Hello and Welcome back to the Pinsent Masons podcast, where we keep you up to date with the very latest in global business law every second Tuesday.

I'm Matthew Magee, I'm a journalist here at Pinsent Masons and this week we've got a bit of an EU special where we look at two sides of ambitious plans that could help to reshape the economy and society. We'll look at plans to keep kids safe online and proposals to help the EU direct funds and business towards companies based there. My question in each case is the same. Are the plans even feasible? But first, here's some business law news from around the world.

EU data centre rating plans signal greater scrutiny of AI infrastructure sustainability.

UAE allows central bank licensed financial institutions to enter virtual asset market and UK government green lights new family bereavement and pregnancy loss rights.

The European commission's plans for a common rating system for data centres highlight how policy makers are scrutinising the environmental impact of the infrastructure underpinning Europe's digital economy and the rapid expansion of artificial intelligence, an expert has said.

The Commission wants big data centres to be rated against sustainability criteria, including energy and water consumption, waste heat recovery, clean energy generation and their contribution to grid flexibility. The proposal comes as the EU seeks to triple its data centre capacity over the next five to seven years, balancing the need for computer power that's within Europe's control with the pressure data centres place on power and water networks.

Sustainability expert Hayden Morgan said policy makers are increasingly focused not only on the benefits of AI and digitalisation, but on the physical infrastructure that makes it possible for data centre operators and the major technology companies that rely on them, questions around energy efficiency, carbon intensity and grid integration are becoming strategic business issues rather than purely technical considerations.

The United Arab Emirates has opened the door for almost all financial institutions licensed by the Central Bank of the UAE to enter the virtual asset market under a new regulatory resolution. Central Bank licensed entities are now permitted to conduct activities covered by the resolution on virtual asset service providers and alternative trading system operators. Insurance companies are the sole exception. Companies previously needed to have separate entities for traditional and virtual asset activity.

Financial regulation expert Marie Chowdhry said that meant two sets of capital requirements, two governance structures and a flow of funds designed around a regulatory boundary rather than around the customer. In principle, the resolution makes it possible for one entity to do both, which would take real costs and complexity out of future operating models.

The UK Government has confirmed it will extend day one employee bereavement and pregnancy loss rights from next April. The changes will give more people a legal right to take time off work after suffering a bereavement or pregnancy loss, in another shake up to employment rights. Effective from next April, employees who lose a spouse, partner, parent, adult, child or sibling will be entitled to take two weeks unpaid leave, calculated according to their normal working pattern. These will be statutory day one rights applicable from the first day of employment and extend to cover step and half relatives as well as foster, kinship care and adoptive relationships. Previously, only parents who had suffered the loss of a child under 18 or a stillbirth after 24 weeks of pregnancy had a legal right to bereavement leave.

The European Commission has proposed sweeping new rules to protect children online that could fundamentally reshape how social media and video sharing companies operate. We know from successful past regulation on contentious issues such as privacy or sanctions that the EU is capable of creating a standard that much of the world follows. So how big a change is ahead?

Before London-based technology law expert Lauro Fava got into that, he told me why regulation is happening on this scale at all. And it's all to do with pressure on national governments from voters.

Lauro Fava: So Member States shouldn't technically, are not allowed to introduce measures on platforms above and beyond those already contained in the Digital Services Act and so Member States were trying to get around this issue by, for example, banning the minors themselves from accessing platforms or introducing criminal liability on executives for what happens on the platform because they couldn't directly regulate the platform themselves and they were doing this because they felt like they couldn't wait for the Commission to act and the Commission has finally come up with this proposal. It doesn't mean that these Member States will not still go ahead and introduce some of their measures because the EU doesn't move quickly. And so, it will probably take a couple of years for this to turn into law, and I think a number of Member States will feel that the pressure on them to act is too much to wait that long.

Matthew Magee: Parents are then calling for action and national governments are responding with their own plans. So what has the EU proposed to try and get ahead of this? The big headline grabber has been the three-tiered approach to access to content and platforms by age.

Lauro: Primarily, it creates a tiered approach to accessing social media and video sharing platforms. So as a basic rule, the default rule would be that social networks and video sharing platforms cannot allow under fifteens to create an account with their service. It's not any and all social networks and video sharing platforms, it's ones that pose a risk to the privacy, safety and security of minors. That's the basic rule. Then you have two exceptions. Children between the age of 13 and 15 may be allowed to create an account on both social networks and video sharing platforms if they have consent, if they're authorised to do so by a guardian. These are sort of mini accounts that you don't get full access to the entirety of the platform. The next tier then is under thirteens can be given access to a video sharing platform, which is specifically designed for minors. And it's not just with the permission of the parents at this time; it's using a guardian's account. So the under 13 year old wouldn't be able to create their own account. I think what the law is actually envisaging is the guardian being able to create some sort of sub accounts or restricted mode where they select what videos the child can watch or what channels the child can follow and the child will only have access to those.

Matthew: The rules don't formally apply to all social media platforms, only those that are deemed to be potentially harmful to children. The Commission has set out what the characteristics of those are. They're ones that use infinite scrolling, notifications to those who've stopped using the service, incentives to stay on the service and algorithmic recommendations. That sounds like most social media platforms. But that isn't all. The EU also proposes changes to how apps work to make them safer for children to use. But age changes aren't the whole plan. The EU also proposes changes to how apps actually work to make them safer for children to use.

Lauro: You have another big chunk of the proposal which deals with safety by design and that is an obligation on all providers that are in scope of the Act, also including video games and AI companions, general conversational chatbots. It's quite a wide scope. All of those have an obligation to implement safety measures by default, and that will include things such as not having infinite scroll, not having autoplay turned on, having recommender systems defaulted to using preferences which are expressly indicated by the user as opposed to inferences, or blocking notifications from being sent at a certain time during school time, for example, or at night.

Matthew: So far so admirable, but there are some pretty serious practical considerations, as you would imagine there would be if you were trying to change the behaviour of a huge global industry. Lauro says that the kind of age verification proposed is possible, but will require independent infrastructure that isn't there yet, and the proof that you are someone's parent or guardian might not be possible at all.

Lauro: The proposal says that any age assurance solution should be zero knowledge proof, which means that the provider of the service to whom you're proving your age shouldn't be able to find out your identity or your exact date of birth. Which is nice in theory because its very privacy preserving in the sense that the provider of the service will not be able to see your exact date of birth and your other identification details. But the reality is that this requires significant infrastructure. You need various third parties issuing attestations of someone's age. You need middlemen who run the infrastructure for apps to receive that attestation and issue tokens that you can share with providers. So, it's an entire ecosystem that is being created, but it's just not there yet. Currently, there is no way to reliably verify that parent or guardian actually has parental authority over the child. So if someone comes onto a service and says yes, I approve this 14-year-old to create an account, there's no reliable way to be sure that that is actually a guardian who has authority to give that authorisation. Parental authority is something that's governed by the law of individual countries and there are significant variations between those laws. And you may also have various different sources of parental authority. So, you can have parental authority that's derived from a court decision, parental authority that's derived from the law, parental authority that has been agreed by contract. And you can have parental authority that's split as well. So, for example, two parents who have divorced maintaining joint responsibility for certain decisions, but one of them having full control over some other aspect of parental authority. And for a platform to be able to verify that at a distance it's close to impossible.

Matthew: This is our first proposal, and Lauro says that it at least brings together quite divergent national approaches, which would be a headache for companies to navigate. But he says it still leaves providers with a whole lot of uncertainty.

Lauro: We're finally starting to see some convergence. Until now, it's been very fragmented. The approaches have been very different from each other. The EU proposal seems to be bringing together a number of threads from different approaches and creating, it's the first time we're seeing what a harmonised framework could potentially look like. One thing that it says is that, for example, social networks have to verify the age of their users within six months from when it comes into force. It provides some very short time frames. And so, the expectation is that once this is eventually agreed between the Parliament, the Council and the Commission, the law will be issued, and the obligations will start biting very soon after. In the meantime, I think we can still expect to see various Member States issuing their own laws and providers of affected services having to comply with those laws in the interim. So, they might have to implement one set of measures today, knowing that in a year and a half, two years' time, they're going to have to apply something completely different. This is still a proposal, it's still subject to change. There are many aspects which are controversial, especially the impact that this will have on freedom of expression of children themselves and of adults, for example. This isn't necessarily what the law will ultimately look like, but the law will come. And so, providers currently will be in a state of uncertainty, knowing that very impactful law is coming their way, but they can't begin to guess what it's going to require them to do just yet.

Matthew: In recent years, the trend in trade, as in politics, has been more protectionist and nativist than in the multilateral leaning past few decades. And now Europe is joining in. Europe is growing increasingly worried about its position in the world when it comes to business, a seemingly declining position in international trade and manufacturing at a time when global stability is in decline, has administrators at the European Commission worried. Ex-Italian Prime Minister and former head of the European Central Bank Mario Draghi laid it all out in an influential report in 2024, warning of an existential threat facing the EU if it can't stop the stagnation it has seen in economic growth.

Last year, European Commission President Ursula von der Leyen promised policies and actions to tackle this and we're now seeing the fruits of that with a proposed new Public Procurement Act and Industrial Accelerator Act. These have been characterised as a Made in Europe agenda under rhetoric about competitiveness, national security, critical industries and security of supply. Europe wants to change the rules so that it can favour European companies, but London-based trade expert Totis Kotsonis says that it might not be that easy. But first, he told me what the planned new laws will actually do.

Totis Kotsonis: This ‘made in Europe’ initiative is all about seeking to allow European industry in certain key sectors to flourish by focusing on certain strategic sectors. For example, energy intensive industries, concrete, mortar, aluminium, using buildings, infrastructure or vehicles, net zero technologies, batteries, battery energy storage, solar PVs, heat pumps, wind power, automotive industry. All these areas have been identified as areas that are strategic to the EU and where the EU industry is losing out to competition. So, the idea is that in relation to these requirements in these industries, when there is a public procurement or whether there is a need for subsidies, there will be prioritised European companies. If you have a supply chain which is European, you're more likely to get the subsidies and certain procurements. The competitions would be limited, or the theory goes, to only European suppliers.

Matthew: The trouble, says Totis Kotsonis, is that Europe is caught up in a complex wave of multilateral deals and agreements aimed at preventing exactly these impulses to give preference to native companies.

Totis: Now, that is not an easy thing to do because Europe has international law obligations. So, the idea that you can discriminate against other countries, it's interesting, but only possible up to a point. And this is where it gets really controversial because the EU has commitments with a number of jurisdictions, including the UK and India, Canada and Japan and a number of other countries not to do that. We have a thing called, for example, the plurilateral Agreement on Government contracts, which is a WTO agreement which only certain WTO countries have signed, but nonetheless signatories have committed to allowing access to the public procurement markets to suppliers of other signatory countries. So how can you adopt this Made in Europe policy and not allow Japan or UK or Canadian or indeed American suppliers to compete in relation to these contracts?

Matthew: The plans are far from final, but Totis Kotsonis says it's already pretty clear how Europe will try to reconcile the ambitions of these new laws with the constraints of the old ones. He said that the Commission would recognise the existing rights of trading partners such as the UK, US, Japan and Australia. But…

Totis: But the Commission would have the right to, in certain circumstances, go one step below that and say no, we have the right to discriminate because, for example, a particular country has not complied with its own commitments towards us. Or indeed we're taking the view that one of the exemptions which is available under a particular treaty has been made out. Or, and this is a more controversial bit, it is whether the European Commission considers that exclusion of supplies from other countries is justifiable to avoid dependencies or other developments that may threaten the security of supply in the European Union of the products in question. Now this is the trickier bit because you scratch your head and think, hang on, where does it say that security of supply is an acceptable exemption from international law commitments? There is an argument that it might be, but strictly speaking it isn't, and it's difficult to make that assertion without you being challenged.

Matthew: The plans come amid a growing move away from open trade borders and open markets. So, I asked Totis Kotsonis, is this just a case of the EU saying if the US and China can do this, why can't we?

Totis: Yeah. I think that that is certainly part of the thinking process, if you like, because there have been concerns for a long, long time that others are not playing with the same rules, if you like, or they are more readily likely to interpret international obligations in a more flexible manner. And I think you're right, Europeans are now saying, well, unless we adopt also a more flexible interpretation of those rules, what do we do? We continue to face competition from the likes of China and others. And we're losing out. Our industry is losing out. Effectively, the EU has to rely on a more flexible interpretation of these sort of exemptions that exist under international treaties or indeed in the bilateral trade agreements. Now again, that is interesting, but it takes you to create a different set up, if you like, because the international trade rules have been based on the understanding that exemptions are interpreted narrowly. And indeed, when other signatories of WTO agreements have sought to interpret their rules more flexibly, others, including the EU and the UK, have cried foul.

Matthew: There will be changes and challenges to the proposed new laws for sure, but in terms of the impact on individual companies, Totis Kotsonis is clear. It will pay to be European.

Totis: Now obviously if you are a UK supplier that is different because already UK suppliers have expressed concern, for example, that they will be left out and they will lose out if this initiative and other similar initiatives could go ahead. It's been actually quite regular since the summer that reports, that the UK has been lobbying hard the European Commission not to penalise UK companies in relation to these initiatives and indeed to be absolutely clear that ‘made in Europe’ means also made in the UK. Well, if you are a European company, it's hurrah, hurrah, isn't it? European companies have been vociferous in expressing their frustrations, sometimes in relation to what they perceive as unfair competition from outside the Union. They have been complaining and lots of them have been complaining. A lot of industries have been complaining that it makes it more difficult for them to continue to provide, to remain on the market, on markets, on the internal market, right. So I think as far as they're concerned, they will welcome all this. And whether you welcome or not this initiative depends on whether you're European or non-European.

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The Pinsent Masons Podcast was produced and presented by Matthew Magee for international law firm Pinsent Masons.