Examination of Witnesses (Questions 860
WEDNESDAY 17 MAY 2000
860. What kind of scale?
(Mr Sayer) I do not have the numbers to hand. I can
supply them in writing. The evidence is that there were a large
number of independent mobile service providers ten years ago and
there are very few left now.
861. I welcome that evidence from you. If you
could give it in writing to us, please.
(Mr Wilson) Another point which has been made to us.
In preparation for seeing you today, we have spoken to the ISP
Association and various other operators. A continuing theme we
hear is that the United Kingdom really forges the way in this
area. We have had liberalisation of telecoms far longer than any
of the other European countries. The central concern has got to
be that since January 1998, countries like Germany have so moved
up the scale to put themselves in a position, where I think Tarifica
would probably hold that the telecommunications environment is
far more competitive; and considering the relative e-commerce
competitiveness of the two countries, telecoms has to be the key
consideration in those.
862. Which countries would you see as being
ahead of us?
(Mr Wilson) In general or in specific terms?
863. In general.
(Mr Sayer) Certainly Germany. And the Italians and
the French are catching up surprisingly quickly.
(Mr Wilson) The Nordic countries similarly have a
very competitive infrastructure.
(Mr Sayer) You asked what we thought could be done.
One of the things we would suggest is that OFTEL should have a
mandate to look at international benchmarking. We have been in
discussions with them over many years where they have referred
to their duties to look at BT's costs but not to maintain the
United Kingdom's internationally competitive position. We think
this should be one of their objectives.
(Mr Wilson) This is something we refer to in our short
summarythat the FSA recently received new obligations to
have regard for the international competitiveness and innovation
in the United Kingdom's financial services industry. We think
this would be an extremely useful obligation for OFTEL to take
on, given that telecommunications tariffs are probably a more
powerful driver for e-commerce competitiveness than financial
864. That is all very interesting. However,
it does seem to conflict with a whole lot of evidence we have
had. Nevertheless, I guess the whole thing is moving so quickly,
it is such a dynamic sector, that what was true yesterday might
not be true today. I want to move the subject on to the fact that
you say that you are concerned that the Treasury has agreed to
arrangements which allow various Member States, including the
United Kingdom, to claim jurisdiction over financial services
advertising, breaking the "country of origin" principle.
How did this situation come about? What arrangements would have
been appropriate? Which Member States support the agreement and
which do not?
(Mr Wilson) If I could just clarify. Our concern arises
from the draft Financial Services and Markets Bill where there
are United Kingdom proposals. This is not a European-wide set
of proposals. The United Kingdom, as you put your question, is
proposing that it should have jurisdiction over all financial
services advertising that is directed at the United Kingdom. This
goes against the "country of origin" principles which
have been supported and now are successfully adopted, thanks in
part to DTI who were very strong proponents of the "country
of origin" principles, in the E-Commerce Directive. This
is a key issue for us and we have subsequently done research into
what other Member States are doing on this area. To our knowledge,
France, Germany, Italy and the Netherlands have also produced
similar regulations, which will allow them to claim jurisdiction
over financial advertising coming into their respective territories
from overseas. Our concern on this focuses really because we feel
that the United Kingdom is the global leader in international
financial services. I think it is fair to say that. It has a great
opportunity to become the global leader in online financial services.
To do that there is a need to recognise the need for a new regulatory
paradigm to be developed, which is something we are trying to
push. The fact that the E-Commerce Directive has now gone through
lends great political momentum to "country of origin".
My colleague, Henry Manisty, who was unable to join us here today
(and many apologies for that, of course), as he is in Australia,
called me this morning from Australia to say that today the International
Organisation of Securities Commissions held a vote as to whether
national regulation is capable of regulating global marketscaused
in part by the advent of the Internet. This was a vote where two-thirds
of the parties were securities regulators from around the world.
Something in the region of 380 said no, national regulation cannot,
in its current form, be capable of effectively regulating the
Internet. Only 30 said yes, it can.
There is an obvious need for a shift. This change is necessary
because national securities regulation is going to be impotent
in the face of the Internet. There is no conceivable way that
a national regulator can monitor everything coming into a country.
There is, therefore, a need for enhanced co-operation between
national regulators and we feel that "country of origin"
principles such as those in the E-Commerce Directive indicate
the way forward. There are too many regulators, in effect. It
would be crazy to have the same financial advertisement being
regulated in every area it is accessible. As we have seen from
the link up between London and Frankfurt recently, regulators
are supervising national territories, which are going to have
decreasing relevance because financial markets themselves are
internationalising. What we suggest is a new international regulatory
paradigm (which is a phrase we are very fond of) where regulators
have got to begin to co-operate and to improve their co-operation
with each other. The means by which we see that happening is for
the UK, perhaps through the European Union, to use the political
momentum created by the E-Commerce Directive to start negotiating
home state supervision agreements with countries that have adequate
regulatory standards. It is quite obvious that there are countries
in the world where regulatory standards are not high enoughit
would be unacceptable to expect these to come in. But, if we consult
in the first place, we think it would be very positive if "country
of origin" principles could be extended through agreements
with, for example, the G7, certain members of the OECD, such as
the United States, Canada, Australia. One advantage which will
come from that is that service providers in countries where regulatory
supervision is not of a good enough standard will quickly be placed
at a competitive disadvantage to those competitors in countries
that have decent regulation. They will, therefore, encourage their
own governments to improve regulatory standards, hopefully leading
to a global increase in supervisory standards.
865. Have you made any representations to the
FSA on this?
(Mr Wilson) We have been involved in the lobbying
of the Treasury on this, as have many service providers. It is
also an issue which will increasingly affect ISPs. I am sure you
will be aware that if you go to a portal site such as Yahoo!,
there are increasing amounts of investor-relevant content present
on ISPs. They are trying to collate and pool stock prices etc,
to add value to their product. As a result, the individual investor
is empowered as never before. This sort of content has only been
available to the market professional in the past, so it is increasingly
important to private investors in the United Kingdom that this
quality of information will be available. So, we have approached
the Treasurywe have been lobbying them. I understand that
the DTI and the Office of the E-Envoy have been in contact with
them too and have discussed the implications of the E-Commerce
Directive and the benefits of "country of origin". We
were therefore very pleased to note that the Financial Services
and Markets Bill has been amended, so that once the E-Commerce
Directive comes into force in Europe, the Treasury will be able
to move from a "country of reception" basis to a "country
of origin" regulatory basis for promotions that originate
within the EU. So we remain hopeful that this momentum, which
has now been created, can be taken forward, and that the United
Kingdom, through the EU, should take an international lead in
developing mutual recognition agreements.
866. One of the issues that arose in your first
paper has now been answered according to your satisfaction?
(Mr Wilson) The concern has been recognised. I think
this is something we are all having to do: to become increasingly
e-commerce literate in these issues. To accept that measures taken
at a national level are increasingly going to have to be considered
first of all from a new perspective in terms of how they affect
e-commerce and also from a wider international perspective.
867. On the latest one, I take your point very
clearly indeed that there is a need for co-ordination of regulators'
activities. As you see it, they are not just EU based but linked
to the G7 and OECD?
(Mr Wilson) Absolutely. That is absolutely vital,
especially in terms of e-commerce. When we are looking at extremely
exciting investment opportunities coming over from the US, it
would be a great pity if United Kingdom investors were not able
to take advantage of those opportunities simply because investment
information that came from brokerage firms in the US which were
not regulated by the UK authorities could not come into the UK
because of "country of reception".
868. I am very conscious indeed that we have
not perhaps done justice to you this afternoon. I thank you for
the further papers, which you have provided, and we will be looking
at those. I am just wondering, is there any final message you
would like to leave with us before we close? Any particular point
you would want us to be addressing, when we start to turn our
attention to reaching our opinions and recommendations, other
than the ones that you have mentioned?
(Mr Wilson) Reuters' objective, as redefined earlier
this year, is to make financial markets really work on the Internet.
Both the issues we have discussed with you today (and there are
others) are of absolute importance to us in being able to realise
that. Lower telecoms tariffs, in particular, will bring benefits
to all those who use the Internet within the United Kingdomand
we would urge you to pay attention to the figures we provided.
We would be delighted to take a look at what Tarifica is about
to produce. I think they are about to publish a new report, which,
as I say, we would be delighted to analyse, and then pass on our
thoughts on that to you.
869. That is very helpful. Thank you very much
indeed. One final point: the Stock Exchange with Frankfurt. What
significance do you see in the e-commerce area? A win for Germany?
(Mr Wilson) We are not at Euro 2000 yet!
(Mr Wilson) I would not feel able to
comment on behalf of Reuters on that but it is a very exciting
area for us. It is a further indication of markets beginning to
internationalise and of greater opportunity.
871. Thank you very much indeed.
(Mr Wilson) One final point, if I may. We have a more
detailed paper on the cross-border regulation issue, a three-page
paper which goes into your questions in more detail. I would be
pleased to circulate that to you.
872. Thank you very much.
(Mr Wilson) Thank you very much for your invitation.
7 The actual figures were 379 to 24 (Australian
Financial Review, 19 May 2000). Back