Elements for Effective Systemic Risk Assessment under the DSA

The Digital Services Act, adopted in 2022, updated the liability rules for online intermediaries and introduced obligations for Very Large Online Platforms (VLOPs) and Very Large Online Search Engines (VLOSEs) to conduct systemic risk assessments in four broad areas of risk to society: the dissemination of illegal content; negative effects on fundamental rights; negative effects on civic discourse and electoral processes as well as public security and health; and negative effects gender-based violence, minors, and individuals’ physical and mental well-being. 

While systemic risk assessments have long been carried out in other sectors such as financial services, banking, or insurance, the introduction of this type of assessments in the context of digital services is a novelty. In this new CERRE Tech, Media, & Telecom project, authors Sally Broughton Micova and Andrea Calef draw on the literature of systemic risk and its application in financial services and banking to contribute to the understanding and implementation of systemic risk assessments under the DSA.  

By conducting a systematic literature review on the concept of systemic risk in the financial sector, the authors found several elements of the understanding of systemic risk in the financial sector that can usefully be applied to the context of VLOPs/VLOSEs. Among these is the conceptualisation of systems as being made up of various core and peripheral players who are interconnected through direct and indirect relationships of varying weights or significance. Distinguishing among core players and peripheral players can indicate the potentiality and severity of risk and identify critical players, shared assets or vulnerabilities, and possible mitigation points. Likewise, the categorisation of shocks (sources of risk) as idiosyncratic or systemic, depending on the number of players affected; and as endogenous or exogenous, depending on their origin, can be usefully applied in this context. 

The financial literature also allowed the authors to identify an important next step that needs to be taken in order to better determine what the appropriate mitigation measures should be: a benchmark of what constitutes systemic failure or systemic crisis is necessary for determining what constitutes a negative effect and what mitigation is appropriate. While this exists in a clear and calculable fashion in the finance sector, there is not an EU consensus on the good or ideal condition in many of the risk areas in the DSA, and no clear understanding of what failure would look like that VLOP/VLOSE providers can use to shape risk assessment. 

The report is part of a bigger CERRE project that looks into systemic risk assessments under the DSA. The second report, to be published in 2024, will focus on the operationalisation of systemic risk – its assessment and mitigation – as required by the DSA.