It is the European Union’s (EU) digital decade — and it starts Friday (Aug. 25).
The rest of the world, particularly its tech sector, has officially been put on notice.
That’s because the four-month grace period for the world’s largest tech companies to comply with regulations set out by the EU’s Digital Services Act (DSA) is officially up Friday, meaning that companies will soon be responsible for adhering to the regulations.
Fines for noncompliance can run as high as 6% of a company’s global annual revenue, and can even result in a firm being banned outright from operating within any of the bloc’s 27 member nations.
The hard launch of the DSA, whose requirements were announced on April 25, is a big deal not just for European tech companies, but for any firm that operates or wishes to operate within one of the world’s most attractive market economies.
As part of DSA’s implementation, the European Commission — the EU’s governing body — designated 17 Very Large Online Platforms (VLOPs) and two Very Large Online Search Engines (VLOSEs) that will be subject to extra requirements and more stringent operational scrutiny meant to mitigate the systemic risks of their scale.
“Complying with the DSA is not a punishment — it is an opportunity for platforms to reinforce their trustworthiness,” said Thierry Breton, the EU commissioner for internal market.
Under the DSA guidelines, a platform is designated a VLOP if it has more than 10% of the population of the EU, or around 45 million users.
Accordingly, the VLOPs represent a veritable who’s who of the web, including Alibaba, Amazon Store, Apple AppStore, Booking.com, Facebook, LinkedIn, TikTok, Twitter, YouTube and even Wikipedia.
Google Search and Bing.com are the two VLOSEs.
The EU’s DSA regulations are aimed at protecting users by enhancing accountability and transparency by the world’s largest tech enterprises. It requires companies looking to do business across the EU to perform risk management, conduct external and independent auditing, share data with authorities and researchers and adopt a code of conduct.
The rules are expected to help the EU maintain its place as a leader in global privacy regulation and a pace setter in reining in the power of digital platforms that operate with few guardrails in other markets.
“Europe is now effectively the first jurisdiction in the world where online platforms no longer benefit from a ‘free pass’ and set their own rules,” Breton said in a statement. “They are now regulated entities in the same way financial institutions are.”
Already, some firms have fought back against their designation as VLOPs.
Amazon filed a legal challenge last month (July 11) arguing that the DSA’s criteria are “discriminatory” and that its online marketplace is not a dominant retailer across any of the EU countries where it operates.
“We agree with the EC’s objective and are committed to protecting customers from illegal products and content, but Amazon doesn’t fit this description of a ‘Very Large Online Platform’ (VLOP) under the DSA and therefore should not be designated as such,” Amazon said at the time in a statement provided to PYMNTS.
German online retailer Zalando was the first to protest its designation as a VLOP, filing a claim similar to Amazon’s.
“The scope of the DSA is very clear and is defined to cover all platforms that expose their users to content, including the sale of products or services, which can be illegal,” a spokesperson for the European Commission separately told PYMNTS. “For marketplaces as for social networks, very wide user reach increases the risks and the platforms’ responsibilities to address them.”
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Under the DSA, platforms need to comply with rules that include restrictions on targeting ads to minors and using sensitive data like race or gender in serving ads, as well as ensure that they employ an appropriate number of content moderators for the language of each EU member nation they operate within.
And many VLOPs have some work to do before the clock strikes midnight tonight. For example, an earlier stress test of TikTok by the EU showed that the platform wasn’t in compliance with the upcoming content rules, while Google said that it is making “several changes” to comply with the DSA, including expanding access to data on targeting of online ads and disclosing more information about its content moderation.
“Meta welcomes the principles of transparency, accountability and user empowerment at the heart of the DSA,” the company formerly known as Facebook wrote in a statement.
Meta, which has repeatedly tangled with the EU, has over 1,000 employees tasked with working on DSA compliance.
But the DSA isn’t the only new policy targeting the tech sector the EU is introducing this year. The Digital Markets Act (DMA) will soon take effect and target “gatekeeper online platforms,” described as digital platforms with a systemic role in the internal market that function as bottlenecks between businesses and consumers for important digital services.
The EU will release a list of companies that will be subject to the new rules and designated as gatekeepers on Sept. 6. Those companies will have until March 2024 to ensure their operations meet the requirements of the DMA.
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