Select Committee on European Union Written Evidence

Memorandum by the London Investment Banking Association (LIBA)


  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 themselves.

  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 retail consumers.


Question 1—What needs to be done to create confidence and to stimulate e-commerce?

5.  The most important need is for legal certainty—certainty 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 2—Does 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 borders—this is relevant to the current review of private international law Conventions as well as the proposed e-commerce Directive;

    —  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 3—Will 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 4—Do 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 5—Should 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 not lost.

  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 6—How 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

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