Memorandum by the London Investment Banking
1. LIBA is the association which represents
the views of the major international investment banks and securities
houses which base their European and international operations
in the UK.
2. Electronic communications and transactions
with customers in the UK, the EU, and worldwide, are already central
to LIBA Members' business, and will be more so in the future.
LIBA Members have long been used to electronic markets and exchanges
and proprietary electronic communications systems, but are also
increasingly making use of the Internet because of its flexibility
and low cost. Indeed financial services are ideally suited to
electronic media because of the non-material nature of the services
3. LIBA therefore strongly supports initiatives
to establish a practical, clear and certain legal framework for
the conduct of electronic business internationally, whether they
be taken at the UK, EU, or wider international level.
4. LIBA is also particularly concerned to
ensure that legislative developments relating to Electronic business,
which tend to be designed to regulate "business-to-consumer"
communications and transactions, do not impose unnecessary obstacles
or barriers to business-to-business, interprofessional, wholesale
transactions. In the wholesale markets, expert customers do not
want or need many of the protections which are appropriate to
Question 1What needs to be done to create
confidence and to stimulate e-commerce?
5. The most important need is for legal certaintycertainty
as to what legal provisions apply to e-business, certainty as
to how traditional legal concepts apply in the online world, and
certainty as to whose laws, jurisdiction, and regulation apply
to cross-border electronic business. Legal certainty means that
both providers and consumers of electronic services can communicate
with confidence about their respective legal obligations and rights.
LIBA's view (which is widely shared by business generally) is
that legal certainty is best provided by the "State of Origin"
principle, under which the laws and other requirements that apply
to a transaction or communication are those of the State from
which the provider provides the service. In the online world any
other approach would give rise to complexity, uncertainty, and
legal risk. This could powerfully inhibit the preparedness of
businesses to exploit the opportunities which the new technologies
offer, both to widen consumer choice and reduce costs.
6. The confidence of customers is as important
as the confidence of providers. The vast majority of LIBA members'
customers are sophisticated enough to be confident with the State
of Origin principle, but it is not so clear that ordinary retail
consumers will be sophisticated enough to understand why reliance
on their own national protections for cross-border contracts is
not in their best interests. So for retail consumers the State
of Origin principle may need to be supplemented by effective mechanisms
for international co-operation to resolve cross-border disputes.
Adherence to traditional legal vehicles (as instanced for example
by the European Commission's approach to updating international
private law Conventions for the electronic age) no longer necessarily
provides the best way to resolve cross-border disputes, and we
believe that consumer confidence can be secured in better ways.
The new media require a new approach, and LIBA therefore strongly
supports initiatives to establish effective out-of-court mechanisms
for international co-operation to resolve cross-border consumer
disputes on the basis of State of Origin control.
Question 2Does the European Commission's
draft Action Plan "e-Europe: An Information Society for All"
offer a realistic means of promoting e-commerce in the EU?
7. The most important part of the Action
Plan for LIBA members is the section dealing with the speeding-up
of the implementation of the legal framework for electronic business.
This has been supplemented by the recent announcement by President
Prodi that the Commission aims to have a complete legal framework
in place by the end of 2000. LIBA agrees that speed is of the
essence. But equally important is that the legal framework should
be coherent and clear, and that it should support the European
Internal Market. The wrong legal framework put in place hastily
could operate as a powerful deterrent to the expansion of Electronic
business in Europe. There have been encouraging and significant
advances in Europe's willingness to devise a framework which fulfils
the policy needs of European businesses and citizens, but there
remain a number of loopholes in the measures currently proposed
which could undermine much of the benefit which could be obtained.
The most important remaining needs are:
to ensure that Member States cannot
invoke State of Destination control over contractual obligations
concerning consumer contracts to restrict the freedom to provide
service across bordersthis is relevant to the current review
of private international law Conventions as well as the proposed
an overall European framework which
provides for appropriate treatment of "expert" individuals(defined
as "consumers" in the proposed e-commerce Directive,
whereas the Investment Services Directive requires their "professional
nature" to be taken into account);
clarity that the provision for Member
States to derogate from State of Origin control on grounds of
consumer investor protection applies only to a particular service
by a particular service provider;
greater clarity that the application
of the substance and standards of sectoral directives to electronic
commerce is on a State of Origin basis (see LIBA's detailed comments
on these issues in the attached Briefing Papers on the proposed
Electronic Commerce Directive and the proposed revisions to the
international private law Conventions.)
Question 3Will Codes of Conduct and Co-regulation
Provide Sufficient Protection? Is there a Case for Intervention
by National Governments and the EU?
8. It should be noted that in the financial
services field the scope for codes of conduct and co-regulation
is limited by the fact that the firms are already subject to detailed
regulation by the Financial Services Authority. However, as a
general point, codes of conduct and co-regulation (ie regulation
by the industry but with the backing of the authorities) should
in themselves provide sufficient protection for consumers and
providers of electronic business services (it is in the interest
of businesses that an environment is established in which consumers
have confidence). The proposed Electronic Commerce Directive gives
a prominent role to codes of conduct, and also explicitly gives
consumer representatives a role in developing them and monitoring
their operation. The proposed Electronic Commerce Directive illustrates
the important role which the EU and national governments have
in providing statutory backing for such schemes, and in ensuring
that the freedom to provide services across borders is protected.
There is however a great danger that national intervention will
be protectionist in motivation, with Governments exploiting loopholes
in European legislation to promote their domestic interests at
the expense of Internal Market freedoms. The EU and national governments
have a clear responsibility to prevent such intervention, and
EU measures must stress the importance of this point.
Question 4Do the institutions of national
governments on the one hand, and the European Commission, the
Council of Ministers and the European Parliament, on the other,
function with sufficient flexibility and coherence to promote
the EU's objectives in the field of e-commerce?
9. Flexibility and coherence have not always
been evident in the adaptation of legal frameworks to the new
electronic age. Examples include the hesitant and piecemeal approach
to developing electronic communications legislation in the UK
in the past (although recent developments have been more coherent
and focused, eg the appointment of the E-envoy and his team),
the fragmented and unimaginative approach in Europe in updating
international private law Conventions, and the national protectionist
motivation (often misleadingly claimed as consumer protection)
which has tended to colour some negotiating positions in Europe.
There have also been occasions when EU measures have been brought
forward piecemeal so that they contain contradictory provisions.
10. Against these examples of inflexibility
and incoherence may be set, for instance, the European Commission
Internal Market Directorate General's clear perception of the
need to strengthen Internal Market principles for electronic business,
and the recent determination to co-ordinate European electronic
commerce initiatives with a view to having a coherent framework
in place by the end of 2000. More problematic will be the many
differing interests which must be reconciled in the European legislative
process, and the relatively cumbersome process by which the Commission's
proposals become law (the Commission is attempting to make greater
use of "comitology" (review by committee) to improve
the streamlining of legislative development in response to rapid
changes, but the European Parliament's demand for democratic accountability
operates as a brake). Overall, the level of coherence is improving,
but see also our detailed comments (attached) on areas where it
could be further improved.
Question 5Should existing EU institutional
structures be changed, or new ones created, to improve policy
development and co-ordination?
11. A new and fast-changing technological
and economic environment demands new and fast-changing approaches
to legislating for it, especially in view of the mobility of electronic
commerce and the way in which its practitioners will be attracted
to jurisdictions which regulate with a light and flexible touch.
For European electronic commerce legislation to keep up with the
fast changing market place, there needs to be as much use as possible
of industry codes of conduct (taking account of customer interests),
out-of-court dispute settlement mechanisms, and comitology procedures
to ensure the underlying legislation can adapt rapidly.
12. A Comitology process which allows Member
States to reach agreement on common approaches to the interpretation
of the provisions in Directives is also helpful. In the financial
services area a number of committees have been established, either
under Directives or outside the EU structure, which have enabled
regulatory authorities in different Member States to reach a common
understanding on how ambiguous provisions in Directives are to
be interpreted. Such arrangements are often likely to be a more
effective means of agreeing common European policies and standards
than new legislation (indeed, if agreement cannot be reached in
such fora, it is unlikely that new legislation will resolve ambiguities
and differences either).
13. The legislation itself should incorporate
mechanisms for immediate update (eg the measures in the proposed
Electronic Commerce directive to take account of wider international
agreement), or fast-track update combined with transparency procedures
so that accountability to the Parliament and Member States is
14. A persistent problem with European legislation
is the tendency to state legal requirements which are ambiguous
or capable of differing interpretation. Member States' implementation
in practice may therefore not correspond to the spirit of what
was intended by the Council, the Parliament, and the Commission
during the legislative process. What is needed, certainly for
the wholesale markets, is legislative texts which are clear as
to their intent, together with effective mechanisms for action
to be taken against Member States which implement in a way which
is contrary to both what was intended and to Internal Market principles.
Question 6How can structural change be
brought about fast enough to accommodate to the growth of
15. In our answers above we comment on the
importance of automatic/fast-track provisions in the measures
themselves, comitology, and legal certainty. Ultimately, however,
a successful outcome will depend on the commitment of national
Governments to proceed on the basis of Internal Market principles.
Without such a commitment, there will always be possibilities
for Member States to find ways of introducing national measures
which will undermine firms' ability to offer cross-border services
throughout the EU, and undermine consumers' opportunity to benefit
from the development of electronic commerce.
28 February 2000