13. The European Union has a significant
role to play in establishing a safe environment in which e-commerce
can flourish, not least because of its legislative role. EC Directives
and regulations, and decisions of the European Court of Justice,
can facilitate or discourage e-commerce and can increase or reduce
the costs of providing cross-border services. Decisions by these
EU institutions are important for three reasons: first, they establish
major elements of the legal framework within which Europe's financial
businesses operate; second, they lay down rules for the cross-border
provision of services within the EU; and, third, they may provide
for common technical standards and standards of consumer protection.
14. There is currently considerable legislative
activity in the European Union which is relevant to e-commerce.
The Electronic Signatures Directive. This
stipulates that an electronic signature cannot be legally discriminated
against solely on the grounds that it is in electronic form and
provides that it can be used as evidence in legal proceedings.
The E-Money Directives. These
allow enterprises issuing electronic money, but which do not wish
to undertake the full range of banking operations, to enjoy the
benefits of being able to operate throughout the Single Market
on the basis of authorisation in one Member State.
The draft E-Commerce Directive. This
applies to all business, not just financial services firms. It
requires Member States to ensure that contracts can be entered
into by electronic means and seeks to prevent them from imposing
their own "e-commerce" requirements on business being
done from another Member State.
The draft Distance Marketing Directive.
The current draft lays down disclosure requirements that would
apply to the distance marketing of financial products and services.
D. THE SPECIFIC
15. The FSA's comments on the particular
issues raised by the Committee are confined to our specific areas
Question 1: What needs to be done to create confidence
and to stimulate e-commerce?
16. Confidence in e-commerce will in the
FSA's view be assisted by the factors outlined in paragraph 13
above. It is important to distinguish between the business-to-business
market (currently by far the largest component of e-commerce)
and the business-to-consumer market.
17. Within the business-to-consumer market,
the question of confidence falls into two categories. The first
is technology-related. (Does the system work? Is it safe? Can
my messages, including payment instructions, be intercepted or
hacked into?) The second covers the global nature of the Internet.
(Does this financial services firm in Seville, Palermo, Lyons
exist? How can I check? What happens if things go wrong?)
18. As regards technology, two kinds of
question are likely to be of particular concern to consumers.
First, is it safe to send money across the Internet? Through its
consumer awareness work, the FSA will explain the relative risks
involved in using the Internet as opposed to other money transmission
systems (post, phone, fax). The Committee will be aware that other
public bodies also have a role to play. Second, can my details,
including credit or debit card details, be hacked into on an authorised
firm's computer? As noted above, the FSA's scrutiny of firms'
systems and controls addresses this issue.
Before deciding whether to seek financial services
over the Internet, the following issues are likely to be particularly
relevant to the consumer:
Can I check whether a financial services
firm is authorised? The FSA's Central Register contains details
of all firms authorised to do financial services business in the
UK. It can be accessed online or by telephone.
Is there an ombudsman scheme? The
UK financial services industry operates ombudsman and arbitration
schemes. When the Financial Services and \Markets Bill comes into
operation there will be a single ombudsman scheme. There is currently
no EU requirement on Member States to establish an ombudsman scheme,
though the Commission is exploring the issue.
If the firm is unable to meet its
liabilities, is there a compensation safety net? There is a compensation
safety net for depositors, investors and policyholders. Within
the EU the Investors Compensation Directive requires Member States
to provide for minimum levels of compensation in the event that
an authorised firm defaults.
Question 2: Does the European Commission's draft
Action Plan "e-Europe: An Information Society for All"
offer a realistic means of promoting e-commerce in the EU?
20. The Commission's draft Action Plan makes
three points that are particularly relevant to e-commerce: first,
the importance of systems for consumer redress; second, the benefits
of developing smart cards, an electronic signature infrastructure,
and common technical standards for payment systems; and, third,
the availability of risk capital for hi-tech small and medium
21. The FSA also welcomes the initiative
launched in the Commission's Financial Services Action Plan for
a Green Paper/Communication on e-commerce and financial services,
which we think will prove a useful vehicle to consider any further
work that may be needed to address outstanding issues and to ensure
that there are no conflicts, duplications or gaps.
Question 3: Will codes of conduct and co-regulation
provide sufficient protection? Is there a case for intervention
by national governments and the EU?
22. In announcing its decision in 1997 to
reform financial regulation in the UK, the Government took the
view that the earlier system, with strong elements of self-regulation,
had failed to provide the required levels of consumer protection.
The FSA believes that it is important for the regulator of such
a key sector as financial services to have express statutory backing
and adequate powers of enforcement. As the same time it strongly
believes in keeping in close touch with the regulated industry
and, as far as possible, regulating with the grain of the market.
23. In the FSA's view, codes of conduct
have their place; they can galvanise industry support for raising
standards across an industry. However, in so far as such codes
are not enforceable, the FSA does not see them as a substitute
for regulatory requirements. Furthermore, codes are not necessarily
easily exportable cross-border, and are not understood, and may
be distrusted, in jurisdictions where they are uncommon.
Question 4: Do the institutions of national governments,
on the one hand, and the European Commission, the Council of Ministers
and the European Parliament, on the other, function with sufficient
flexibility and coherence to promote the EU's objectives in the
field of e-commerce?
24. The FSA is concerned that the length
of time involved in overhauling the EU legislative framework might
mean that even new provisions of setting standards could well
be out of date by the time they are enacted. The FSA believes
that it should be possible for EU institutions to meet the challenge
of speed, transparency and democratic input by the use of so-called
framework directives. These could enable regulators to fill out
the detail, and change it when necessary, in a process which is
itself transparent and open to challenge. Efficient use of comitology
would help, as would the use of experts at the service of the
Commission and the European Parliament.
12 April 2000