Select Committee on European Union Minutes of Evidence

Examination of Witnesses (Questions 860 - 872)



  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 summary—that 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 services regulation.

Baroness O'Cathain

  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 markets—caused 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[7]. 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 enough—it 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 Treasury—we 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 Kingdom—and 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!

  870. Indeed!

  (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

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