Alibaba-owned online marketplace AliExpress has been fined €550 million (A$895 million) by the European Union for failing to prevent illegal, unsafe and counterfeit products from being sold on its platform.

The penalty is the largest issued under the EU’s Digital Services Act, exceeding the €200 million (A$325 million) fine imposed on Temu in May and the €120 million penalty handed to Elon Musk’s X last year, while Shein remains under investigation by EU regulators.

The European Commission said AliExpress failed to properly assess and reduce the risks posed by products including counterfeit clothing, unsafe toys and dangerous cosmetics.

Its investigation found AliExpress had insufficient staff reviewing potentially illegal listings and had overestimated the effectiveness of its detection and removal systems.

Some illegal products remained available for weeks after being identified, while the platform’s recommendation and advertising systems promoted non-compliant goods before they were removed.

The Commission also found traders penalised for selling illegal products were able to continue operating, while product compliance checks could be bypassed by placing goods in incorrect categories.

AliExpress’ mandatory brand authorisation system, designed to stop counterfeit products, was described as understaffed and easily circumvented.

“The spread of counterfeit clothing, unsafe toys, dangerous cosmetics and other illegal and harmful products is not an unavoidable cost of shopping online,” EU tech chief Henna Virkkunen said.

AliExpress said it disagreed with the decision and described the fine as disproportionate, arguing that it had invested substantial resources in product safety, consumer protection and risk management. The company said it would appeal.

AliExpress has around 193 million users across Europe, compared with 156 million for Shein and 130 million for Temu.

The company must submit a plan by October 20 outlining how it will address the breaches. Further penalties could be imposed if the European Commission decides its measures do not comply with the Digital Services Act.

The legislation allows regulators to impose fines worth up to 6% of a company’s global annual turnover.