Select Committee on European Union Minutes of Evidence


  1.  This Memorandum is submitted to the Committee in the context of its inquiry into "E-Commerce: Policy Development and Co-ordination in the EU". The FSA looks forward to elaborating on this note in oral evidence on 19 April.

  2.  The Financial Services Authority is currently responsible under the Banking Act 1987 for the supervision of banks and for the oversight of investment business regulation under the Financial Services Act 1986. It will become the single statutory regulator for all financial services in the UK when the Financial Services and Markets Bill, currently before Parliament, is implemented; our current expectation is that this will be in early 2001. Ahead of the new legislation, the FSA has managerially integrated the staffs of the existing regulatory bodies and co-ordinates their delivery of regulation under the various continuing regimes.

  3.  The new legislation will give the FSA four statutory objectives: to maintain confidence in the UK financial system; to promote public understanding of the financial system; to secure an appropriate degree of protection for consumers; and to reduce the extent to which a financial institution can be used for purposes of financial crime. In pursuing these objectives the FSA must also have regard to a number of statutory requirements. These include: the desirability of facilitating innovation; the need to minimise the adverse effects of regulation on competition; the desirability of facilitating competition; and the international character of financial services and the desirability of maintaining the competitive position of the UK.

  4.  The FSA's interest in e-commerce stems from our role as regulator of financial institutions carrying on business in the UK and from our specific statutory responsibilities, referred to above. The FSA regulates the conduct of EEA-authorised firms carrying on investment business in the UK. We will also be responsible for the licensing and prudential supervision of other banks, investment firms and insurance companies, whether incorporated in the UK or operating through branches in the UK.

  5.  E-Commerce raised issues that are relevant to all four of the FSA's statutory objectives. This importance is reflected in our decision to carry out a specific project to consider e-commerce in the round, so as to ensure that in meeting our statutory objectives we are taking advantage of the opportunities and meeting the challenges presented by e-commerce.

  6.  In regulating e-commerce in the financial services sector, the FSA will be concerned to ensure that the same regulatory protections apply as for business conducted through other media: adequate capital and competent management on the part of providers; arrangements to protect consumers, especially during the sales process; disclosure of information to consumers, and measures to raise consumer awareness and understanding; and arrangements for paying compensation to customers of failed firms.

  7.  Two further FSA functions give us a particular interest in e-commerce developments. We are responsible for the control of investment advertisements by overseas-authorised firms aimed at UK customers. These controls stretch to advertisements by overseas unauthorised firms (in the EU and beyond) aimed at UK consumers. Second, we are responsible for supervising investment exchanges and alternative trading systems operating in the UK.

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