Ultra-low cost e-commerce giants she in And Temu Recently the strictest layer of the EU’s digital services regulation, the Digital Services Act (DSA), was confirmed to be subject to centralised enforcement, but on Friday the Commission announced the It has sent multiple requests for information (RFIs) to both platforms regarding compliance with various requirements of the law.
The DSA is the bloc’s recently relaunched online rulebook aimed at raising standards for digital services, including marketplaces – with lawmakers promoting the regime as their preferred tool to reduce consumer risks in areas such as the sale of illicit or dangerous goods.
Both markets have been subject to common governance rules since 2008. Mid February But more recently in April and May, they were designated as so-called very large online platforms (VLOPs) under the DSA, further increasing their regulatory risk as the commission also brought promoters into the fold of oversight.
Immediately prior to its designation as VLOP Temu was also targeted in several complaints The complaint, filed by consumer protection groups from across the bloc, alleges that the platform features a number of manipulative design tricks that they say could pose a variety of risks to children. The complaints also accuse Temu of operating an “opaque recommendation system” and failing to ensure the traceability of merchants, arguing that there is no way for consumers to know whether the products it sells meet EU safety standards.
The Commission said today’s enforcement action is based on the concerns expressed in the complaints.
The EU RFI highlights the areas where both market places are facing preliminary DSA scrutiny – and could foreshadow the opening of a formal investigation if the EU enforcers believe they fall below the legal standard for consumer protection.
The regime allows for fines of up to 6% of global annual turnover for confirmed violations, so any failure to comply could prove costly for the many low-cost e-retailers. Stricter enforcement of higher standards on marketplaces could – potentially – lead to changes in business models that explicitly depend on driving high sales volumes.
At the very least, this pair’s ultra-low cost, high volume approach raises questions about the quality/safety of the product – so EU enforcement in this area looks to be an interesting test case for the DSA.
The Commission has a number of initial concerns about both marketplaces. In a press release, the EU said it is seeking more information from Shein and Temu about the measures they have taken to fulfil DSA obligations, known as the “notice and action” mechanism, which should allow users to inform marketplaces about illegal products.
It has also sought information relating to the design of their online interfaces, which pan-EU law mandates should be used to ensure users are not deceived or manipulated, such as through so-called “dark patterns”. The Commission said it is seeking more information from both businesses in other areas, including those related to the protection of minors; the transparency of recommendation systems (also known as algorithms used to surface things like related products); the traceability of merchants; and “compliance by design”.
While Shein and Temu have only been designated as VLOPs for a few months, as mentioned above, most of the DSA requirements have applied to both since mid-February. And while enforcement of common rules is usually decentralized across a network of Digital Service Coordinators (DSC) located at EU Member State level, as designated VLOPs Shein and Temu may also face Commission enforcement of common rules – i.e. in addition to oversight by the Irish DSC as their regional headquarters are located in Dublin.
EU lawmakers designed this two-tier enforcement structure to avoid the risk of forum shopping, which could be used to undermine enforcement of the DSA on large platforms, as has been the case with decentralized enforcement of the bloc’s General Data Protection Regulation.
When it comes to the additional set of DSA requirements for VLOPs – covering issues such as algorithm transparency and the mitigation of systemic risk in areas such as the mental health of minors – the Commission is the sole enforcer.
However, both markets still have a few months to go before complying with these additional obligations: Shein has to submit its first risk assessment report to the Commission in August; while Temu has until the end of September to submit its first risk report.
Nevertheless, with these initial RFIs the Commission is keen to take a leading role in assessing future reports – and also to respond swiftly to the consumer protection concerns that have already been widely raised.
Shein and Temu have until July 12 to provide the requested information. The EU said it would then “assess next steps”, noting that it “could” formally initiate proceedings if it suspected any breach of rules.
Shein and Temu were contacted for comment on the Commission’s RFI.
A Shein spokesperson confirmed that it had received a request for information from the Commission, saying the company was “working on it urgently”. “We share the Commission’s goal that consumers across the EU can shop online with peace of mind, and we will continue to work closely with the Commission to ensure our compliance with the Digital Services Act,” he added.
A Temu spokesperson also told us: “We are fully cooperating with the EU. We would also like to reiterate that we are fully committed to complying with all applicable laws and regulations in the markets where we operate.”
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