B. E-COMMERCE:
OPPORTUNITIES AND
RISKS
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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