The European Commission said on Tuesday that it had opened formal proceedings against Shein under its Digital Services Act (DSA). 

It said that regulators would investigate the Chinese-founded discount fashion retailer that does most of its business online for "its addictive design, the lack of transparency of recommender systems, as well as the sale of illegal products, including child sexual abuse material." 

Shein may be required to either alter its actions, or face potentially hefty fines if a so-called non-compliance decision is reached following the investigation.

The 27-member EU's executive branch said it was not yet possible to say how long the investigations would take and stressed it was only announcing an in-depth investigation, not findings of wrongdoing. 

What will the investigation focus on? 

The Commission said that the investigation would focus on several areas, most notably: 

• Shein's systems to limit the sale of illegal products in the European Union, "including content which could constitute child sexual abuse material, such as child-like sex dolls"
• Risks linked to "the addictive design of the service," such as giving users rewards for engagement, and the systems Shein has in place to mitigate these risks
• The "transparency of the recommender systems" used to suggest content and products to users

The scandal over the sale of sex dolls looking like children first erupted in November amid the opening of a new physical Shein store in Paris. Amid protests in France, the government in Paris called for the EU to investigate potential wrongdoing.

Shein also faced a backlash because of illegal weapons such as firearms, knives and machetes found on sale on the site. 

The French government sought to suspend access to the Shein site in France in response, but a court blocked that step and asked the Commission to launch a DSA investigation. 

Meanwhile, the Commission said that the allegedly addictive design features "could have a negative impact on users' wellbeing and consumer protection online." 

As for the recommender systems used by the platform, the DSA calls on Shein to disclose the main parameters it uses, and also to provide users with "at least one easily accessible option that is not based on profiling for each recommender system." 

Shein's EU base in tax-light Ireland, like many tech multinationals

Coimisiun na Mean, the Digital Services Coordinator for Ireland, would also be associated with the investigation, the Commission said, because the Republic of Ireland is Shein's base inside the EU. 

A large number of multinationals, particularly tech companies without a need for a physical footprint for retail or manufacturing in larger population centers, famously set up shop in Ireland because of the country's comparatively lax corporation tax regime.

Shein's global turnover for 2024 was listed at roughly $38 billion (roughly €3.2 billion at today's exchange rates), amid rapid international expansion since the company moved its global HQ from China to Singapore for regulatory and financial reasons designed to make it easier for the company to go global. 

Edited by: Louis Oelofse