Public Policy

June 8, 2017

The Digital Single Market: can pigs fly?

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Keeping up with the news these days seems to be a task for anyone who is remotely interested in what is going on even in their immediate geographical environment. For all of us EU public policy practitioners, however, this could not be truer than when it comes to initiatives and developments concerning the regulatory framework of the Union.

Only a quick look at the top headlines of the Digital Single Market package – the flagship of the Juncker Commission – is indicative: portability, copyright, audio-visual media services, Directive on Contract rules for the supply of Digital Content (DCD), E-commerce Directive (ECD) to name some of the most prominent ones. Each of them covers significant segments of the European economy and affect the consumer in so many different and potentially vital ways; from simple things like a German consumer watching her favourite series on Netflix while on holiday in Greece, to how a young and aspiring singer in Turku Finland can gain fame and monetary rewards by posting her song on an online platform paving her road to celebrity and fortune.

However, if the DSM is the front window of the Commission initiatives, there are also critical new pieces of legislation that are its backbone; take for instance the regulation on electronic identification (eID) or electronic signatures (eiDAS) or the Payment Services Directive 2 (PSD2) and the – currently still at draft stage – amendments to the 4th Anti-Money Laundering Directive (or the 5th AMLD). This regulatory framework will, to a great extent, regulate how online payments and payment services are being provided in the DSM. Furthermore, the General Data Protection Regulation (GDPR) provides an overarching ‘dome’ under which the DSM operates.

However, how do these pieces of legislation connect? Or, put more bluntly, do they connect at all from an operational planning perspective? In other words, how do (and will) all these initiatives play out in the real world and how much will they, as a whole, contribute to creating indeed a fully functional DSM, able to deliver gains to both the EU economy and to consumer welfare? And, has this been thought through from an operational planning perspective at Commission level? We have doubts.

Consider, for example, the fact that although the DSM is indeed a great stride forward, data localization is still a key issue for many businessmen in the EU given that company, financial, tax, and book-keeping data remain localized. Or, consider that the ECD may be changing the role of online platforms from intermediaries between sellers and buyers to actual agents on behalf of sellers, or even sellers themselves. This could have serious impact on a young and aspiring entrepreneur in Poland wishing to create a ‘new’ European Alibaba only to realize that she is now liable for goods sold via her platform which were never in her possession or needing to separate her data per country.

On the payments and payment services provision side, there is also scope for potential operational conflicts that can lead to distortionary effects in the DSM. For example, consider that the 5th AMLD for reasons of security and terrorism prevention is introducing strict limits to anonymous online payments. E-signatures can be a very useful way forward for identification and verification, yet the eiDAS Regulation is promoting the strictest and most expensive e-signatures solution (Qualified E-Signatures) which can add a very significant burden on online businesses across the EU.

Additional distortions could be introduced in the way certain Member States perceive the implementation of AML provisions which – for example – can include requirements for video identification of consumers in the provision of gambling services in Germany. Or, the requirement in the Czech Republic for online players in gambling sites to physically declare themselves as such with a national authority – all in the name of AML prevention.

Therefore, we have the impression that although all these initiatives on paper look like contributing to the creation of a functional DSM, in reality they seem to lack true depth in operational planning. This would have required joint horizontal thinking and strategizing at Commission level which does not seem to have been the case.

One may of course argue that this goes to the heart of EU policy-making with its multiplicity of stages and actors or even, for the more cynical readers, that this is the nature of public policy making overall. Perhaps this is true, and perhaps the Brexit process may lead to a re-think of EU policy-making in efficiency terms. And perhaps pigs can fly…

This is why we believe there is a need to provide a more cumulative and operational approach into the DSM thinking. How do the various initiatives come together for the next Spotify or Netflix that we want to see in the EU economy? How does this backbone or ‘’plumbing” set of policies connect with the lofty principle of the headline grabbing initiatives? That is not clear and what is needed is an impact assessment on the cumulative impact of the policies and a gap analysis on the operational components missing to make the DSM truly a single market. But we should not hold our breaths for that.

On the contrary, what is presently clear for companies, large and small, operating in the EU is that more compliance investment will be required Therefore, for businesses and organizations, the DSM today may seem a new set of regulatory hurdles to overcome now with the potential hope for a promised land later. Fortunately for you, Instinctif Partners have the knowledge and ability to help you overcome these present challenges.

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