Select Committee on European Union Minutes of Evidence


  12.  E-Commerce in the financial sector is, in the FSA's view, most likely to develop safely if regulators and others pay particular attention to four factors:

    —  Consumer Information/Education. The FSA is already actively engaged in harnessing the potential of the Internet to empower consumers, by providing them with information about financial products and by warning them of the risks, especially the risks of passing their money to unauthorised firms. The FSA has already issued a number of consumer alerts. These include specific alerts on day trading and on the way bulletin boards and chat rooms can be used to ramp stocks as well as general information on checks that consumers should make before investing in cyberspace. The Internet is also likely to be an increasingly valuable resource for increasing the capacity of consumers to understand what the large amounts of available information actually mean. The FSA is actively working with a number of organisations that also seek to enhance consumer awareness. Many firms have links to the FSA's website and some carry our alerts. We are using the web ourselves to disseminate information to consumers—we have recently launched Consumer Help on our website. Looking to the future, we have consulted on the possibility of producing tables of comparative information on financial services on the Internet. We plan to explore further the possibilities which the technology already offers to draw particular information and issues to consumers' attention at the point where they are considering entering into an e-transaction.

    —  Security/technological standards. The FSA requires authorised firms to have effective systems and controls for managing their business. In the context of e-commerce these should include computer systems which are robust and provide high levels of security, and which preserve the integrity of data during system failures. The FSA monitors firms to check that their systems properly control business and operational risks.

    —  Consumer compensation and ombudsman schemes. The existence of a compensation safety net and of arrangements for resolving disputes between firms and consumers, such as an ombudsman scheme, are key components in promoting consumer confidence in financial markets.

    —  Surveillance/Enforcement. It is important for firms to understand that regulatory bodies are alert to the potential for wrongdoing on the Internet and are able to detect it and take appropriate enforcement action. Given the global nature of the Internet, international regulatory co-operation is likely to become increasingly important in combating cross-border mischief; this is an area being actively pursued by international regulatory bodies, including IOSCO and the Basel Committee.

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