EUROPEAN COMMISSION Brussels, 25.11.2021 SWD(2021) 355 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT REPORT

Accompanying the document Proposal for a



REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the transparency and targeting of political advertising {COM(2021) 731 final} - {SEC(2021) 575 final} - {SWD(2021) 356 final}



Table of contents 1.Introduction: Political and legal context 2.Problem definition 2.1.Scope and context 2.2.What are the problems? 2.3. How will the problems evolve? 3.Why should the EU act? 3.1.Legal basis 3.2.Subsidiarity: Necessity of EU action 3.3.Subsidiarity: Added value of EU action 4.Objectives: What is to be achieved? 4.1.General objectives 4.2.Specific objectives 5.What are the available policy options 5.1.What is the baseline from which options are assessed? 5.2.Description of the policy options 5.3.Options discarded at an early stage 6.What are the impacts of the policy options?

6.1.The baseline scenario 6.2.Assessment of the options 6.2.1.Economic impacts 6.2.2.Social impacts 6.2.3.Fundamental rights impacts 7.How do the options compare? 7.1.Effectiveness 7.2.Efficiency 7.3.Coherence with other initiatives 8.Preferred Option 9.How will actual impacts be monitored and evaluated? Annexes Glossary and acronyms Annex 1: Procedural information Annex 2: Stakeholder consultation Annex 3: Who is affected and how? Annex 4: Analytical methods Annex 5: Context, scope of the market, and other aspects relevant to the problem definition Annex 6: Intervention logic Annex 7: Legislation addressing political advertising across Member States

Annex 8: Presentation and analysis of EU acquis Annex 9: Illustrative use cases



1.Introduction: Political and legal context The President of the European Commission, Ursula von der Leyen, announced in her political guidelines that the European Democracy Action Plan (EDAP) ‘will include legislative proposals to ensure greater transparency on paid political advertising and clearer rules on the financing of European political parties.’ EDAP, presented by the Commission in December 2020 highlights the ‘clear need for more transparency in political advertising and communication, and the commercial activities surrounding it’ and announced that ’the Commission will present a legislative proposal on the transparency of sponsored political content’, to ‘complement the rules on online advertising in the forthcoming DSA, with the aim to have dedicated rules in place sufficiently ahead of the May 2024 European Parliament elections’. To that end, the 2021 Commission work programme includes a proposal for greater transparency in paid political advertising. The Commission’s initiative on the transparency of political advertising aims to support the functioning of the single market for political advertising services (‘political ads’) addressing the growing patchwork of legislation in this area and related barriers including in terms of compliance cost and lack of legal certainty. It aims to promote high European standards of transparency in political campaigning and free and fair elections in the EU level, strengthen the resilience of democratic processes in the EU and combat disinformation, information manipulation and interference in elections. Political advertising is a tool in campaigning to convey political messages to voters. It aims to influence people’s views on political subjects and their voting decisions, and is often specifically regulated nationally, with a specific focus on transparency. The traditional media for political ads used to be newspapers, posters, radio and television. Today, these have increasingly been displaced by the digital sphere. Digital technologies have also made political advertising cheaper and increased the number and types of service available to support campaigning. The cross-border nature of online political advertising has challenged the relevance of national rules, which typically included restrictions to ensure democratic accountability and fairer processes and economic operators face difficulties to determine and adapt to applicable rules, limiting their ability to offer advertising services. Online political ads are commonly targeted at groups of users, based on the processing of personal data. Targeting (directing an ad to a specific group of people based on some shared characteristics) can be very sophisticated. While this can beneficial in addressing political messages to concerned citizens, the Cambridge Analytica scandal revealed a need to address this phenomenon. It brought to light unauthorised interference in elections (including by foreign state actors), exploitation of online social networks to mislead voters, and manipulation of the debate and their choices, using psychographic profiling and opaque practices that conceal or misrepresent key information. Other techniques are also used to spread or amplify manipulative political ads. The application of opaque algorithms and the analysis of personal information allow the tailoring and targeting of political ads, which can exploit vulnerabilities of voters, including in another Member State. The volumes of data at stake are important, including data derived from the use of social media and commercial practices (e.g. consumer profiles), combined with offline data. This initiative will build on and complement relevant EU law, including Regulation 2016/679 (GDPR), the recent proposals for a Digital Services Act (DSA) and for a Digital Markets Act (DMA), addressing economic operators and issues identified for political advertising. It is being complemented by other initiatives including the update of the self-regulatory Code of Practice on disinformation, based on the recently published Commission guidance. This proposal will also be in synergy with the efforts led by the EU externally, in the field of election observation (EU Election Observation Missions and their follow-up) Both the European Parliament and the Council have expressed concerns about the lack of transparency in political advertising and the use of (micro)targeting. Different Parliament committees have engaged on this topic, in particular the Constitutional matters (AFCO), the Internal Market (IMCO) committees and the Special Committee on Foreign Interference in Democratic Processes in the EU, including Disinformation (INGE). The Parliament has called for legislative and non-legislative policy measures. The Council has supported initiatives to promote free and fair elections and democratic resilience, and Member States have been involved in preparing the EDAP and this initiative. 2.Problem definition 2.1.Scope and context There is no EU-wide common concept of political advertising and Member States use various approaches. For the purposes of this impact assessment, political advertising will be understood as the promotion of a message, published by any means, and which is being paid for by, or disseminated by or on behalf of a political actor, or which may be understood as seeking to influence the outcome of the election or the voting behaviour (especially when published during an election period). This includes ads on all media platforms (including online and offline) disseminated in the European Union, ‘issues ads’, and political advertising which may also have commercial purposes. A broad range of service providers is involved in political ads, online and offline, in their preparation, publication and dissemination. Issues with regard to political ads online emerged in the public sphere in March 2018, when it was revealed that Facebook data, including Like data, on more than 87 million users was used by political consulting firm Cambridge Analytica to target voters during elections. There are significant differences between political advertising and other forms of advertising in the single market. Misleading commercial advertising is already forbidden according to Directive 2006/114/EC. Addressing political advertising as other commercial advertising would not be possible due the specific context of political advertising and the close relationship with elections, freedom of expression and political pluralism among others. Transparency of political advertising is also linked to accountability and democratic oversight, as an essential democratic principle. The Commission’s report on the 2019 elections already noted the importance of increased transparency of political advertising to ensure resilience and integrity of electoral processes in the EU. It also noted the limited implementation of the 2018 Electoral package recommendation in this respect and the need for further measures. The report highlighted the close connection between a lack of transparency in political advertising, the misuse of algorithmic targeting and the increased risk of interference in and manipulation of democracy in the EU. The Commission’s joint Communication on tackling COVID disinformation of June 2020 described the ‘infodemic’ which accompanied the coronavirus pandemic and the challenges this posed including for democracy and democratic processes, and pointed to concrete measures at EU level to address these challenges. Some Member States have legislated or intend to further legislate in the field of political advertising for reasons of public interest. As a result, a patchwork of national rules is emerging and likely to increase. Heterogeneous national specific requirements on political advertising and related barriers obstruct the exercise of fundamental freedoms with a direct effect on the functioning of the internal market. Member States’ regulation on transparency of political advertising goes beyond what applies to other forms of advertising. The aim of such national regulation is primarily to prevent citizens from being misled in their democratic choices, support their genuine political participation and accountability of political actors, contributing to fair and free democratic processes and their oversight, and preventing external interference. Differences concern, for instance, diverse requirements for each media (e.g. TV and radio and online services), transparency related to the funding of political ads, the way ads should be labelled or what must be made public during election periods and oversight. Further, the regulation of issues ads is even more heterogeneous, even as their role in shaping political campaigns and influencing the outcome of elections is more and more recognised. The fragmentation leads to impediments for service providers including when providing cross-border services. It significantly increases compliance costs to adapt to the different jurisdictions and is a source of legal uncertainty on the applicable transparency requirements. It further restricts the possibilities and choice for cross-border campaigning for political actors like European Political Parties. The heterogonous regulation impacts companies operating in a cross-border context. It prevents some operators, especially SMEs, which could offer their political-ads-related services in different Member States from entering the market. There are also many economic actors providing novel ad-related services, such as those providing data-driven analysis and programmatic ads. It may be unclear whether and how these providers are affected by rules designed for traditional campaigning. In the cases where service providers are able to offer cross-border services, the currently heterogeneous legal standards also lead to oversight related issues as affected citizens, the competent authorities and the advertisers and related services providers can be located in different Member States. This results in tensions and barriers in the internal market for services connected to political ads. It also generates poor regulatory outcomes, which combined with the lack of transparency and other issues related to the monitoring and enforcement of relevant rules, undermines the integrity of electoral processes and citizen’s confidence in them. National action to address the situation is not fully effective and creates further barriers, and the same applies to private sector policies. Although the DSA will strengthen transparency and supervision of online ads, including political ads, it will not address the specifics of political advertising. The DSA provides a set of horizontal rules which apply to information society services. The transparency requirements provided by this new framework will complement those foreseen by the DSA by addressing the entire spectrum of economic actors involved in the preparation, publication and dissemination of political advertising, following a problem-specific value chain approach and imposes corresponding obligations on types of actors. While the DSA requires platforms to disclose the identity of the advertiser (irrespective of whether it refers to political or commercial ads), the political ads initiative will require them to also provide information about the political affiliation and on the funding of the ads.

National rules apply to European political parties (EUPPs) on issues not regulated by Regulation 1141/2014. The Regulation does not address political ads directly – only as regards the rules on the application of EU funds. Accordingly, campaigns by EUPPs are potentially subject to different national rules (e.g., rules on what constitutes political advertising, targeting, and periods in which political ads are restricted), despite the transnational character of EUPPs and the EU-wide character of the issue they campaign on. 2.2.What are the problems? Summary of key problems 1 - For cross-border providers of political ads 2 - For democratic processes and political parties in the EU, linked to internal market problems Related to transparency, targeting, and monitoring and enforcement a.Additional costs and lack of legal certainty for economic actors (incl. EU SMEs seeking to offer and scale up their services across borders) including when providing multi-medium and multi-Member State campaigns, caused by: I.fragmented rules and definitions; II.rules and procedures that are not always clear, transparent or easily accessible. Poor national regulatory outcomes caused by: a.Insufficient transparency and clarity for individuals, ‘interested actors’ and national authorities, leading to: I.non-recognisability of political ads; II.reduced accountability; III.circumvention of relevant rules. b.Negative impacts on citizens’ rights and democratic processes, from the use of targeting and other techniques with political ads; c.Insufficient possibility for authorities to monitor and enforce relevant rules across borders. b.Regulatory arbitrage and circumvention of relevant rules by economic actors offering political ads services (regulatory failure) driven by differing substantive obligations and enforcement (costs), and different possibilities to provide services (obstacles). c.Additional regulatory burden for offline actors in political ads, caused by the differences between online and offline regulation (itself also driven by limited regulatory capability). 3 – Political parties in the EU a.Inconsistent and insufficient transparency of political ads issued by EUPPs, because: I.The legal framework (Reg. 1141/2014) does not provide for sufficient transparency for political advertisements disseminated by EUPPs. Divergent national frameworks apply to their political ads; II.The regulation at EU level is not consistent (Reg. 1141/2014) with national regulation. It pursues objectives connected to financial rules, not to ensuring electoral standards. Links between national and EU campaigns are not made clear on the face of the ads. b.Inconsistent and sometime insufficient transparency of political ads issued by national political parties especially for the context of European elections, due to the fragmented situation. 2.2.1. Obstacles to the cross-border provision of online political advertising services in the internal market (Problem 1) Political ads services in the internal market include political advertising delivered through broadcast media, various online channels (social media, banner ads, video-sharing spots etc.) and through other offline means, including billboards, print media and direct mailing. They can involve a large number of related supporting services, such as data services, copywriting, analysis and financial services, often provided by SMEs. It is challenging to isolate political advertising from other advertising services in market statistics. The study and consultation did not manage to obtain comparable data on the offline publishing sector, outside of the disclosures made in the context of national elections. Regarding online advertisement publishing activity, there is a lack of transparency that makes is almost impossible to obtain accurate, consistent and comparable data. Nevertheless, it is clear that the size and complexity of the political advertising market is increasing both within and outside the EU – particularly online, where the EU market was estimated to be worth over EUR 100 million in 2019. Political advertising services are regulated in diverse ways. When offered across borders in the internal market, certain rules can affect economic actors involved, i.e. those regulating: 1.the availability of political ads (rules banning political ads or banning cross-border provision of such services, setting prices or other issues determining access to the debate, and the period/scope of circulation); 2.the advertisements themselves (rules on content and transparency around them – requiring the publication of logos, sponsor details, spending – as well as prohibiting certain content, such as hate speech). This initiative focuses on the second category, and particularly on transparency requirements. The initiative does not consider interventions regarding prohibitions of content or of political ads per se, except to the extent that transparency supports oversight of such rules. A key aspect of the regulation of political advertising is transparency to enable their easy identification by viewers to prevent manipulation, democratic accountability and oversight by competent authorities. Moreover, transparency appears to be the key available area for harmonisation, which de facto allows for shaping the emerging market for political advertising services in a way that minimises fragmentation, barriers and costs for economic actors. Stakeholders’ views: In the consultation processMember State authorities and civil society contributions highlighted that the current fragmentation has enabled the circumvention of transparency requirements and drove some activity to less regulated Member States, also away from the more strictly regulated offline services. Further, they noted how recent uncoordinated action by Member States to address these issues has exacerbated rather than corrected this situation. The fragmentation of transparency requirements for political ads, with differences in their substance, scope, implementation and enforcement between Member States, and between the policies applied by leading ad publishers, generates various costs and challenges for economic actors operating across borders or seeking to do so. 2.2.1.1. Additional costs and compliance burden for economic actors (Problem 1.1) Driven by rules which are not always clear, transparent or publicly available: Reliable information about applicable requirements (including the procedures to be followed) can be challenging for service providers to obtain outside their specific jurisdiction, especially as they are not always clear and easily accessible. For instance, in some Member States, they are provided by standard-setting bodies or national authorities, rather than in law. Driven by fragmented rules, definitions and requirements: Operators affected by these rules must invest in separate compliance steps and adapt to the various requirements of the different EU jurisdictions to provide services in the internal market. Fragmentation is exacerbated by the scope of national rules differing, with different actors being covered, and by varying obligations depending on the period, sponsor, medium, content and objective of the ad. As an example of the potential effect of differing definitions, online audio-visual ads prepared in the Netherlands with a political aim but without affiliation to a specific political party would not be subject to the rules applying to political campaigns if disseminated into Denmark, but would be subject to such rules if they were disseminated into Ireland or Cyprus. Publishers and campaign agencies need to ensure that ads are adapted to each jurisdiction’s transparency requirements, such as on logos, affiliation and funding, but also to related obligations e.g. connected to access to the media. In this respect, political ads offered across borders in the internal market differ from commercial ads, where such rules are (largely) harmonised. The relevant national rules on transparency of political advertising thus differ depending on what counts as ‘political advertising’, as per national definitions. This means that what can count as a political advertisement in one state (and thus also potentially engage other rules), might not in another, or vice versa, which complicates cross-border campaigns. They further differ depending on whether they apply to a specific medium: some Member States have distinct rules for print, radio, television and online media, whereas for others the rules apply to multiple media at once, or regardless of the medium, or explicitly to traditional media and implicitly to other media. Only four Member States have (or will soon have) rules specifically for online media. This kind of fragmentation obliges service providers interested in providing political advertising services to carefully assess the whole legal framework applicable to each media for each Member State where they want to provide their services.

Further, even when two Member States have rules in place for the transparency of political advertising on a given medium, the elements of transparency required to be disclosed may still differ strongly, for instance in terms of the amounts paid for the advertisement or of the actors to be identified in the ad. Having to disclose different elements across Member States requires having different versions of the same advertisement ready (or different transparency notices), and when they are disseminated online it requires controlling carefully the audience to which each version of the advertisement is shown. Similarly, the few Member States which recently passed or intend to pass rules concerning the transparency of targeting techniques also require different elements to be disclosed, some going much further in terms of the explanation of the process behind the targeting technique. Beyond transparency disclosures in the advertisement itself, some Member States also require some form of transparency through reporting obligations (either only from political actors, or also from service providers) concerning the political advertising services contracted and political advertisements circulated on their behalf. Inconsistent rules not only drive fragmentation in the internal market directly, they also have an indirect effect through private sector policies and service availability. Economic actors, including Code of Practice on disinformation signatories, therefore respond to the increased compliance risk and the uncertainty by applying different commercial strategies in their terms of service regarding political ads, to adapt to the fragmented regulatory context and to limit their liability in terms of compliance with different requirements. Such existing policies can include opting not to provide services to actors established in other Member States (including in the context of EU elections), or not providing services in more than one Member State, for commercial reasons. It was in this context that Facebook, as of the 2019 European parliamentary elections, took the decision to require that political ads may only be disseminated in a Member State if the can advertiser provides identification documentation or a proof of residence issued by the state in question. This rule meant that for EUPPs to campaign online across the EU through one of the main social media platforms, they would have had, on the basis of the contractual terms of a company, to be established in each Member State and administrate their campaigns locally. This increased the cost of campaigning and limited the options available to EUPPs and any other actor wishing to campaign on European issues or in more than one EU Member State. By taking such actions, private actors – in particular if they are gateway intermediaries – act as de facto enablers and/or quasi-regulators of political ads. Their decisions can have the effect of further partitioning the internal market or otherwise affecting its functioning. This limits the choice of service providers available to actors wishing to sponsor political ads such as political parties and candidates, including EUPPs. Consequences: service providers can decide to limit the services they offer in some Member States, or across borders altogether, because the costs of adapting their services to the different regulatory requirements makes service provision unattractive. Stakeholders’ views: Feedback from stakeholders suggests that fragmentation of conditions for providing services related to political ads disproportionally affect SMEs. SMEs are viewed as being least able to both resource the legal due diligence necessary to provide services in more than one Member State and comply with the requirement to be established in every Member State where a political ad campaign is to run (as required by some Member States and certain large platforms). 2.2.1.2 Regulatory arbitrage and circumvention of relevant rules by providers offering political ads services (regulatory failure) (Problem 1.2) In the consultation, Member States’ competent authorities indicated that a concern in their oversight of political ads during national electoral campaigns was the circumvention of national rules. This happened through the delivery of political ads services, particularly online, across borders within the internal market. This problem is driven by differences in the: I.cost of complying with the transparency obligations in certain Member States, for instance as regards specific disclosures, information retention or other steps. II.monitoring and enforcement of relevant rules. In certain Member States, the relevant rules are not applicable or are not enforced, either online or outside of electoral periods. Cooperation mechanisms to support enforcement are limited. Uncertainty about which rules apply and a lack of information about online activity can also drive differences in regulatory outcomes and hence the commercial decisions taken by service providers (including those established outside the internal market) about their political ad services. Consequences: This tends to direct cross-border services away from more regulated Member States towards less regulated ones, or where enforcement is limited. The difficulty for Member State competent authorities to monitor ads in their jurisdiction and enforce their rules for political ads originating from abroad is felt to be disadvantaging domestic service providers in some Member States. Restrictions in Member States are being considered to prevent the circulation of political ads from other Member States or from non-EU countries. The legal analysis confirms that such circumvention cannot be addressed by Member States acting individually. While the introduction of the DSA will improve the overall transparency of advertising and support cross-border oversight of the obligations it imposes, issues specific to political ads will remain unresolved, including the need to cover the transparency of programmatic ads, and to provide transparency of political ad spend and financing. 2.2.1.3 Additional regulatory burden for offline operators in political ads (Problem 1.3) Member States regulate more those political ads which are disseminated through offline media (radio, TV, print etc.) than those distributed online. Offline operators therefore face a heavier regulatory burden than those working with online political ads. This burden is increased if the services are delivered across borders because the relative advantage of the lighter requirements of providing ad services online is multiplied by the fragmentation costs. This also places EU-based service providers at a disadvantage to online service providers established outside the EU, who can avoid certain compliance costs altogether.

Consequences: While not the only factor driving political ads online, these issues contribute to the trend for political parties, candidates and groups to use online ads rather than more strictly regulated offline media. This further distorts competition and favours a limited number of large online operators. 2.2.2. Problems for democratic processes linked to internal market issues (Problem 2) There is a substantial body of national regulation applicable to political ads, including electoral and political party rules, political funding and transparency rules and regarding relevant audiovisual media and other media services. There are also relevant EU rules. As described in Section 2.2.1, in the Member States where political ads are permitted, specific provisions condition the availability of political ads (regarding medium, period, actors etc.) and their content (transparency and other rules). These rules are specific to each Member State and reflect their respective democratic traditions, which have in common principles such as addressed by the Council of Europe’s Venice Commission. They seek to promote free and fair elections and accountability in the democratic debate, including by ensuring that: ·a plurality of political actors have access to the means to communicate their message to voters; ·political actors campaign in the open and can be challenged on the claims they make; ·resources are used transparently; ·citizens are provided with the information they need to evaluate the political messages they receive and make their minds up freely; and ·foreign actors and powerful commercial interests are not able to control the political debate. Citizens, civil society and national authorities have indicated concerns that the monitoring and enforcement of such rules in political ads is being eroded, especially online and across borders, threatening the integrity of democratic processes. Practical examples of this situation, such as those mentioned in the problem definition chapter, occur on an increasingly regular basis. Beyond the EU instruments relevant to the regulation of political ads, the European Commission has issued soft-law measures to help respond, but concerns remain. These concerns are closely linked to the internal market issues related to the regulation of transparency of political ads. Addressing them in this initiative will improve fundamental rights (see section 6). They are also relevant for problem 2.3. They are summarised below and presented in more detail in Annex 5, section 2. 2.2.2.1. Negative impacts of current framework on regulatory outcomes across borders (Problem 2.1) The differences and gaps in national regulation and self-regulation (detailed in Annex 7) result in poor regulatory outcomes for cross-border campaigns, in particular regarding non-recognisability of political ads by individuals, lack of accountability in the debate and risk of electorate illicit manipulation. This problem has the following drivers: ·Societal and political actors lack information to hold political actors and parties accountable on their online political ads activities and thereby play their role in the democratic process. ·Political actors are unable to exercise mutual scrutiny and Member States have difficulties to monitor and enforce relevant rules which they have adopted to protect the public interest. ·Limited legislation providing insufficient information, especially online. ·Insufficient information provided by the various actors, and ineffective collaboration between national authorities and economic actors. Consequences: All stakeholder groups underlined the negative impact of the poor regulatory outcomes on democratic processes and on public trust in political ads. It has prompted some Member States to unilaterally prepare relevant legislation. These Member States and others have also indicated that neither national regulation nor self-regulation are likely to be effective in addressing the cross-border aspect of this problem without a sufficient EU framework to support them. 2.2.2.2 Targeting techniques in online political ads create problems for citizens and for the democratic process (Problem 2.2) Online political advertising are different from traditional political campaigning due to the actors involved (including foreign-based actors from inside or outside the EU), the type of media being used (by nature not confined to national border) and the possibility to use techniques tailoring the information provided to different audiences without the possibility to consult what other audiences have been exposed to. This allows a political actor to highlight a different issue for each voter, leading to a different perception of the actor’s priorities. These techniques altering or tailoring the visibility of ads can be very elaborated, and can be based on extensive knowledge about individuals, including their vulnerabilities, with the aim to impact voters’ behaviour. Further, the same tools that allow people to be targeted can also be used to exclude people from messages that, in a democracy, they have a right to hear. Targeting online greatly differs from targeting offline. While advertisers will aim to promote their information in specific journals, TV channels, locations etc. based on the categories of the groups that gather there (which amounts to a certain form of targeting), online advertising allows for a selection of audience that is both much narrower (to the level of micro-groups, or even individuals) and less evident to those exposed to it – also because the targeted groups will be ad hoc. Beside the level of granularity that can be achieved and the level of knowledge about each individual targeted, online ads can also be targeted to appear at specific moments in specific places designed to exploit the moments where they will be most sensitive to certain kind of information, hence manipulation.

Online advertising and advanced data processing and analysis thus enable a number of techniques to target and amplify the impact of political ads. The personal data can come from a number of sources, such as online activity, surveys, the electoral roll etc., and is used for a number of purposes, including to plan campaigns and shape messages, as well as to establish the criteria for the targeting of programmatic ads, etc. Recent elections in the EU have shown that the impact and the use of targeting is increasing, and targeted ads account for an increasing proportion of overall political campaign spending. Despite the existence of comprehensive common EU data protection rules and guidance, transparency on the use of such targeting techniques remains insufficient. This includes for instance the amounts being spent in such techniques and publically available information on the techniques used. Political ads can avoid scrutiny by being narrowly targeted to (and hence only visible by) certain audiences or profiles, allowing political actors to make irreconcilable promises to different segments of the electorate and manipulate the public. The absence of due transparency about the targeting behind a political ad exposes individuals to a greater risk of being manipulated. More details of such abusive and sometimes unlawful practices related to these techniques are documented in the literature and public concerns have been expressed – with targeting of political ads being argued to be problematic per se, even in the absence of psychographic profiling techniques such as used by Cambridge Analytica. The use of sensitive categories of personal data is also considered problematic and liable to misuse; the public in particular is opposed to microtargeting that is about certain content, including political advertising, or based on certain sensitive attributes including political affiliation. Watchdog organisations and national authorities appear unable to oversee this activity effectively, and are calling for action to revise rules on political ads to address the implications of targeting. These practices create particular horizontal problems for citizens and the democratic process. National rules on political ads can also be engaged by targeting activity, and new national measures are being considered, but they will not address the cross-border nature of this issue and are unlikely to be effective. Annexes 7 and 8 present the relevant national and EU provisions, and point to the gaps and challenges. Consequences: The way targeting (and amplification) techniques are used with political advertising, and the limited transparency and control applied to them undermines trust in the use of such services among citizens and government authorities, and has a knock-on effect on perceptions of the integrity of elections and the democratic process. Member State and private sector actions in response have been driven by the association of targeting of political ads with foreign interference and disinformation. While these actions have limited the availability of services, they have not provided effective solutions to the problems associated with using targeted political ads. Proposals in the European Parliament, the EDPS and at national level have included banning targeting. 2.2.2.3. Member States are unable to monitor and enforce transparency of political ads, and other relevant rules (Problem 2.3) National competent authorities encounter challenges with monitoring and enforcing relevant rules connected to political ads, particularly online and across borders driven by: Lack of resources, capacity, competence regarding political ads: The lack of appropriate powers and resources is raised by both civil society and international organisations. The legal mapping in Annexes 8 and in the underlying study shows that only few national authorities and bodies are empowered to supervise online political ads. Extraterritorial nature of the enforcement of online political ads: National authorities and bodies reported insufficient capabilities for oversight of political advertising across borders, while the market for political ads is becoming increasingly cross-border. National rules cannot easily be enforced across borders. With the exception of the voluntary exchanges of information and practices in the European cooperation network on elections (ECNE), Member States reported little cooperation among authorities on these specific topic. EU law provides for oversight mechanisms related to specific aspects of activity relevant to political ads (see Annex 8). Insufficient coordination on political ads among national authorities: Outside of EU-coordinated governance, including under the GDPR or as envisaged for the DSA, the legal mapping describes the diversity of existing authorities and bodies in the different Member States, all playing a role based on different legal acts. The OSCE reports on EU Member States’ elections provide various examples of insufficient coordination in this area. First impact: Fragmented enforcement of rules and fragmentation of sanctions applicable at national level: The lack of capacity and knowhow by national competent authorities to properly enforce legislation, as well as the insufficient coordination between these bodies, affect enforcement at national level. Second impact: Use of undeclared sources and interference by foreign actors: Difficulties exist with the lack of transparency including the financing used to conduct political advertising across borders. This enables foreign state and non-state actors to manipulate and interfere in the democratic debate and elections in the European Union. 2.2.3. Political parties in the EU: insufficient and inconsistent transparency (Problem 3) Political parties in the EU do not provide enough information about their advertising for citizens to recognise them as political advertising, to know how much money was spent on them, what techniques were used to target and amplify them, or to identify which parties and campaigns they are affiliated with. Insofar as this problem relates to the activities of national political parties, it is already discussed in problem 2 (especially on targeting and on the enforcement of national rules), and the rest of problem 3 will therefore focus on EUPPs. This issue is relevant for EUPPs as their campaigning activity grows and they increasingly campaign cross borders on ‘European political issues’. The main driver for this is that EU rules applicable to EUPPs do not provide for specific transparency for political ads, when disclosed to citizens. Further national rules are heterogeneous and generally not enforced for political advertising sponsored by EUPPs. This may be related to a focus placed by national oversight bodies on national campaigns. EUPPs and European political foundations are regulated by Regulation 1141/2014, with national law otherwise being applicable. The Regulation regulates the statutes and funding of EUPPs and does not directly address the transparency of political ads. It obliges European political foundations to use their funding activities only for a closed list of tasks, which does not include political advertising as such. The Regulation also prohibits EUPPs from (i) directly or indirectly funding other political parties, and in particular national parties or candidates, and (ii) financing referendum campaigns. The Regulation provides for verification of compliance with certain registration conditions and requirements, and on infringements of rules on the protection of personal data. Regulation 1141/2014 includes transparency obligations in relation to financing and expenditure for electoral campaigns, published in annual financial statements. It also requires the Authority competent for EUPPs to provide on its website information about contributions and donations collected from EUPPs. The Authority does provide some non-binding recommendations , however without follow-up monitoring of compliance. Further, the Recommendation accompanying the Commission’s 2018 Electoral package recommended that EUPPs take steps to provide a range of information about their advertising, including about targeting. Consequences: In the 2019 European Parliamentary elections, the EUPPs did not effectively deliver the level of transparency recommended in the 2018 elections package. While most political advertisements sponsored by the EUPPs merely aimed to raise awareness of the European elections and promoted electoral participation, the EUPPs did make increased use of targeted political advertising to cover substance issues like climate change. For the future, the European Parliament has indicated its intention to further strengthen the European dimension of the European elections. On this basis, it is to be expected that the proportion of political ads sponsored by EUPPs that address European political themes will increase. In this context, the need for transparency of political ads to ensure accountability in the democratic process would increase, which may prompt Member States to seek to enforce national rules in connection with political ads at European level. A parallel revision of Regulation 1141/2014 proposes substantive rules to strengthen the European dimension and protection of rights and values in the European political process, including issues identified in the overall governance. That initiative and the one considered for EUPPs in the present impact assessment reinforce each other, with the former clarifying among other rules on how EUPPS can receive funding, and the latter increasing transparency and accountability on the origin of the funds and spending in the context of political advertising.

2.3. How will the problems evolve? An increasing number of internal market issues are expected to be identified in the provision of cross-border political ads services. Offline political ads will continue to be seen as more burdensome and less attractive. The proportion of political ads which will be published online and which could a priori be provided by cross-border operators is likely to increase. Cross-border services will continue to be affected by the costs of fragmentation, and this will continue to further concentrating advertising business towards the limited number of very large providers able to absorb the compliance costs and/or position themselves to benefit from the lighter regulation in certain Member States. This, together with the fact that increased fragmentation and costs will affect the possibilities for SMEs to enter in this market, was reported by stakeholders as problematic. The cross-border dimension of political ads should further increase, as the number of mobile EU citizens exercising their electoral rights across borders is on the rise. Political parties will increasingly conduct cross-border campaigns, for instance on European themes like climate change. These trends will make more acute the problematic regulation of political ads services as well as inconsistencies and gaps in the regulation of ads, especially political parties. Additional enforcement of national political campaigning rules on political ads sponsored by political parties, would further increase fragmentation and deter European political campaigns. In light of the Parliament’s explicit request to strengthen respect for democratic principles including transparency, political parties may act voluntarily to implement the 2018 transparency recommendations for their political ads. Efforts could be made to apply national (in most cases Belgian law) provisions to European parties in this respect, though national provisions would only apply within their national scope. As political ads move increasingly online, regulatory outcomes from national legislation will continue to be poor. The disparity of the national requirements in the internal market is likely to increase together with inconsistent across national jurisdictions or ineffective enforcement. This will add legal uncertainty and costs for service providers. As indicated in Section 2.1 above, while its scope is different, the DSA will already significantly enhance the transparency of ads on online platforms. The DSA will not, however, regulate political ads displayed on other services or provided and produced by other services, nor on offline political ads. The information that it requires to be published with all ads will not include spending information and other elements identified as relevant to political ads. Signatories of the existing Code of Practice on Disinformation provide information on ad spend in their political ad repositories. While it will continue to evolve under the Guidance of the Commission, the Code needs to be complemented with relevant binding obligations related to the specific area of political ads to ensure a level playing field in the internal market, consistent regulation and the protection of rights. While the DSA represents a significant step forward in the governance of many relevant online activities, including the collection of information from online intermediaries, the oversight it establishes is linked to the substantive obligations in the DSA itself and its addressees, and will thus not cover all the service providers and activities involved in political ads. Unauthorised actors will continue to interfere in the EU’s democratic debate and manipulate the information environment, threatening its democratic processes. This is especially harmful during electoral periods. With rapidly evolving technologies and tools that facilitate the manipulation of the debate online, in particular artificial amplification and engagement, increased transparency of political ads is crucial to safeguard the integrity of EU elections. Finally, competent authorities will have increasing difficulty in exercising oversight due to the lack of accessible data from service providers, to support their interventions in case of unlawful behaviours affecting electoral campaigns in their country. Problematic activities will continue in areas where gaps exist, and the risk of interference in elections through the misuse of political ads will persist. The existing cooperation structures among competent authorities at European level on their side will be unable to sufficiently address the problems identified. What are the consequences of the problem? The above-described issues are crosscutting and would continue to affect negatively the Internal Market for political ads and fair democratic processes in Europe. 3.Why should the EU act? 3.1.Legal basis Any legislative intervention at the EU level must relate the competences of the Union legislator. Article 114 of the Treaty on the Functioning of the European Union (TFEU) enables measures for the approximation of the provisions laid down by law, regulation or administrative action in the Member States which have as their object the establishment and functioning of the internal market. It is the appropriate legal basis for an intervention covering service providers in the internal market and address differences between Member States’ provisions which obstruct the fundamental freedoms and have a direct effect on the functioning of the internal market. Differences in national laws exist and the national laws develop, given that some Member States have legislated or intend to legislate on political ads. By harmonising requirements applicable to transparency and the targeting of political ads on the basis of Article 114 TFEU (approximation of laws for the improvement of the internal market), the initiative will remove certain existing obstacles and genuinely enhance the functioning of the internal market. Article 114 TFEU does not presuppose the existence of a link with the free movement of services in every situation covered by the measures founded on that basis. It permits additional objectives to be pursued. It is logic that measures based on Article 114 TFEU touch upon many different areas, because the economic and the non-economic aspects are many times closely intertwined. As confirmed by the Court, the EU legislature cannot be prevented from relying on that legal basis on the ground that the protection of other policy objectives is a decisive factor in the choices to be made. What is relevant is that the measures adopted on that basis be actually intended to improve the conditions for establishment and functioning of the internal market. In its settled case law on the use of Article 114 TFEU, the Court does not engage in weighing the importance of the internal market and the other objectives pursued. What the Court focuses its analysis on is on the fulfilment of the conditions for the use of Article 114 TFEU, i.e., that the measure in question effectively pursues the internal market objective. Some examples in the EU acquis in which Article 114 TFEU has been used as a legal basis for measures that pursue other objectives apart from the improvement of the internal market include, for instance, Regulation 1007/2009 on trade in seal products, Directive 98/44 on the legal protection of biotechnological inventions, and the Consumer Credit Directive 2008/48/EC. Article 114 TFEU is also relevant to provide obligations on service providers established outside the EU where their service provision affects the internal market, when this is necessary for the desired internal market goal pursued. Article 16 TFEU permits the Union legislator to enact rules relating to the protection of individuals as regards processing personal data by Union institutions, bodies, offices and agencies, and by the Member States when carrying out activities falling within the scope of Union law, and rules related to the free movement of such data. As the current initiative seeks to address problems specific to the use of personal data in political ads (in particular regarding their targeting), intervention will also be based on this provision. Article 224 TFEU is also relevant to provide for transparency standards applicable to EUPPs. On this basis, regulations governing EUPPs at EU level can be laid down 3.2.Subsidiarity: Necessity of EU action According to the principle of subsidiarity laid down in Article 5(3) of the Treaty on European Union (TEU), action at EU level should be taken only when the aims envisaged cannot be achieved sufficiently by Member States alone and can therefore, by reason of the scale or effects of the proposed action, be better achieved by the EU. Several Member States have legislated or are about to legislate in the field of transparency of political ads to protect their electoral processes. As these rules diverge in their scope, content and effect, a patchy framework of national rules is appearing and risks to increase. This jeopardises an effective exercise of the freedom of establishment and the freedom to provide services in the EU. Only intervention at European level can solve this problem, as regulation at national level is aimed at ensuring transparency and protecting the electoral process, with therefore little concern for the barriers erected to cross-border political advertising services in this exercise of otherwise national competence. Furthermore, the cross-border nature of activities, including in the online environment, creates significant challenges which purely national regulation in this domain would not be able to address. It is unlikely that Member States acting independently would be able to effectively address the identified problems, except eventually if they (like Ireland does) decide to prohibit cross-border political advertising – something which further fragments the internal market. The Commission already highlighted the need for EU action in this area ahead of, and following the 2019 European Parliamentary elections, in the framework of the 2018 elections package. This need for EU action was also demonstrated by the action of certain economic actors providing political ads and related services and of the political actors making use of them. During the European elections, some large online platforms took steps to address the challenge presented by legal uncertainty and fragmentation of the internal market, by only servicing discrete Member State markets, essentially partitioning it. This proved a significant issue for political parties seeking to publish political ads EU-wide.

The competence to lay down regulations governing EUPPs resides with the EU. Further, the envisaged policy options do not go beyond what is necessary to achieve the identified objectives not affecting the competence of Member States to organise elections. Subsidiarity is not only respected, but proportionality as well. 3.3.Subsidiarity: Added value of EU action The initiative will only address activities where EU action is necessary for the functioning of the internal market, for a high standard of data protection in targeting practices, and to specify the transparency requirements for EUPPs. EU common standards for political ads and related services would bring enhanced legal certainty especially for service providers. The incremental compliance costs of delivering a service across borders would be removed, and the non-compliance risk reduced. This in turn would remove the incentive for economic actors to partition the internal market, provide a fresh incentive for the provision of cross-border services and for the development of new ones. EU rights, including fundamental rights would also be protected more effectively. In contrast, the effects of any action taken under national law would be limited to a single Member State and would risk being circumvented or difficult to oversee in relation to service providers from other Member States, and could conflict with the internal market. This does not address the EU-wide problems identified, and can also exacerbate the effects of fragmentation. An EU system would also help competent authorities in their oversight functions, other stakeholders to exercise their role in the democratic process and increase the overall resilience of the European Union to information manipulation and interference in electoral processes, including disinformation. 4.Objectives: What is to be achieved? 4.1.General objectives There are two general objectives: 1.Facilitate the provision of political advertising and related services in the internal market while supporting fair democratic processes based on high and harmonised transparency standards and lawful use of targeting techniques. 2.Provide for high transparency standards for political parties in the EU supporting free and fair elections. 4.2. Specific objectives General objective 1: Facilitate the provision of political advertising and related services in the internal market while supporting fair democratic processes based on high transparency standards and lawful use of targeting techniques Specific objectives: 1) Reduce legal fragmentation, limit circumvention of regulation and regulatory arbitrage and remove obstacles and reduce costs for the provision of cross-border services; 2) Define high transparency standards for political ads (including issues ads), in particular to ensure that: I.Individuals are sufficiently aware of the nature of online political ads and can recognise online political ads and distinguish them from other types of online content; II.Interested actors – civil society organisations, academia, elections observers, journalists and political actors – have sufficient information to hold political actors accountable; III.Member States competent authorities and EU authorities have sufficient information on online political ads activities to take informed decisions on online political ads; IV.Societal trust in the internal market for political ads increases. 3) Address specific data protection risks emerging from the use of some targeting and amplification techniques, also in order to support fair elections and a fair democratic debate, and to ensure that the newly harmonised market for political advertising is not fragmented by rules regulating targeting. 4) Ensure the effective oversight of the envisaged obligations and strengthen regulatory outcomes; General objective 2: Provide for high transparency standards for political parties in the EU, supporting fair democratic processes Specific objectives: 5) Promote stronger transparency and free and fair elections through compliance with relevant rules among political parties in the EU, through binding rules, where the EU has competence (i.e. for EUPPs), in particular to ensure that: I.transparency and accountability in political campaigning is promoted among political actors; II.resilience to manipulation and interference in the democratic debate is strengthened; III.the European dimension of European parliamentary elections is supported through the establishment of clearer rules for cross-border political ads; IV.public awareness of political ads, of the techniques associated with it and of the applicable rules governing it, is promoted. The Intervention Logic (relations between drivers, problems, consequences, general and specific EU objectives, options and expected impacts) is depicted graphically in Annex 6. 5.What are the available policy options 5.1.What is the baseline from which options are assessed? Under the baseline scenario, the EU regulatory framework will evolve, particularly as regards information society services, though specific legislation to fully address the issues identified would not be introduced. Once the DSA enters into application, it will clarify responsibilities and accountability for providers of intermediary services, and in particular online platforms, such as social media and marketplaces. Certain intermediary services would be subject to additional due diligence requirements, including notice-and-action procedures for illegal content – including illegal ads. Online marketplaces would be obliged to collect, store and partially verify and publish information on traders using their services to ensure a safer and more transparent online environment for consumers. Further, ads published on online platforms will be clearly distinguished from other content, would directly disclose the advertiser as well as ‘meaningful information about the main parameters used to determine the recipient to whom the advertisement is displayed’. VLOPs will also publish ad repositories, including ‘whether the ad was intended to be displayed specifically to one or more particular groups of recipients of the service and if so, the main parameters used for that purpose’, making this information available for e.g. vetted researchers or authorities. Further access to data by vetted researchers would also be possible. No information will be provided about the the political affiliation of ads, the money spent on them and its source. The chain of actors involved in the preparation, placement and dissemination of the ads will remain obscure, preventing the effective oversight by public interest actors and authorities into the spending of political actors and other national rules relevant to electoral processes. Transparency about the more detailed elements on targeting will remain merely implicit (in the GDPR) or indicated as desirable (in EDPB Guidance). There will not be public scrutiny of the use of political ads online, except to a limited extent for actors in the DSA’s scope. The Commission will continue its monitoring of the implementation of the Commission’s Electoral package recommendation on transparency and combatting disinformation and the coordination within the framework of ECNE. In line with the Guidance on strengthening the Code of Practice of Disinformation the Commission expects the signatories of the Code to step-up the Code’s measures on the transparency of political and issues ads. The Code will evolve from a self-regulatory approach to a co-regulatory framework with the adoption of the DSA. While the Code of Practice aims to deliver industry-led solution regarding specific issues related to the transparency of political ads, it would not address all the specific areas related to political ads. Monitoring and enforcement of EU data protection rules would continue, as well as guidance on the consistent application of the GDPR. The baseline would also benefit from measures set out in EDAP. Further, research would continue to analyse the impact of these voluntary measures and unilateral legislative measures being adopted by Member States. The problems identified in this impact assessment would continue to evolve as described in section 2.3. Political activity will move increasingly online, making cross-border service provision a developing market, including in the context of European elections. The costs and obstacles affecting service providers (ad agencies and publishers) when providing their services across borders or in multiple states will persist. Issues identified for the democratic process related to the circulation of political ads in the internal market, will remain. Despite expected improvements, the lighter online regulation will continue to contribute to driving political ads services online. This move online will cause national rules to become increasingly difficult to monitor and enforce. Member States will continue to respond with diverging national solutions aiming to increase transparency and the possibility for oversight, without the coordinated enforcement. Large platforms with a presence across the internal market will continue to control compliance risks through actions which partition the internal market. Obstacles will continue to prevent smaller companies from scaling up. The problems outlined above resulting from the non-transparency in political ads and regulatory failure will continue to evolve, including as regards the lack of power for citizens to inform themselves on political ads and hold political actors to account. In the context of European elections, EUPPs intend to increase their campaign activity, for instance on transnational issues such as climate change. Member States might seek to enforce national rules in connection with political ads targeting their citizens. This, and related obstacles to cross-border campaigning may significantly reduce the possibility for transnational parties and movements to conduct their campaigns. Similar obstacles could affect the right to campaign in multiple Member States for some national elections in Europe with diaspora constituencies. The existing, largely ex ante oversight framework will address EUPPs’ transnational campaigning activities, and the proposal to reform the regulatory framework may expand their scope. 5.2.Description of the policy options

The objectives are addressed by two packages of options, which differ in terms of level of intervention proposed. The packages differ in their approach to intervention, but share common elements, especially those soft measures when not replaced in option 2 by binding measures. They address the problems identified regarding the internal market for political ads as they concern transparency rules, the use of targeting and manipulative amplification techniques, oversight, and the problems identified concerning EUPPs and political parties more generally. They build on the 2018 elections package and the experience gathered from it, other related EU policymaking, input received in the consultation and the guidelines and reports published by relevant standard setting bodies. The legislative elements build on the findings of the mapping of the relevant Member State frameworks (see Annex 7) and are consistent with the acquis. Each internal market option aims to complement and not amend existing EU legislation applicable to offline and online political ads and services, including the DSA, EU consumer and data protection rules, audiovisual media rules and the digital single market. In turn, the options concerning EUPPs are prepared in close alignment with the initiative to reform the regulation on the statute and funding of EUPPs and foundations. The options addressed to economic actors in the internal market are as follows: 1.Limited binding measures to align certain definitions and provide for information retention, and soft measures and standards to promote transparency in the use of political ads online and offline and support further interventions, including self-regulation. The soft measures also cover the use of targeting techniques. 2.Binding measures to harmonise transparency requirements for political ads accompanied by soft measures and standards. The binding measures also address the use of targeting techniques in political ads. The options addressed to political parties are as follows 1.Limited binding measures to adapt the existing framework on EUPPs to introduce an obligation for parties to support transparent use of political ads; and 2.Extending the existing framework to introduce complementary obligations on EUPPs to provide meaningful and transparency obligations for the use of political ads. Further non-legislative measures are envisaged to incentivise and promote equivalent standards nationally in European elections. Table 1 – Summary of measures addressed to economic actors in the internal market Option 1: Limited measures to promote transparency, address issues with targeting and support oversight Option 2: Measures to harmonise transparency, address issues with targeting and strengthen oversight Obligations on economic actors related to transparency of political ads Limited common framing of political ads based on existing national definitions, to provide clarity to economic actors, incentivise compliance with relevant rules, and facilitate accountability and oversight. Passive obligation on all actors to retain information about political ads, in addition to existing EU common obligations (e.g. the amounts spent, source of funding, the scope of distribution and period of circulation of the ad). Soft measures addressed to Member States and parties to address the provision of political ads to citizens with tailored and adequate transparency, to facilitate accountability and oversight and address the issues for democratic processes associated with non-transparent ads. Obligation on relevant services providers to cooperate with competent authorities, within the scope of the initiative. Harmonised framing of political ads using a combined approach based on existing national definitions as well as self-identified political and issues ads. Passive obligation on all actors to retain information about political ads, in addition to existing EU common obligations. Obligations tailored to the relevant actors to provide citizens, interested actors and public authorities specific information on political ads, to clarify obligations, facilitate accountability and oversight and address the issues for democratic processes associated with non-transparent ads. Obligation on relevant service providers to cooperate with competent authorities, backed by provisions to empower authorities within the scope of the initiative. Specific measures on targeting and manipulative techniques Soft measures addressed to Member States and political parties to ensure that adequate and specific transparency is provided about the use of targeting and other manipulative techniques, so that voluntary commitments among economic actors on the points raised in the specific objectives are tackled including within the Code of Practice. Binding EU-wide limits to targeting with two sub-options detailed below. Soft measures addressed to Member States and political parties on further steps to limit other manipulative techniques, such as buying of fake engagement and inauthentic accounts/networks. Powers of oversight bodies Soft measures addressed to further empower competent bodies to request and obtain relevant information. Further support, including for capacity building, joint action and the exchange of good practices in particular in the framework of ECNE. Powers for competent authorities to request information and to enable the exchange of information among competent bodies, within and across Member States, relying on existing national and EU governance frameworks. Further support, including for capacity building, joint action and exchange of good practices among authorities in particular in the framework of ECNE. Table 2 – summary of measures addressing political parties Option 1: Limited amendment to the Regulation 1141/2014 framework Option 2: Extending the Regulation 1141/2014 framework to introduce complementary obligations on EUPPs and active oversight European parties Amend the existing framework to include the requirement that EUPPs take steps to promote the transparent use of political ads and address targeting as a condition for receiving funding. Elaborated rules for EUPPs to ensure transparent management and disclosure of political ads, including obligations to ensure that information is published with the political ads, to limit the use of targeting techniques, as well as to retain and disclose further information (including in the repository below) to provide accountability around the electoral period. Support an independent platform and party-neutral repository of information about political ads activity in European elections, accessible in by all citizens. National parties Soft measures addressed to Member States and national parties to have high transparency standards consistent with to those for EUPPs Political parties in the EU Promotion of a fair campaigning pledge among political actors, based in particular on high transparency standards, including on targeting, and a level playing field in the EU. Providing identical transparency requirements at EU level is the element available for harmonisation that would most obviously make the biggest difference for service providers in the internal market. However, providing identical standards on the use of targeting in the political ad context is closely linked to this harmonisation objective. Indeed, while the policy options could be bundled differently, a package combining hard standards on transparency with soft measures on targeting would not address appropriately the objective of the Article 114 TFEU legal basis that is the primary motive for the proposal aimed at economic actors. Indeed, efforts to harmonise the market for political advertising by focusing on high standards of transparency without also harmonising on high standards regarding the use of targeting would soon be met by new fragmentation from Member States determined to protect themselves from the risks emerging from the targeting techniques afforded by online media. Further, even in the consultation, no genuine alternatives to a ban capable of addressing the issues were suggested. Policy option 1 – Limited harmonisation Transparency: The first option provides for limited mandatory common transparency requirements for political ads (both online and offline) including on targeting. It relies on national definitions of political ads, which for the most part a priori do not cover issues ads. This would provide a common reference point for service providers in their contractual terms, and for competent authorities to exercise their oversight functions as well as for other stakeholders to play their role. A specific obligation on all economic actors involved in these political ads to retain relevant information about political ads (and provide it upon request) is provided to facilitate the oversight of relevant rules and democratic accountability. Targeting: Under this option, Member States would be specifically invited to provide for standards on the use of targeting techniques. This would support voluntary commitments fostering democratic accountability among economic and political actors, including those within the Code of Practice. This would be without prejudice to existing legal information obligations under the GDPR.

Oversight: Option 1 foresees limited measures to support oversight and audit including soft measures to support cross-border cooperation on these matters and enforcement. It promotes common standards (e.g. Application Programming Interfaces (‘APIs’), data retention protocols) for interoperable ad repositories, the ‘know you client’ data for the disclosures to support interoperable information systems and processes, and allows for the effective oversight of, and research into, the circulated ads. Stakeholders’ views: Most OPC respondents, across all stakeholders, supported specific measures to increase oversight of competent authorities (73.7%). Stakeholders with an interest in monitoring political ads would welcome a system based on interoperability through which data from multiple platforms could be easily accessed and common tools used across platforms. Political parties: Option 1 introduces mandatory transparency standards for political ads in Regulation 1141/2014, building on the recommendations in the Electoral package. EUPPs would have to provide ex ante to the Authority reassurances that they will take the necessary measures including through their own websites and via explicit commitments. Soft measures would be addressed to Member States and political parties to promote high transparency for national political parties equivalent to those to be introduced for EUPPs. Political actors would be invited to join, and Member States to support, a fair campaigning pledge, building on national models, to promote high standards of transparency and accountability in political ads, in particular on the use of targeting. Stakeholders’ views: Member States have shown a high interest regarding the creation of soft measures such as code of conducts, without excluding more binding measures. The Dutch Code of Conduct established in 2020 between political parties and online platforms is considered a positive precedent serving as a good example of best practice for other national authorities, and will be complemented by the announced NL Law on Political Parties (discussed in Annex 7). In Germany, there has been call for a regulation for political actors that ensures the complete transparency of digital communication and, in various Member States, some parties have developed their own code of conduct in this respect (see Annex 7, section 7). Also, stakeholders consulted as well as some sources in the literature agree that the existence of an ad repository could increase the recognisability of online political ads. 5.2.2. Policy option 2 – More extensive harmonisation Transparency: Under policy option 2, a common approach to the concept of political ads would be defined. It would cover ads connected to a political actor, campaign or aim as defined nationally, and self-declared political ads. This would include issues ads. Option 2 includes harmonised transparency requirements. Beyond the transparency obligations vis-à-vis those directly exposed to the political ad, further requirements (proactive for VLOPs, upon request for others in the value chain) would apply vis-à-vis interested actors and authorities. Stakeholders’ views: Stakeholders requested clearer and more uniformed concepts and definitions. In particular, private sector companies and in particular major online platforms suggest adopting harmonisation legislation that would define political ads and clarify responsibilities. The publishers of online and offline political ads would have to make available information (provided in a transparency notice within or easily retrievable from each political advertisement) about the amounts spent in an advertising campaign and their source, any relevant (nationally defined) campaign/party registration information as well as (where relevant) a link to official information sources about the elections, the sponsor’s identity, whether and how the advertisement was targeted or amplified, the scope and period of circulation of the advertisement, the data sources, and the criteria used for targeting. VLOPs would also have to proactively provide this information in their publicly accessible ad repository, in addition to the information they already provide about ads under the DSA. Ad publishers would have to issue standardised periodic reports on the amounts received for the services they have provided connected to political advertisements and their targeting, aggregated to campaign or candidate. Other economic actors involved in the political advertising value chain would have to retain (keep record of) information on transactions, including amounts, parties, services provided and (where applicable) on the use of targeting, the relevant mechanisms, techniques and parameters used and the source(s) of personal data used. They would also have to provide this information down the chain toward the eventual ad publishers to support the latter’s respective proactive obligations, or to provide the information themselves upon request to interested actors. Additional measures on transparency could be provided through soft measures. Stakeholders’ views: The majority of respondents to the OPC supported the retention of information. On ads repositories, 71% of respondents would like that publishers of political ads retain at least a minimum of information from those placing the advertisements. 67% considered that service providers involved in political ads should also have obligations to retain and provide information. 68% stated that beyond competent authorities, all political ads should also be made available to individuals through a repository. Targeting: Two sub-options are envisaged in policy option 2 for targeting. Elements of these two sub-options could be combined. Under sub-option 1, common standards would prohibit during reference periods the use of defined targeting that is based on sensitive data. Under sub-option 2, common standards would similarly limit the use of some targeting techniques such as micro-targeting and targeting based on certain categories of personal data, but also beyond electoral periods. However, the limitation to targeting techniques would not apply under certain conditions and when ads are clearly labelled as political ads (thus complying with the other specific transparency requirements above) and when the service provider implements and publishes a policy for political ads, with specific reporting in the annual report. Stakeholders’ views: 57.7% of OPC respondents consider that there should be additional limits on targeting and amplification methods, besides compliance with existing data protection rules. Among these 57.7%, respondents favoured either a ban of targeting and amplification (especially offline publishers, individuals and CSOs), or opt-in by user. Monitoring and enforcement: Option 2 would build on established European governance frameworks including those foreseen for the DSA and for the GDPR. It would provide for the identification of a specific national contact point on the obligations envisaged by the initiative. It would impose specific cooperation obligations to economic actors involved in the political ads value chain. With regard to the objective of achieving a ‘clear line of sight’ and automated reporting in the monitoring of the political ads value chain, policy option 2 would specify headline requirements for interoperable information systems based on the required outcome (established on the basis of the transparency needs). This would enable the transparency obligations to be delivered efficiently for both their beneficiaries and for the addressees of the obligations. Additional measures would support the coordination of oversight of the envisaged measures at EU level, as well as strengthen national coordination and oversight capability among competent authorities, and foster pooled resources, joint action and the exchanges of good practices (including in the framework of the ECNE).

Political parties: Policy option 2 would provide transparency obligations on political ads and limitations to their use of targeting techniques. EUPPs would be obliged to label their ads and to publish or otherwise make available additional information, including to actively provide timely disclosures during the electoral campaign period. Further obligations would ensure that parties retain sufficient information to support reporting and oversight functions. This option would include an independent, platform and party-neutral repository of information about political ads activity in elections to the European Parliament, accessible in real time by all individuals and with corresponding obligations on EUPPs to upload their political ads and provide relevant disclosures. Soft measures would be addressed to Member States and national political parties recommending introducing equivalent standards for all political actors and to support the establishment of a fair campaigning pledge. 5.3. Options discarded at an early stage Some options were discarded at an early stage, especially based on competence (subsidiarity) and proportionality criteria. 1.Any ban on cross-border political advertising. This was discarded as being likely to disproportionately restrict legitimate activity and impact on fundamental rights while being unlikely to effectively address most problems identified. 2.A general ban on the use of targeting was discarded as likely disproportionate. It would increase the cost of political advertising and may unduly affect lawful communications outside of electoral periods and during which the main parties affected would be CSOs. Such a ban would advantage well-resourced parties able to afford untargeted online campaigns. Options based on opt-in and opt-out have been discarded on targeting as this is already largely addressed by the GDPR, does not address the fact that use is made of people’s vulnerabilities, and that manipulation can be at stake when targeting and amplification techniques are being used to disseminate political advertising. 3.Extensive harmonisation of essential terms in the electoral process, such as political party or political actor, or campaign periods versus silence periods. These concepts are essential parts of the organisation of elections, which remains largely a national competence, raising issues in terms of subsidiarity and proportionality (necessity and EU added value). 4.Extensive harmonisation of substantial requirements for the electoral process other than transparency. It would not be possible with this initiative to harmonize all the requirements applicable to political advertising across EU (e.g. who may sponsor an ad or how much they may spend), because the organization of elections and of political activity is a competence of Member States. There are specificities, traditional and historic characteristics accompanying the advertising in political context that have to be taken into account and, in contrast, horizontal transparency and measures applicable to economic operators was indicated as something Member States would be willing to support. 5.Amending the ‘country of origin’ principle for political ads, whereby providers of online services are subject to the law of the Member State in which they are established, by creating an horizontal elections-related carve-out to enable the direct application of national relevant rules on services in the internal market affecting national elections. This was rejected as being likely to undermine the internal market and its development, including for services unrelated to political ads, and reducing legal certainty for economic actors. 6.What are the impacts of the policy options? 6.1. The baseline scenario The impact of the baseline scenario is assessed under the problem definition. 6.2. Assessment of the options The policy options were evaluated for the following economic, social, fundamental rights and other impacts. No environmental impacts are expected and are not considered further. 6.2.1.Economic impacts 6.2.1.1.Functioning of the internal market Both options would have a positive effect on the functioning of the internal market. Option 1 would partially reduce the costs resulting from legal fragmentation and uncertainty for economic actors, thereby facilitating the offering of political ad services across borders. By supporting coordination among competent authorities, it would contribute to improving regulatory outcomes and reduce the possibility of economic actors obtaining an unfair advantage by offering services from specific Member States.

Option 2 would further remove costs resulting from the legal fragmentation and uncertainty, also facilitating the offering of services across borders. By clarifying and harmonising the rules on the retention and provision of information for the purposes of oversight and accountability, it would remove a key driver of compliance costs in multi-Member State and cross-border campaigns. In addition, it would add legal predictability for intermediary services active in several Member States, contributing to the good functioning of the internal market. This option would also improve regulatory outcomes as competent authorities increasingly struggle to enforce the current legal framework. Competent authorities from Member States other than the one where the provider is established will be in an improved position to monitor ads affecting their electoral and democratic process – a currently complex and costly practice. This should in turn improve trust and transparency in political ads services, removing the justification for national market segmentation, thereby increasing opportunities for cross-border services to develop. The measures on targeting would address the most problematic targeting techniques while also providing for the use of targeting in a manner which incentivises good practice. Tailored restrictions would limit the availability of certain elements of such services. This would be outweighed by opportunities for economic actors resulting from increased trust among citizens and regulators in the technique and from greater legal certainty of compliance in its use in the political context. In addition, this option would reduce the advantage derived from regulatory fragmentation by providers of services for online ads compared to offline media. It would limit unfair advantage being derived from offering political ads services from outside the internal market, and help ensure that all such services comply with norms established to protect the integrity of democratic processes. 6.2.1.2.Competitiveness, innovation and investment Both options are expected to have a positive impact on the competitiveness, innovation and investment in cross-border political ads services. Both are proportionate and neither would impose dissuasive requirements on service providers. The removal of the obstacles resulting from legal uncertainty and fragmentation will foster the development of a European industry of rights-compliant services, and will enable existing national enterprises to scale up. Option 2 would have a greater positive impact on competitiveness, innovation and investment. It would reduce legal fragmentation and help create a stable market to support investment, enable national SMEs to scale up their operations and stimulate the development of new services offered at EU level. Both sub-option of option 2 could slightly limit the choice in such services. Both sub-options incentives the development of an accountable and fair market for political ads targeting services. Costs and administrative burden on economic and political actors Both options would add compliance costs for economic actors providing services which are in scope and not currently regulated (or to be regulated by the DSA) – mainly online adtech and related service providers, though some smaller online intermediaries could be affected despite the specific mitigation foreseen for SMEs. These are also expected to be compensated by the efficiencies realised from the removal of legal fragmentation that facilitate the cross-border provision of services. The net expected result is a cost reduction against the baseline. The measures in common to both options on establishing a common framing and passive transparency for political ads would not involve more than one-off adaptation costs, especially as the retention of the information can be automated. Option 2 introduces some additional specific obligations over option 1 and the baseline which require business process adaptation and technical design costs. However, the provision of information can for the most part be automated. The costs can be offset against the benefits of streamlining oversight and compliance and the removal of costs associated with regulatory fragmentation. Estimates of costs for obligations addressed to economic actors Type of obligation Option 1: Limited measures to promote transparency, address issues with targeting and support oversight Option 2: Measures to harmonise transparency, address targeting and strengthen oversight. Obligations on economic actors related to transparency of political ads Common framing of political ads All economic actors are expected to derive cost efficiencies when offering services through a common framing of political ads, with online intermediaries each saving around EUR 400,000 per annum. This is expected to proportionately benefit SMEs more than VLOPs, as they will be enabled to offer their services in the internal market. Passive obligation to retain information relevant to political ads oversight All economic actors would be required to retain transaction data on political advertising from existing business process and management information systems, to enable reporting and disclosures, and compliance with the obligation to cooperate with competent authorities. Additional ongoing costs are not expected, but limited one-off costs may result to adapt information systems, including for SMEs. Obligation to cooperate with competent authorities All economic actors would be expected to have an officer (or legal representative) responsible for interaction with national authorities. SMEs would not need to recruit additional staff and their costs are expected to be absorbed. Online intermediary services will already have a single point of contact for authorities under the DSA, and VLOPs in particular will also under the DSA already require a compliance and engagement officer. Data protection officers will already been designated under the GDPR as required by it. Costs would vary according to the number of requests – potentially 0.5-1 FTE (full-time equivalent) per political ad campaign. Soft measures to introduce national rules on transparency Ad publishers would incur one-off data handling and process adaptation costs where national rules change between EUR 3,000 to 5,000 per enterprise, but these would only be offset by fragmentation reduction if all Member States implemented the soft measures fully and in an aligned way. Obligations to publish and otherwise provide information All actors would incur costs of providing information to interested actors, depending on the number of requests. Ad publishers would have to make one-off data handling and process adaptation costs to obtain and publish the necessary data on the face of the advertisements. These costs may be comparable to costs currently incurred by companies that voluntarily disclose information, estimated at around EUR 10,000 to 15,000 per annum. VLOPs may need to make additional costs to adapt their ad repositories (provided under the DSA). These costs would be offset by the fragmentation reduction savings. Specific measures on targeting Transparency on targeting Soft measures (option 1) and binding measures (option 2) would imply limited additional cost as they complement other transparency requirements. VLOPs and other operators are expected to incur costs to implement national measures in the absence of harmonisation. Limits to targeting of political ads Suboption 1: ban during reference period It is unclear whether the estimated increase in the cost of running online political ads campaigns would result in a reduction in overall activity, or drive activity to different media. VLOPs would incur some compliance cost and potentially foregone revenue. Adtech companies would be limited in their possibilities to provide sophisticated political ads services in the EU during elections periods. This would affect SMEs involved in this aspect of the market (data brokers, consultancies and other intermediaries etc.). Suboption 2: conditional limits at all times VLOPS and ad tech companies administrating the conditional restrictions would make one-off process adaptation costs. Costs under this sub-option would be significantly compensated through the establishment of a common approach. Powers of oversight bodies Powers for national authorities to request information All economic actors could bear some administrative costs, depending on the scope of the powers required and the number of requests. This may be offset against the streamlining of the applicable regimes, and is mitigated by reliance on existing frameworks. Framework to enable the exchange of information The costs of designing and implementing necessary APIs and adapting business processes can be absorbed into the general IT maintenance cycle. SME test It is not possible to fully exempt SMEs from the transparency requirements as they are important actors in political ads. However, some support measures are foreseen, as well as an exemption. SMEs would have the possibility to appoint an external person as contact point. On the basis of a de mimimis threshold, enterprises would not have to conduct annual public reporting. Legal fragmentation in the internal market for political ads services is a significant barrier for SMEs, amounting to prohibitive legal and costs obstacles to such enterprises. SMEs are also more affected by policies established by private sector actors and some Member States which limit the possibility to run campaigns to entities which are established in the Member State where the political ads would be published. Both options foresee changes that would impose one-off costs. The obligation to provide information to the authorities and specific actors (including other enterprises in the value chain) involve an ongoing compliance cost. Support to compliance to transparency requirements should be offered by Member States, professional associations and external consultancies. While the ongoing costs depend on the volume of requests, the one-off costs described affect SMEs proportionately more than other actors. Option 2 offers more opportunities for such costs to be offset by savings resulting from simplification of the rules and the elimination of the need for multiple adaptations when offering services across borders. This would increase cross-border activity in particular for SMEs, which could offer their services to clients outside their Member State of establishment and would have the opportunity to scale up to operate at EU level. The ban on targeting based on sensitive data or specific techniques during reference periods under suboption 1 of option 2 would affect SMEs which process data for political ads purposes just like other economic actors. Suboption 2 is designed to rebalance the impact of limiting targeting for political ads by incentivising high standards of transparency and accountability, also demonstrable to the wider public. Providing a common framework for the legitimate use of targeting in political ads could increase opportunities for SMEs to introduce new services and enter the market. Estimates of costs for obligations addressed to political actors Option 1: Limited amendment to the Regulation 1141/2014 framework Option 2: Extending the Regulation 1141/2014 framework to introduce complementary obligations on EUPPs European parties Obligations on political parties to ensure that political ads are published transparently. The changes in campaigning processes are expected to be offset against reduced compliance risk and increased certainty and possibilities to campaign resulting from greater clarity about obligations similar to audit requirements estimated at around EUR 75,000 to 150,000 annually. National parties Should political parties follow similar transparency obligations to EUPPs’ (following the soft measures), the relevant parties could incur similar costs to the ones described above, proportionate to their own size. Political parties in the EU All parties in the EU are expected to face small additional recurring administrative costs related to complying with the obligations voluntarily acquired through participation in a fair campaigning pledge. There would be respective one-off costs to elaborating the fair campaigning pledge should they wish to make their own.

6.2.1.3.Costs for public authorities of measures a