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DSA: Explaining how KYBC may impact European SMEs

  • The Parliament’s introduction of “Know Your Business Customer” (KYBC) obligations into the DSA are overly onerous for SMEs.
  • CDA is advocating for clear, proportionate and practical KYBC requirements which do not overburden SMEs.
  • With SMEs looking to grow their cross-border sales via online channels, the European Union should be supporting the clear regulation and flexibility for smaller businesses and platforms.

The Digital Services Act (DSA) will overhaul how the online ecosystem operates, including how users buy and sell products and services. As the pandemic intensified the use of online e-commerce, there is an obvious place for regulation to ensure consumer protection. But, it is critical that when policymakers make decisions on how the internet should be regulated, they are mindful of European SMEs and their ability to grow.

As the DSA stands, the “know your business customer” requirements will require online marketplaces to obtain proof of trader identity as well as make it mandatory for platforms to undertake trader-verification checks. Some from the European Parliament even suggest that this should apply to all intermediaries including SMEs, not just online marketplaces. The parliament has also proposed further obligations which amount to ‘know your customer’s products’, requiring them to make “best efforts” to identify and prevent the dissemination of illegal products and services such as spot checks.

This amounts to a general monitoring obligation, unattainable for most SMEs. These onerous obligations will demand resources which just do not exist for SMEs throughout Europe. There will be an active disincentive on SMEs to act as the intermediary between seller and buyer as regulatory costs will overwhelm them. As a consequence, these KYBC requirements will cement the power of the big players, limiting rather than enhancing the consumer experience.

Of course, it is important that users have protection online from ill-meaning traders. But this burden is misplaced on SMEs. Additionally, how SMEs could actually implement these duties is unclear and impractical. For example, the requirements would demand SMEs to verify traders, including from third countries. But, it is simply unclear how SMEs, acting as the intermediary parties, can verify this.

Onerous KYBC requirements will not meet the goal of consumer protection. Rather, it will diminish the wide range of services and products that SMEs can afford consumers in Europe. For this reason, CDA welcomes clear, proportionate and practical KYBC requirements which do not overburden SMEs.