Select Committee on European Union Minutes of Evidence


  8.  The growth of e-commerce may change the financial services landscape in a number of ways. These include:

    —  increasing globalisation of both business-to-business and business-to-consumer markets;

    —  an explosion in the quantity of information instantly available to firms, markets and consumers;

    —  more innovation and increased competition, leading to greater choice of products for consumers and, potentially, better value for money;

    —  easier market access, both for new domestic entrants to the industry and for firms based in other countries;

    —  a shift in the balance of power from financial service firms to consumers and to "infomediaries"—that is, firms that supply information about firms and products and which provide the tools to enable consumers to rank competing products against comparative indicators of risk, performance and other relevant key features.

  9.  E-Commerce also raises a number of concerns for consumers, firms and regulators. For example, criminals in the UK or abroad may use the Internet to promote scams and frauds, to manipulate markets, to attempt to steal money from firms, authorised or unauthorised, or to engage in other forms of financial crime. Other risks to consumers include:

    —  increased risk that they will not know or understand which jurisdiction's protections apply—and therefore will not be in a position to make an informed choice;

    —  increased likelihood of dealing (again, possibly without realising it) with firms under non-UK law;

    —  danger of increased exposure to untrustworthy information sources;

    —  increased likelihood of consumers transacting with firms without the benefit of particular regulatory protections (eg access to ombudsman, or to compensation in cases of insolvency).

  10.  The risks to which firms are exposed through the Internet are for the most part not new in kind; however, they take on a different aspect because of the global nature of the Internet and because the Net requires high levels of senior management competence in firms in areas which hitherto have tended to be the reserve of technical specialists.

  11.  A variety of supervisory concerns arise in this context. These include: the extent to which the growth of alternative trading systems will challenge the fair, efficient and safe operation of markets; whether the growth of programme trading will lead to greater market volatility; whether authorised firms migrating to e-commerce have the necessary technical competence; whether small and medium sized banks that decide to take advantage of the Internet to provide services internationally have identified the potential risks on the asset and liability side as well as the legal risks of global business; whether disclosure requirements on firms are adequate.

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