any liability and legal actions against the intermediary service provider.

The inclusion of this requirement for non-EU companies to have a legal representative in the EU has so far been accepted positively by European players as it would ensure a level playing field within the Single Market. Relating to the fines for the violation of rules, the issue has been raised that the threat of significant fines for non-compliance might lead to preventive removal of content, which might otherwise be considered legal, putting companies in the uncomfortable position of risking fines under the Digital Services Act or being criticized for violating freedom of expression by censorship.

The core obligations

The core obligations to which intermediary service providers are subject include:

  • Complying with Know Your Customer (KYC) requirements: online marketplaces will need to collect background information from traders before permitting them to use their service. Traders will need to provide information such as payment account details before they can offer goods on the online marketplace.

  • Notify customers of illegal products: online marketplaces must take reasonable steps to check official online databases to ensure that the products and services on offer on their platforms are not illegal. If they become aware of any illegal products or services, they will need to notify the purchasers directly, or where that is not possible, provide public notice.

  • Comply by design: online marketplaces will also need to design their interface to allow traders to comply with their obligations and clearly identify the products and services that they offer to customers in the EU.

The EU's legal framework for digital services had not changed since the adoption of the ecommerce directive in 2000. In the meantime, digital technologies, business models and services have changed at an unprecedented pace. To keep up with this pace, the European Commission presented a digital services package comprising the DSA and the DMA in December 2020.

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Keywords: regulation, digitalisation, ecommerce, KYC, online payments
Categories: Payments & Commerce
Countries: Europe
This article is part of category

Payments & Commerce