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Session 1999-2000 Publications on the internet Other Bills before Parliament Arrangement of Clauses (Contents)

Electronic Communications Bill

These notes refer to the Electronic Communications Bill as introduced in the House of Commons on 18th November 1999 [Bill 4] Electronic Communications Bill EXPLANATORY NOTES INTRODUCTION 1. These explanatory notes relate to the Electronic Communications Bill as introduced in the House of Commons on 18 November 1999. They have been prepared by the Department of Trade and Industry in order to assist the reader of the Bill and to help inform debate on it. They do not form part of the Bill and have not been endorsed by Parliament. 2. The notes need to be read in conjunction with the Bill. They are not, and are not meant to be, a comprehensive description of the Bill. So where a clause or part of a clause does not seem to require any explanation or comment, none is given. BACKGROUND 3. The Government's policy is to facilitate electronic commerce. It has also set itself targets for making Government services available electronically: 25% by 2002, 50% by 2005 and 100% by 2008. The Government has also set a target for 90% of its routine procurement of goods to be done electronically by 2001. 4. The Government's general policy towards electronic communications and information technology is set out in: the Performance and Innovation Report "e-commerce@its.best.uk" published in September 1999 (available on the Cabinet Office website at: www.cabinet-office.gov.uk/innovation/1999/ecommerce); the Modernising Government White Paper (Cm 4310) published in March 1999 (available on the Cabinet Office website: www.cabinet-office.gov.uk/ moderngov/1999/whitepaper/index.htm); the Competitiveness White Paper (Cm 4176) published in December 1998 (available on the DTI website: www.dti.gov.uk/com/competitive); and the Government's policy statement "Our Information Age: The Government's Vision" (URN 98/677; 4-98) (a summary can be found on the Number 10 website: www.number-10.gov.uk/public/info/index.html). 5. Cryptography and electronic signatures are important elements for electronic transactions. Cryptography is the science of codes and ciphers. Cryptography has long been applied by banks and is an essential tool for electronic commerce. Cryptography can be used as the basis of an electronic signature. Encryption is the process of turning normal text into a series of letters and/or numbers which can only be deciphered by someone who has the correct password or key. Encryption is used to prevent others reading confidential, private or commercial data (for example an e-mail sent over the internet or a file stored on floppy disk). An electronic signature is something associated with an electronic document that performs similar functions to a manual signature. It can be used to give the recipient confirmation that the communication comes from whom it purports to come from ("authenticity"). Another important use of electronic signatures is establishing that the communication has not been tampered with ("integrity"). Public key cryptography is a type of cryptography that uses two distinct, but related, keys (known as a key pair): one key for "locking" a document, and a separate key for "unlocking" it. These keys are both large numbers with special mathematical properties. Public key cryptography can be used to provide an electronic signature: the private key (which is only known to its owner) is used as the "lock" to transform the data, by scrambling the information contained in it. The transformed data is the electronic signature, which can be verified by "unlocking" it with the public key of the person who signed it. Anyone with access to the public key can check the signature, so verifying that it was signed by someone with access to the private key and also verifying the content of the document. Public key cryptography can also be used to keep a communication secret: in this case the keys are used the other way round. The person sending the message would use the public key of the intended recipient to "lock" the message. Now only the corresponding private key can be used to "unlock" the message. This is what the intended recipient would use to read it. A third party would not be able to read the message without access to the intended recipient's private key. 6. Various organisations provide cryptography services, including certifying the public key of an individual. There is a need for the public to be able to have confidence that these services are secure and not open to fraud; and for people to be free from unnecessary restrictions in their use of new technology. 7. The main purpose of the Bill is to help build confidence in electronic commerce and the technology underlying it by providing for: an approvals scheme for businesses and other organisations providing cryptography services, such as electronic signature services and confidentiality services; the legal recognition of electronic signatures; and the removal of obstacles in other legislation to the use of electronic communication and storage in place of paper. 8. The Bill also contains provisions to update procedures for modifying telecommunications licences. 9. The Bill is in three parts. Part I, Cryptography Service Providers. This concerns the arrangements for registering providers of cryptography support services, such as electronic signature services and confidentiality services. Part II, Facilitation of Electronic Commerce, Data Storage etc. This makes provision for the legal recognition of electronic signatures. It will also facilitate the use of electronic communications or electronic storage of information, as an alternative to traditional means of communication or storage. Part III, Miscellaneous and Supplemental. This Part amends section 12 of the Telecommunications Act 1984 and inserts new sections (12A and 12B) into that Act. The proposed new provisions are concerned with the modification of telecommunication licences otherwise than in pursuance of a reference to the Competition Commission. This Part also concerns matters such as general interpretation, the short title, commencement and territorial extent of this Bill. CONSULTATION Parts I and II 10. The first consultation on most of the matters covered by Parts I and II was undertaken by the previous administration in March 1997. 11. The Government announced its response to that consultation, and its policy on the provision of cryptography services, in a parliamentary statement by Mrs Barbara Roche, then Parliamentary Under Secretary of State at the Department of Trade and Industry, on 27 April 1998 (Hansard, HoC, column 27; available on the Parliament website at www.parliament.uk/commons.htm). 12. A broader consultation - "Building Confidence in Electronic Commerce: A Consultation Document" (URN 99/642) (available on the DTI website at www.dti.gov.uk/cii/elec/elec_com.html) - was launched on 5 March 1999. A summary of the responses to this consultation (URN 99/891) is available on the DTI website at www.dti.gov.uk/cii/elec/conrep.html 13. The Trade and Industry Select Committee of the House of Commons published a report on the matters covered by the consultation document on 18 May 1999 ("Building Confidence in Electronic Commerce: The Government's Proposals", HC 187; available on the Parliament website at www.parliament.uk/commons/ selcom/t&ihome.htm). 14. A draft of the Electronic Communications Bill was published as part of a consultation on 23 July 1999 in the document "Promoting Electronic Commerce" (Cm 4417) available on the DTI website at: www.dti.gov.uk/cii/elec/ecbill.html. This document also contained the Government's response to the Trade and Industry Select Committee report. A summary of the responses to this consultation (URN 99/1218) is also available on the DTI website. 15. On 3 November 1999, the Trade and Industry Select Committee of the House of Commons published a report on the draft Electronic Communications Bill (HC 862, also available on the Parliament website). Part III 16. There have been three formal consultations on the revised licence modification procedure provided for in Part III of the Bill. The first, "Licence Modification Procedure: Proposed Changes to the Telecommunications Act 1984" (URN 98/1049), was issued in May 1998; the second, "Licence Modification Procedure: Updated Proposals for Changes to the Telecommunications Act 1984" (URN 99/945), in March 1999 (available on the DTI website at www.dti.gov.uk/telecom/teleprop.htm). The third was undertaken as part of the consultation on the draft Electronic Communications Bill. 17. Responses to all these consultation exercises have contributed to the measures set out in the Bill. THE INTERNATIONAL CONTEXT 18. This Bill is consistent with the draft EU Electronic Signatures Directive, which is intended to harmonise the legal acceptance of certain electronic signatures throughout the European Union. A common position on the directive was reached in Council in April 1999 and it is expected to be adopted by the end of 1999 following the second reading in the European Parliament in October 1999. It is also compatible with the Cryptography Guidelines, published by the Organisation for Economic Co-operation and Development (OECD) on 19 March 97 (available on the OECD website at: www.oecd.org/subject/e_commerce), and the United Nations Commission on International Trade Law's (UNCITRAL) Model Law on Electronic Commerce (available on the UN website at: www.un.or.at/uncitral/english/texts/electcom/ml-ec.htm). 19. The broad aim of the Bill, facilitating electronic commerce, is similar to that of the draft EU Directive on Certain Legal Aspects of Electronic Commerce in the Internal Market, which seeks to remove barriers to the development of electronic commerce in the internal market, but there is no overlap in the detailed provisions. The main areas addressed in the proposed directive are simplifying and clarifying rules of establishment, ensuring consistency in approaches to commercial communications such as definitions of advertising, ensuring legal validity of electronic contracts and clarifying the liability issues of intermediaries. COMMENTARY ON CLAUSES Part I Cryptography Service Providers Clause 1: Register of approved providers 20. This Clause places a duty on the Secretary of State to establish and maintain a register of approved providers of cryptography support services, and specifies what information is to be contained in the register. The Clause also requires the Secretary of State to make arrangements for the public to have access to the register and for any changes to the information in the register to be publicised. cryptography support services are defined in Clause 6. 21. The main purpose of the register is to ensure that providers on the register have been independently assessed against particular standards of quality, in order to encourage the use of their services, and hence the development of electronic commerce and electronic communication with Government. 22. Where two people are communicating electronically, it may be necessary for one person to rely on the services provided to the other: for example, where the first person receives a communication which purports to have been signed electronically by the other. a definition of electronic signature is given in Clause 7(2). 23. The register is voluntary: no provider is obliged to apply for approval and a provider who is not on the register is at liberty to provide cryptography services. Clause 2: Arrangements for the grant of approvals 24. This Clause places a duty on the Secretary of State to ensure that there are arrangements in force for granting approval, handling complaints and disputes and modifying or withdrawing approval. 25. Subsection (1) places a duty on the Secretary of State to ensure that there are arrangements for granting approvals for any person providing, or proposing to provide, cryptography support services in the United Kingdom, and applying to be approved. The provision of cryptography support services in the United Kingdom is described in Clause 6. 26. Subsection (2) sets out what the arrangements for approvals are to achieve. 27. Subsection (3) says what the Secretary of State must be satisfied about in order to grant an approval. The Secretary of State is given the power to set requirements (e.g. relating to the technology provided, to the person himself and his background and experience, and the way he provides the technology to the public) by regulation, and also to impose conditions on the approval. The Secretary of State must also be satisfied that the person is fit and proper to be approved. Relevant factors include any known contraventions of provisions of this legislation, and convictions for offences involving fraud or dishonesty, or engaging in discriminatory practices, or engaging in deceitful, oppressive, unfair or improper business practices. 28. Subsection (4) allows for regulations made by virtue of subsection (3)(a) or (b) to frame the requirement for compliance with these requirements by reference to the opinion of a person specified, either in the regulations or chosen in a manner set out in the regulations. 29. Subsection (5) specifies the nature of the requirements which may be imposed as conditions of an approval, subject to the limits in subsection (6). 30. Subsection (7) provides for the enforcement of any requirement to provide information imposed by the conditions of an approval, by the Secretary of State in civil proceedings. 31. Subsections (8) and (9) make provision about the payment of fees. 32. The arrangements for approvals, outlined above, envisage providers requesting approval for one, or a number, of different cryptography support services. The granting of such an approval would depend on the applicant meeting the conditions specified in the relevant regulations. Clause 3: Delegation of approval functions 33. This Clause enables the Secretary of State to delegate the approvals functions set out in Clauses 1 and 2 to any person. Subsection (4) provides that where the functions are delegated to a statutory body or office holder, the statutes relating to their original functions shall be modified to include the new functions so delegated. Subsection (6) provides that the order required to do this will be subject to affirmative resolution procedure in both Houses of Parliament. Clause 4: Restrictions on disclosure of information 34. This Clause protects certain information obtained under Part I, sets out the purposes for which it may be disclosed (e.g. in order to carry out the approvals functions, for a criminal investigation or for those civil proceedings specified in subsection (2)(e)) and makes improper disclosure a criminal offence. It safeguards individual privacy and commercially confidential information, except where disclosure is desirable. 35. There is no restriction on who may make the disclosure or to whom it may be made, provided that the purpose is proper. Clause 5: Regulations under Part I 36. This Clause makes further provision relating to the regulations the Secretary of State may make under Part I and contains standard provisions commonly accorded to powers to make subordinate legislation, such as an ability to make supplementary provision. The regulations will be subject to negative resolution procedure in both Houses of Parliament. prescribed is defined in this Part as meaning prescribed by regulations made by the Secretary of State, or determined in such a manner as may be provided for in any such regulations. Clause 6: Provision of cryptography support services 37. This Clause provides for the interpretation of various terms used in Part I of the Bill. The cryptography support services that may be approved under the arrangements described above are defined to include those relating to: confidentiality, i.e. securing that such electronic communications or data can be accessed, or can be put into an intelligible form (defined in Clause 14(3)), only by certain persons; securing that the authenticity or integrity (both defined in Clause 14) of electronic communications or data is capable of being ascertained, i.e. relating to an electronic signature. 38. Subsection (2) makes it clear that the approval scheme for cryptography support services includes only those services that primarily involve a continuing relationship between the supplier of the service and the customer. The scheme is not intended to cover the supply of an item (whether software or hardware) unless such supply is only intended to be incidental to the provision of the cryptography support service. 39. Subsection (3) sets out what is meant by cryptography support services being provided in the United Kingdom. 40. Cryptography support services, falling within the scope of this Clause, would include registration and certification in relation to certificates, time-stamping of certificates or documents, key generation and management, key-storage and providing directories of certificates. Part II Facilitation of electronic commerce, data storage, etc. Clause 7: Electronic signatures and related certificates 41. This Clause provides for the admissibility of electronic signatures and related certificates in legal proceedings. 42. It will be for the court to decide in a particular case whether an electronic signature has been correctly used and what weight it should be given (e.g. in relation to the authentication or integrity of a message) against other evidence. Some businesses have contracted with each other about how they are to treat each other's electronic communications. Clause 7 does not cast any doubt on such arrangements. 43. Subsection (1) allows an electronic signature, or its certification, to be admissible as evidence in respect of any question regarding the authenticity or integrity of an electronic communication or data. Authenticity and integrity are both defined in Clause 14(2): references to the authenticity of any communication or data are references to any one or more of the following- (i) whether the communication or data comes from a particular person or other source; (ii) whether it is accurately timed and dated; (iii) whether it is intended to have legal effect. references to the integrity of any communication or data are references to whether there has been any tampering with or other modification of the communication or data. 44. Subsection (2) defines an electronic signature for the purposes of the Clause. 45. Subsection (3) explains what is meant by certified in this context. Clause 8: Power to modify legislation 46. This power is designed to remove restrictions arising from other legislation which prevent the use of electronic communications or storage in place of paper, and to enable the use of electronic communications or storage of electronic data to be regulated where it is already allowed. The power can be used selectively to offer the electronic alternative to those who want it. 47. There is a large number of provisions in statutes on many different topics which require the use of paper or might be interpreted to require this. Many of these cases involve communication with Government Departments by businesses or individuals - including submitting information or applying for licences or permits. Other cases concern communications between businesses and individuals, where there is a statutory requirement that the communication should be on paper. The power can be used in any of these cases, and is not limited to the provision of written information: document is defined in Clause 14(1) to include a map, plan, design, drawing, picture or other image; communication is defined in Clause 14(1) to include a communication comprising sounds or images or both and a communication effecting a payment. 48. Some examples of the way in which the power could be used relate to the Companies Act 1985. On 5 March 1999 the DTI consulted about whether the Act should be changed to enable companies to use electronic means to deliver company communications, to receive shareholder proxy and voting instructions and to incorporate. The consultation letter "Electronic Communication: Change To The Companies Act 1985" is available from DTI's Company Law and Investigations Directorate, telephone 0207 215 0409. 49. There are, by contrast, many communications where paper is not currently required by law - for example the vast majority of contracts fall into this category. People will remain free to undertake transactions of this kind using whatever form of communication they wish. 50. Subsection (1) gives the appropriate Minister the power to modify, by order made by statutory instrument, the provisions of any enactment or subordinate legislation, or instruments made under such legislation, for which he is responsible. He may authorise or facilitate the use of electronic communications or electronic storage (instead of other methods of communication or storage) for any purpose mentioned in subsection (2). This power is limited by subsection (3) which places a duty on the Minister not to make such an order unless he considers that authorising the option of electronic communication or storage will not result in arrangements for record-keeping that are less satisfactory than before. It is also limited by subsection (6). enactment is defined in Clause 14 and includes future legislation; record is defined in Clause 14 to include an electronic record; The appropriate Minister is defined in Clause 9 (1). 51. Subsection (2) describes the purposes for which modification by an order may be made. 52. Subsection (4) specifies the types of requirement about electronic communications or the use of electronic storage that may be provided for in an order under this Clause. 53. Subsection (6) provides that an order under this Clause cannot require the use of electronic communications or electronic storage. However, when someone has previously chosen the electronic option, the variation or withdrawal of such a choice may be subject to a period of notice specified in the order. 54. Subsection (7) provides that this Clause does not apply to matters under the care and management of the Commissioners of Inland Revenue or the Commissioners of Customs and Excise. Such matters are already covered in sections 132 and 133 of the Finance Act 1999. Clause 9: Supplemental provision about Clause 8 orders 55. This Clause sets out supplementary provisions relating to orders made under Clause 8 and contains standard provisions commonly accorded to powers to make subordinate legislation, such as an ability to make supplementary provision. 56. Subsections (3) and (4) provide that the regulations made under Clause 8 will be subject to a choice of either affirmative or negative resolution procedure in both Houses of Parliament. The Government intends to use affirmative resolution at least for the first order, so that the general principles can be debated. Section (7) provides for the power to be exercised by the Scottish Ministers, with the consent of the appropriate Minister, in Scotland. Scottish legislation is brought within the ambit of the power by virtue of the definitions of enactment and subordinate legislation in Clause 14. Part III Miscellaneous and supplemental Clause 10: Modification of licences by the Director 57. The EC Telecommunications Services Licensing Directive (97/13/EC) requires licensing for telecommunications to be non-discriminatory. In practice this means that modifications usually need to be made to all licences of a particular type at the same time. However, the current licence modification procedure, as detailed under section 12 of the Telecommunications Act 1984, requires the Director General of Telecommunications (DGT) to obtain the written consent of an individual licence holder if he wishes to proceed with a modification without reference to the Competition Commission (CC). Thus if the DGT wishes to make a licence modification without reference to the CC, he must now obtain written consent from all those whose licences are to be modified. Given that there are a large number of individual licensees - over 400 - gaining this consent is an unduly difficult requirement. For example, some licensees may feel they have insufficient interest to bother to answer the DGT's letter. This could lead to licences becoming silted up with out of date requirements, as well as preventing the DGT from responding appropriately to new developments. 58. Clause 10 accordingly provides for the procedure for modifying telecommunications licences to allow for simultaneous modification of many licences. It aims to provide more responsive regulation and easier deregulation, while recognising the need for any new obligations facing substantial opposition to be examined by the CC. In particular, the Clause would enable the DGT to proceed without reference to the CC in cases where a proposed modification has general, but not unanimous, support or is deregulatory. 59. The Clause operates by making modifications to the existing section 12 of the Telecommunications Act 1984 (the 1984 Act) (which sets out the procedure for making modifications) and inserting a new section 12A (setting out the criteria for making modifications). 60. Subsection (1) provides that notice of modification, in addition to its being published, must be given to every "relevant licensee" (defined in the new section 12(6E), inserted by subsection (3)). 61. Subsection (2) replaces section 12(4) of the Telecommunications Act 1984 with two new subsections (4A) and (4B). Subsection (4A) provides that class licences (i.e. general authorisations, which are deemed to be granted to all those within a particular "class of persons" - e.g. every person in the UK - normally with no fee or registration involved) may be modified despite outstanding representations, provided that no objections come from persons benefiting from the class licence. Subsection (4B) paves the way for the criteria in Clause 12A which must be satisfied before a modification is made in the case of a licence granted to a particular person. 62. Subsection (3) inserts six new subsections in section 12 of the 1984 Act: Subsections (6A) and (6B), requiring the reasons for the making of a licence modification to be published. Subsection (6C), enabling the DGT to publish the names of companies objecting to a modification, without their consent, and to publish non-confidential details of objections and representations received. Subsections (6D) and (6E), which provide definitions. Subsection (6F) which makes clear that this procedure does not apply if a licence is modified by revocation and reissue. 63. Subsection (4) inserts a new section 12A into the 1984 Act, which sets out the criteria for modifications to be made. This is illustrated in the flow-chart below. Subsection 12A(5) provides that the modification may be made to licences issued since the making of a proposal for that modification, so long as the prospective licensee has been given reasonable opportunity to object and either has not done so or, if he had done so, would not have caused there to be a blocking minority of objections. 64. Subsections (5) and (6) make consequential amendments. Figure 1 below provides a diagrammatic representation of the proposed revised licence modification procedure.

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Prepared: 19 November 1999