Potential Financial Penalty for Temu due to Breaches in Digital Services Regulations by the EU
In the bustling world of e-commerce, two major players - Temu and SHEIN - are currently under the microscope of European regulators. The European Commission is aiming to curb what it perceives as harmful practices in the ultra-fast fashion and bargain shopping space.
The focus on Temu stems from a preliminary finding that the platform is in breach of the EU's Digital Services Act (DSA), due to inadequate risk assessment and mitigation measures for illegal and unsafe products. Regulators have specifically called out non-compliant baby toys and electronics as concerns.
Temu's risk assessment from October 2024 was found wanting, as it relied on general industry information rather than specific details about its own marketplace. This lack of precision led to insufficient measures to prevent the dissemination of illegal products.
If the breach is confirmed, Temu could face penalties including a fine of up to 6% of its global annual turnover, along with stricter regulatory oversight. The platform has been given the opportunity to respond to the EU Commission’s findings in writing.
As a Very Large Online Platform (VLOP) under the DSA, Temu's case underscores the growing European regulatory focus on Chinese cross-border e-commerce companies. The DSA enforcement follows an investigation that began in October 2024 and continues to explore other potential issues, such as addictive design features on Temu’s platform.
Meanwhile, SHEIN, another popular shopping app, has recently been in the headlines for a €40 million fine in France for misleading business practices.
Despite the scrutiny, Temu's growth remains impressive. In under a year, the platform has amassed over 100 million users, largely attracted by its pocket-friendly prices and free shipping model. However, the bigger challenge for Temu might be proving it can grow responsibly while playing by the rules.
Under the DSA, platforms are required to assess their risks based on their specific operations and take active steps to reduce harm. In a mystery shopping test, baby toys and small electronics that did not meet EU safety standards were found on Temu. If the Commission's findings hold up, the potential fine for Temu could be up to 6% of its global annual revenue, which, according to Cross Border Magazine, was $70.8 billion in 2024, meaning the potential fine could be up to $4.2 billion.
The European Commission requires large platforms like Temu to protect users through proper moderation and safety measures. As the investigation continues, Temu will need to demonstrate its commitment to consumer safety and compliance with EU law to avoid further penalties and maintain its user base.
Technology played a significant role in the scrutiny of Temu, a major player in e-commerce, as the European Commission found concerns with non-compliant baby toys and electronics on the platform. If the breach of the EU's Digital Services Act is confirmed, Temu could face penalties that include a fine of up to 6% of its global annual turnover, indicating the seriousness attached to technology-related issues in the modern business landscape.
