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What is the new Digital Services Act (DSA) and how does it affect your business?

What is the Digital Services Act?

Nearly eighteen months after the European Commission first proposed a Digital Services Act (DSA), on July 5, 2022, the European Parliament finally approved the final version of the DSA. The DSA is a legislation package applicable across the European Union (EU). Together with the Digital Markets Act (DMA), it will form a set of new laws applicable throughout the EU as part of the digital strategy known as “A Europe fit for the Digital Age”.

The DSA builds on the e-Commerce Directive to address challenges that have emerged since the Directive was adopted nearly 20 years ago. Many of the risks and threats resulting from the online world, including commercialisation of illegal goods, services and content, hate speech, and misinformation could not have been foreseen when the e-Commerce Directive was first introduced. In this sense, the rapidly evolving nature of the digital channels and technologies have prompted legislators to address this new reality and protect online users and consumers.

With this focus, the DSA’s aims are to: protect online consumers and their fundamental rights by generating a safer digital space and create an open and transparent online environment, thus levelling the playing field and developing innovation and growth within the EU market and abroad.

To achieve these objectives, the DSA imposes a new set of due-diligence requirements on businesses. These include new rules related to illegal content, content moderation, algorithm oversight, mandatory information to be provided to both consumers and businesses, as well as required actions against violations of companies’ terms of service.

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Who is covered by the DSA’s provisions?

The DSA is likely to touch on how a range of different digital services, including search engines, online marketplaces, social media and content-sharing platforms, online marketplaces, travel and accommodation platforms, cloud and web-hosting service providers, app stores, as well as Internet Service Providers (ISPs) and domain name registrars and registries.

Will it apply to my business?

If you have a digital service provider targeting users that are established or have their residence in Europe, you will most likely be impacted by the DSA. The DSA applies to the EU single market, which includes online businesses that offer services in the EU single market, even if established outside of the EU. Rules apply to all such businesses, whether large or small (with certain regulations relevant to enterprise size). The EU

Commission will follow closely the potential effects of the new provisions on small businesses.

What do I need to do?

Obligations for small and mid-size enterprises (SMEs) and very large online platforms (i.e., with more than 45 million monthly active users within the EU) are different, but in a nutshell:

  • Businesses will have to establish new features to remove hate speech and online terrorist propaganda.
  • Service providers will need to have ‘notice and action’ procedures that are accessible and user friendly, with obligations to react quickly, while respecting fundamental rights.
  • Simpler reporting mechanisms will need to be put in place for users and consumers to complain about online content. Also, if users feel that their content has been unfairly removed, they should be able to object to it.
  • So-called ‘dark pattern’ interfaces (i.e., misleading or coercive elements that trick users) will now give way to more user-friendly interfaces.
  • Greater transparency on online marketplaces information (e.g., including the identification and traceability of sellers and products) and advertising will take effect.
  • Online platforms that are accessible to minors will need to take action to protect them, including fully banning targeted advertising.
  • New enforcement mechanisms and new sanctions (up to 6% of annual turnover) will apply.

One of the most important aspects of the legislation requires very large online platforms (such as Google and Meta) to be more upfront and transparent about how their algorithms work when promoting content or products to users. They will also be required to (among other things) conduct external and independent audits and provide risk management tools, while also protecting their services from manipulation.

In a similar sense, smaller platforms will need to implement policies and features to comply with the new rules, as well as revise existing ones. Furthermore, the new provisions will affect, at a more granular level, the general terms and conditions and trigger active compliance monitoring.

When will the DSA come into effect?

The final text of the DSA will be published soon. The DSA will be applicable fifteen months after entry into force (that is, 20 days after publication in the Official Journal following the final adoption of the text), or from 1 January 2024, whichever is later. As regards the obligations for very large online platforms and very large online search engines, the DSA’s implementation will be led by Digital Service Coordinators (DSCs) and are subject to specific rules.

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