Ultra-fast fashion e-commerce giant Shein will be subject to an additional layer of governance rules under the European Union’s Digital Services Act (DSA) targeting very large online platforms (VLOPs), the Commission announced on Friday .
Shein had reported that there are an average of 45 million monthly users in the region – which is the threshold for the EU to designate VLOPs under the DSA.
The designation is important because it means the Singapore-based marketplace will soon have to comply with the strictest online governance measures and take measures to identify and mitigate systemic risks, such as those related to the sale of counterfeit or illegal goods or other types of content that could harm consumers’ well-being.
Other DSA obligations for VLOPs include the requirement to publish an ad library and provide access to platform data to external researchers studying systemic risks.
Shein joins around two dozen platforms already designated by the EU as VLOPs or VLOSE (very large online search engines). Other VLOP marketplaces include AliExpress, which is already under investigation by the Commission for alleged violations of the DSA; Amazon, which has challenged its designation (but remains subject to the rules in the meantime); Booking.com; and Zalando.
The DSA’s general obligations already applied to Shein, one of likely thousands of online services that fall within the scope of the general rules. But being classified as a VLOP increases the regulatory risk for the fast fashion giant. The EU expects Shein’s first risk assessment report to be presented in four months.
Penalties for non-compliance with the DSA can now reach up to 6% of annual global sales. The maximum penalty for VLOPs does not increase, but the more obligations imposed on them, the higher the regulatory risk they face will certainly be.
To date, no platforms or services have been identified as violating the DSA. It therefore remains to be seen how the penalties could be imposed in practice. However, it is logical that larger platforms also face higher fines for compliance violations.
While Shein’s original product focus was fashion, the e-commerce giant has quickly expanded its range to a much broader market, covering a growing range of lifestyle and homeware categories (such as cosmetics, school essentials and pet products).
Due to its tactic of offering a wide selection of fashion-oriented goods, typically at affordable prices, the marketplace is particularly popular among young users. However, it is a dynamic that could increase regulatory risk for Shein, as the Commission has stated that its priorities in enforcing the DSA include focusing on risks related to child protection and market security. Cheap goods may also not have the highest safety standards.
“The Commission services will carefully monitor the application of the DSA rules and obligations by the platform, in particular with regard to measures to ensure consumer protection and combat the spread of illegal products,” the EU wrote in a press release on Shein’s appointment. It added that it “stands ready to work closely with Shein to ensure these issues are properly addressed.”
Before Shein was appointed VLOP, oversight of compliance with the DSA rested with the Irish Digital Services Coordinator (IDSC) as its EMEA headquarters are in Dublin. However, the Commission enforces part of the DSA rules applicable to VLOPs and will therefore provide oversight of the market – in addition to ongoing monitoring of Shein’s compliance with the IDSC’s general framework obligations.