Effective from February 17, 2024, the European Digital Services Act (DSA) regulates the obligations of digital services, including host providers, online marketplaces, and social media networks, who are intermediaries connecting customers with goods, services, and content.
This is a wide-remit which includes very large global platforms that provide services used by millions of people across the world each day and that bring together the online offerings of thousands of third-party suppliers.
The risk factors to be considered and managed are significant and know your business (KYB) processes, including supplier due diligence and risk management come to the fore.
The DSA aims to build a safer and fairer online world. It introduces rules that protect users in the European Union in regards to illegal goods, content, and services, as part of their fundamental rights.
Its six core pillars are to deliver:
The DSA applies to very large online platforms, marketplaces, social media, and search engines. Average users will exceed 10% of the EU’s population, equivalent to having 45 million or more users.
Digital service providers operating in the EU will need to identify and clarify who is selling products or offering services via their platform. There is a requirement to “trace their traders”, which Moody’s calls know your business or KYB.
This KYB process ensures a safe, transparent, and trustworthy environment for consumers; discourages traders who abuse platforms by selling unsafe or counterfeit goods; and protects digital service providers from reputational damage, while achieving compliance.
The new KYB obligations mean providers must obtain and verify key information from traders/third parties selling products or offering services via their platform. This information includes:
Moody’s can provide an integrated solution to deliver this KYB requirement with access to company data and public registries of information. This supports the identification and verification of business customers who may be trading on a digital platform.
There are several obligations for intermediaries who provide digital services to comply with. Each obligation requires the platform provider to know the business they are dealing with, so they can understand potential risks, establish trust, and make decisions with confidence about who they allow to trade on their platform.
Here are five compliance requirements to consider:
The overarching goal of the DSA is to foster safer online environments. Under the new rules, online platforms must implement ways to prevent and remove illegal goods, services, or content while simultaneously giving users the means to report issues and lodge complaints.
Additionally, the DSA bans targeted advertising based on a person’s sexual orientation, religion, ethnicity, or political beliefs and puts restrictions on targeted advertising to children. It also requires online platforms to provide more transparency on how their algorithms work.
Online platforms that qualify as online marketplaces are subject to a know your business obligation, which means that they must verify the identity of traders who use their platform to sell products and services to consumers.
For traders, it is important to keep in mind they are responsible for the accuracy of the information that now needs to be provided to the digital service provider. On the other hand, providers of online marketplaces need to understand this obligation applies to new traders on their platform, as well as traders who are already active.
Regarding active traders - those who have already been onboarded – digital service providers must use reasonable efforts to verify them within 12 months of the DSA’s introduction. If the trader does not correct or complete their information, the provider must promptly suspend the provision of services until the KYB obligations are met.
Moody’s offers automated KYB workflows, integrated with leading sources of business data, to help any digital service provider build a picture of risk. We make it easier to identify and verify traders and sellers in the EU and beyond.
A KYB process can be applied when onboarding new traders or third parties, and for ongoing risk monitoring. With a holistic and risk-based approach, we can help digital service providers understand counterparty risk to make decisions with confidence about who to work with.
If you would like to know more about KYB automation and our risk screening solutions, please get in touch anytime – we would love to hear from you.