Digital Services Act adds scrutiny to EU marketplaces

Two legislative acts in the European Union hold the potential to significantly change the operations of digital marketplaces, which are critical to providing shared spaces for users to interact and transact.

The Digital Services Act (DSA) will require that digital platforms fairly and effectively oversee their communities. The Digital Markets Act (DMA) provides additional regulations for companies considered marketplace gatekeepers, such as Amazon, Apple, Google, Meta and Microsoft.

The acts are expected to be applicable in 2024, even sooner for designated large platforms. Generally, the goals of the acts are to create safer digital spaces that protect users’ rights and to establish level playing fields for innovation, growth and competitiveness.

The DSA in detail

The DSA applies to all organizations that offer digital services, but it focuses on those that operate as online intermediaries or platforms. In that context, digital services include social networks, sharing platforms and other person-to-person systems where an organization facilitates interactions.

Some of the DSA’s fundamental principles are:

• Fairness, transparency and accountability for content moderation processes
• Notice-and-action procedures for illegal content
• Rules for online advertising
• Receiving, storing, verifying and publishing information on traders using the services

The DSA accounts for the size of the organization and the risk it poses, and then it tiers requirements accordingly. Large online platforms have higher accountability standards, including appropriate risk management tools and transparent algorithmic processes.

“Europe is the first continent in the world to undertake a comprehensive reform of our digital space,” said EU Commissioner for Internal Market Thierry Breton during a Jan. 19, 2022, speech. “With the DSA and the DMA, we are about to reorganize the digital space in our internal market, both for societal and economic reasons. A new framework that can become a reference for democracies worldwide.”

Digital services organizations operating in the EU can start examining their operations to understand and implement procedures that will help ensure compliance with the DSA when it comes into full effect.

Know your vendors

To enable a trustworthy, safe and more transparent online environment, the DSA requires that traders be traceable. Under Article 22, Traceability of traders, online platforms need anyone selling or promoting goods or services to provide:

• Name, address, telephone number and email address
• Identity documentation
• Bank account details (for a person)
• Registration number (for a business)

Traders also must self-certify that they offer only products or services that comply with applicable laws.

The online platform needs to make reasonable efforts to confirm the reliability of trader information. If it’s inaccurate or incomplete, the platform must gather the correct information or stop the trader from participating in the system. The platform can use official online databases or trustworthy supporting documents. They may also use other reliable sources to comply.

The DSA also requires online advertising transparency. Every ad must display the sponsoring person or organization.

Know Your Business solutions

For many platforms, gathering and verifying all user identity data is standard practice. Getting real names helps create a safer and more trustworthy platform. Other social media platforms thrive on anonymity. While that won’t necessarily go away, marketplaces in the EU will need to identify users who sell or promote products or services.

Creating and successfully operating systems that gather and check business identity, especially at scale, can be complex and time-consuming. Different formats, widely varying inputted information and multiple registries across the EU can create bottlenecks and multiple rechecks. Keeping accurate track and reconciling all the information adds another layer of complexity.

The need to check a person’s identity creates additional complications. Privacy considerations under the General Data Protection Regulation have strict procedures for handling personally identifiable information.

For those reasons, many marketplaces look to identity solution providers to speed up the process, ensure compliance and help build trust. Those marketplaces, particularly with DSA and DMA on the horizon, can benefit from business verification and identity verification services and deep experience in the European market.

Digital platforms are facing increased regulatory scrutiny across the globe. DSA and DMA might not be the last regulations establishing standards for marketplaces and communities. Organizations that effectively integrate and adapt to new rules can be better suited to improve operations, build trust in their platforms and grow their business.