What is the EU Digital Services Act (DSA)?

The European Union (EU) is overhauling its core platform regulation with the Digital Services Act (DSA), which aims to create a safer online environment to protect users' rights while providing a level playing field that fosters innovation, growth, and competitiveness.

Here's what the new legislative initiative entails, its objectives, and how it may impact your business.

What Is the Digital Services Act (DSA)?

Digital services refer to a large category of online services, ranging from simple websites and online platforms to internet infrastructure services. The DSA focuses primarily on online intermediaries and platforms, such as marketplaces, social networks, app stores, content-sharing sites, and travel or accommodation platforms.

These platforms facilitate cross-border trading and allow companies to expand into new markets. However, they also introduced new challenges, such as the exchange of illegal goods, services, and content online. Moreover, manipulative algorithmic systems may aid the spread of disinformation or support other harmful acts.

Meanwhile, a few large companies now control critical ecosystems in the digital economy. They become gatekeepers in online markets, essentially acting as rule-makers on platforms with a user base the size of a small country. Some have created unfair conditions against businesses while limiting choices for consumers. 

The DSA provides EU countries with a modern legal framework that can evolve alongside new technologies. It aims to ensure that consumers can benefit from innovations and that businesses can tap into new opportunities without sacrificing users' fundamental rights. 

The Key Elements of the Digital Services Act

The DSA covers a lot of ground, ranging from content moderation and digital advertising to complaint systems and external audits. Here are the key elements: 

• The "very large platform" definition: Platforms with more than 45 million users or 10% of the EU’s population will need to comply with additional regulations regarding content moderation and targeted advertisements. They must also meet yearly external audit and monitoring requirements.
• Algorithm disclosure: Online immediacies must publish the parameters of their algorithms for content moderation and targeted advertisement upon request by the Commission.
• Reports on content moderation: Platforms must release  “clear, easily comprehensible, and detailed reports” on their content-moderation efforts annually and upon request by the Commission.
• Virtual complaint system: Online platforms must implement an internal complaint-handling system available free of charge to the recipients of the services. 
• Fines: Platforms that fail to comply with the regulations are subject to penalties of up to 10% of their global revenues. 

How Will the DSA Impact Businesses?

While the level of obligation will be proportional to their size, all digital services providers doing business in the EU must comply with these provisions:

• Implement a notice-and-takedown mechanism for users to notify the platforms of illegal content.
• Include an explanation for all removed content, publish detailed reports on content removal activities, and allow users to contest the removal decision.
• Publish information on restricted uses of user data in easy, accessible, and unambiguous language on the terms and conditions page.
• Implement Know Your Customer (KYC) procedures to keep information about traders and maintain the ability to track down sellers of illegal goods.
• Provide users with access to real-time, clear, and unambiguous information about advertisements—including who pays for the ad and why the user sees the ad.
• Designate a legal representative in the EU if the platform isn't established in the region to cooperate with supervisory authorities.

The DSA gives businesses the opportunity to build trust with customers by preventing illegal content from impacting the user experience. KYC measures help avoid fake accounts that can damage the service provider's credibility. Meanwhile, regulatory consistency can help businesses expand across the EU cost-efficiently.

However, the DSA also has potential downsides. It could cause businesses to dial back on platform functionalities and limit their ability to reach potential customers. The regulatory burden, such as algorithm oversight, could limit innovation. Additionally, complex sign-up and content verification requirements may discourage consumers from using a platform.

What's Next?

It'll take a few years for the law to be passed and enter into force. However, the writing is on the wall: Governments will intervene to give consumers more control over what they see on digital platforms and how companies use their information to deliver content. 

Companies must implement the technologies and processes to adapt to this trend. A consent management platform will give you a foundation to let users choose how they share their information with your business. Having the tools to allow consumers to control how they interact with your business will be the key to success in the digital environment of the future.