Further supplementary memorandum by Reuters
Ltd on the Cross-Border Regulation of Financial Services E-Commerce
1.1 Until recently there has been insufficient
attempt to co-ordinate internationally the regulation of financial
services e-commerce. National regulators have asserted independent
jurisdiction over everything coming in and going out of their
territories thereby causing multiple and inconsistent barriers
for the cross border online supplier. This is an important issue
as financial services e-commerce is one of the key drivers behind
the future development of e-commerce, and is perhaps the most
obvious online sector where the UK, with its traditional leadership
in international financial services, could be expected to dominate.
It is also particularly important to Reuters given our newly-redefined
corporate objective of making financial markets really work on
1.2 In particular, consumer investment activity
is one of the most dynamic forces driving the growth of the Internet
and the Internet is now full of high quality investor relevant
content. The private investor is thereby empowered as never before
as he has access to investor-relevant information previously restricted
to market professionals.
Most ISPs are collating news, stock prices, broker reports, financial
advertising and other types of investor-relevant content in a
bid to attract subscribers by adding value to their products.
1.3 As stated above, the UK, as the global
leader in financial services, has perhaps the most to gain from
this positive development and should therefore seek to be the
leader in e-commerce financial services. However, changing business
models require a similar shift in regulation. At the core of this
shift, must be enhanced co-operation between national regulators
to ensure that cross-border e-commerce is not unnecessarily impeded
by regulatory crossfire.
1.4 This change is needed because national
securities regulation is (a) largely impotent in the face of the
foreign-based transborder fraudster and (b) can constitute a barrier
to the legitimate trader that can be every bit as destructive
as more conventional barriers to trade"we suspect
some barriers are industry protectionism dressed in consumers'
clothing" (Howard Davies, April 1999).
1.5 Essentially, the problem is with the
regulators and not with the regulated:
there are so many of them: they can
now resemble the patchwork of Italian polices forces of former
they are supervising national territories
of decreasing relevance as financial markets themselves internationalise;
they rarely have confidence in each
other's regulatory abilities and, except within the EU where progress
is now being made under the auspices of the Forum of European
Securities Commissions, pay little more than lip service to co-ordinating
1.6 We believe there is a need for a new
International Regulatory Paradigm in which national financial
learn to trust and to co-operate
with one another; and
accept exclusive "home state"
supervision of firms from countries with an acceptable level of
supervision (USA, Canada, Australia, New Zealand etc.) doing business
in their territories. In short, we would like to see the pioneering
country of origin regulatory formula in the recently-adopted E-Commerce
Directive extended outside the EU to a select group of countries.
This should be supported by cheap and transparent crossborder
alternative dispute mechanisms. Service suppliers in countries
without the benefits of mutual recognition will consequently be
at a competitive disadvantage to suppliers in countries that do,
and will therefore pressure their governments to improve their
regulation, resulting in a general increase in standards.
2. PROBLEMS WITH
2.1 Given the opportunity for the UK to
become a global leader in online financial services, it was of
great disappointment to Reuters that two successive Treasury consultation
papers on financial promotion proposed that the UK should have
regulatory control over any financial advertising "capable
of" having an effect in the UK. This impracticably wide jurisdictional
stance was narrowed down in draft secondary legislation to a "directed
at" "country of reception" approach, but remained
unsatisfactory for several reasons:
"Country of reception"
goes against the "country of origin" position now accepted
in the EU E-Commerce Directive and will therefore continue to
cause duplication and inconsistencies for cross-border online
providers of financial services.
If other countries adopt similar
"country of reception" approaches, UK online service
providers will be exposed to multiple and inconsistent regulation.
Several EU member states France, Germany, Italy, and the
Netherlandshave all published separate and inconsistent
regulations over crossborder promotions: what hope is there for
an EU Single Market?!
Having primary and secondary legislation
take conflicting jurisdictional approaches will confuse and possible
deter overseas online companies supplying into the UK.
2.2 We are pleased that the latest draft
of the ESMB has been amended to provide for the UK to enable the
UK to modify this position in the future, and we now understand
that HMT will introduce country of origin regulation for financial
promotions emanating from within the EU once the E-Commerce Directive
comes into force. Looking forward we urge HMG, perhaps via the
EU, to make this change as soon as possible, and to lead international
negotiations in agreeing mutual recognition with a small group
of countries that have adequate standards of supervision.
3. HOW TO
3.1 It would appear that the Treasury's
initial proposals on financial promotion were partly unfriendly
to e-commerce because HMT may not have made sufficient efforts
to inform itself about e-commerce developments being led by DTI
who had been negotiatingand strongly supportingthe
country of origin principles of the e-Commerce Directive. Given
that online financial services is the only area of e-commerce
not driven by the DTI or E-Envoy's office, we are pleased to note
that co-ordination between the three departments has improved
significantly since the first Treasury draft and we hope this
will be reflected in the expected third re-draft of the secondary
legislation on financial promotion.
3.2 The forthcoming Commission Communication
on financial services e-commerce expected later this year will
hopefully provide welcome support for the e-Commerce Directive's
country of origin principle to be extended to all financial services.
3.3 Greater use of the newly extended EU
Transparency Directive (Directive 98/48/EC)which requires
all proposed national legislation that affects Information Society
services (including most financial services e-commerce) to be
notified to the Commission and other Member States for commentshould
ensure that HMT and other government department measures relating
to e-commerce are well thought out in the future to avoid being
delayed under the scrutiny mechanisms of the Transparency Directive.
3.4 See 1.5 above for our belief that a
new regulatory paradigm is required.
We should be pleased to provide further written
information if that would be helpful.
17 May 2000
8 This is a point Laura Unger, a US Securities and
Exchange Commissioner, recognised in a speech last year on the
regulatory challenges presented by online financial services (available
at http://www.sec.gov/pdf/cybrtrnd.pdf). Back
We also note that the International Organisation of Securities
Commissions (IOSCO) is meeting this week on the theme of Global
Markets, Global Regulation. Back