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A 2020 Holiday Gift for the EU?

December 18, 2020

By Sarah Pearce

Back in February of this year, the European Commission published its European Digital Strategy, envisioning major social and economic change on the use of data and technologies throughout the Member States. The overall strategy seeks to create a single market for data that will ensure data sovereignty for Europe and enhance its competitiveness on the global stage – all just in time for Brexit.

The proposed package of new rules is multi-faceted: we have already seen the Data Governance Act (the “Data Governance Act”), announced last month, designed to facilitate the re-use and sharing of data for the benefit of the wider good of citizens across the EU; and just this week, on 15 December 2020, the Commission released its proposed regulation on a Single Market for Digital Services (Digital Services Act) (the "Digital Services Act"), intended to update Directive 2000/31/EC and sit alongside the Digital Markets Act, all shaping Europe's digital economy for the future.

Two years on from the GDPR, the draft Digital Services Act represents a further step towards updating pre-established rules regarding data protection and digital service delivery in the EU, tackling new issues that have emerged within our ever-growing modern and digital society. In announcing the draft legislation this week, the Commission acknowledged the significant benefits that the growth of online platforms has brought to consumers, while highlighting the ability of online platforms to absorb large amounts of people's personal data and the rise of harmful content.  The arrival of the Digital Services Act is an attempt to tackle these growing concerns and provide a modern legal framework that ensures the safety and privacy of users, whilst fostering an environment that encourages innovation and growth of all digital businesses. 

  • Transparency and Advertisements

    A key feature of the Digital Services Act is its comprehensive new transparency measures. Digital service providers will be subject to greater transparency and reporting requirements regarding advertisements and how systems are recommended to users – yes, even greater transparency than currently exist through the mechanics of the GDPR, introducing a transparency framework to make the European digital market more open and informed.  The advertising piece has been the focus of much commentary around the anticipated legislation, and the draft provisions certainly require detailed information to be provided in respect of use of advertisements by platforms, namely, the identification of the advertiser and the content and means of delivery, including who is paying for the advertisement being delivered. The Commission has also indicated it will encourage the creation of a Europe-wide code of conduct regarding online advertising.  Further guidance is required in order to determine how the draft provisions will work in practice (to the extent they are technically feasible for providers) but the new transparency requirements do not place a blanket ban on targeted advertising as some commentators previously thought. Instead, the Digital Services Act has attempted to create a transparent framework that will allow for advertising albeit in a more regulated, transparent and informative way. 

  • Illegal Content

    The Act also aims to tackle the impact of illegal content and the harmful effect it can have on users and businesses alike. The scope of illegal content is not defined but is left broadly open to include the selling of illegal goods, services and the dissemination of banned or harmful content. Members of the European Parliament had argued for the introduction of mandatory procedures that would force online marketplaces to verify the authenticity of traders and reduce the sale of illegal goods. The concept has been crystallized in the draft provisions as 'know your business customer' – a protocol akin to KYC requirements, whereby online platforms will have to obtain information to verify traders’ ability to trade as well as their reliability and authenticity.  Reporting mechanisms will also be introduced to alert online providers of illegal content on their systems.

  • Sanctions and Enforcement

    One of the most controversial new features of the draft Act, is the power it gives to the European Commission to impose fines not exceeding 6% of the total turnover of very large online platforms for non-compliance. The introduction of such a powerful enforcement mechanism is a signal to all online platforms and businesses of the intended impact of the draft legislation on the single market economy. Independent authorities also look set to be created to enforce digital compliance, acting as an important regulatory hub and aiding in the creation of a safer digital space.

Without a doubt, the new draft Act introduces significant responsibilities and transparency requirements for online platforms and grants extensive enforcement powers to the European Commission and independent authorities to ensure effective implementation. Its scope, both in terms of services affected and geography (the new rules will apply to all providers offering digital services in the EU regardless of their place of establishment) is incredibly broad – reflecting that of the GDPR.  Heralded as the “next big thing” in the EU digital economy however, the draft Digital Services Act does not appear to bring the major revolutionary change expected – although it may be too early to tell.  Practical implementation of the legal mechanics will be determinative of its impact and there are rounds of legislative debate to be had before it reaches that stage.  What is clear today is that the draft legislation represents a further building block on the core foundations established by the e-Commerce Directive, on the way to strengthening Europe’s digital future – against a volatile geopolitical landscape with nations competing for digital supremacy.