Select Committee on European Union Written Evidence


A Memorandum on the Common Position by the London Investment Banking Association (LIBA)

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 London.

  A common position on the proposed Directive on Certain legal aspects of Electronic Commerce was adopted by the Council on 8 February 2000.

  A Directive which gives clear effect to the Single Market is vital if electronic financial services, and other electronic business, are to thrive in Europe.

  This memorandum sets out LIBA's views on two aspects of the proposed Directive. We comment on those provisions which it is most important be retained in the final text in order to give clear effect to the Directive's central objective of establishing a single market. We also explain the principal remaining concerns about the common position text.


  LIBA's concerns focus particularly on certain derogations from the Single Market principle, under which the "State of Destination" could impose requirements on incoming cross-border e-commerce. These derogations could compromise the State of Origin principle, thereby inhibiting the development of cross-border e-commerce in Europe. LIBA is also concerned about the impact of the proposed Directive on financial services business with customers who, while they fall within the Directive's definition of "consumer", do not, because of their level of expertise, want or need the level of protection which could be imposed on business with them.

  LIBA believes that the essential objectives are:

    —  to retain the provisions in Articles 1(3), 1(4), 2(h), 3(l) and 3(2), and Recital 23, which form the foundation of the Internal Market approach of the proposed Directive.

    —  To minimise the impact of the derogation from the Internal Market State of Origin principle for contractual obligations concerning consumer contracts (Annex, Recitals 55, 56).

    —  To clarify the limited applications of the scope for derogation from the Internal Market principle on consumer investor protection and other grounds (Article 3(4), Recital 27).

  We note that the definition of "consumer" in Article 2(e) would include, in the context of financial services, a category of expert individuals to whom the protections afforded by the Directive to consumers are inappropriate. However, we are aware that consideration is now being given to drawing an appropriate distinction between retail and wholesale business in the context of the ISD, and that the recent FESCO paper on categorisation of investors in this context recognises the concept of expert individuals. It will be necessary to ensure that these developments are addressed in the forthcoming Green Paper on electronic commerce in financial services, so that the overall framework of European legislation on electronic commerce, as it applies to financial services, treats expert individuals appropriately.


Provisions which should be retained

Article 1(3) and Recital 11—It is essential that Article 1(3) be retained, as the acceptability of some of the ambiguous provisions of the directive hinges on it. It is important that it is the freedom to provide Information Society services which prevails, thus supporting the supremacy of the directive over sectoral measures. In particular, it will be important to be clear that Article 1(3) governs the relationship with other Directives described in Recital 11 (including particularly the Investment Services Directive (ISD) and the proposed distance marketing directive—see Recital 27), so that the freedom to provide Information Society Services is paramount, and Member States cannot invoke protectionist national provisions, possibly permitted under earlier sectoral Directives, which are more stringent than those which apply in the State of Origin of the service. The Commission has stated that this is how the proposed Directive is to be interpreted, but there should be no doubt about the interpretation.

  Article 1 (4) and Recital 23—It will be important to retain the very helpful clarification in Recital 23 that "provisions of the applicable law designated by rules of private international law much not restrict the freedom to provide Information Society services as established by this directive". This provision makes clear that Member States cannot sustain rules otherwise applicable by operation of private international law which would constitute a restriction on the Internal Market (it also reflects the Commission's Interpretative Communication on the Freedom to Provide Services and the General Good in the Second Banking Co-ordination Directive—the principles of which the Commission has stated apply also to the Investment Services Directive).

  Article 3(1) and Article 3(2)—It is essential that these provisions, which form the heart of the Internal Market, State of Origin approach of the Directive, are retained.

  Article 1(6) and Recital 63—It will be important to ensure that the allowance for cultural and linguistic diversity remains restricted to measures taken "in respect of Community Law", to minimise the use of this provision to justify protectionist restrictions.

  Article 2(h)—The definition of "co-ordination field" is broad and relatively clear, and so supports the broad application of the Internal Market principle to all aspects of electronic business. It is essential that this definition is not narrowed or watered down.

  Recital 58—The provision to allow account to be taken in the future of the results of discussions in international organisations is welcome, and should be retained.

Provisions which require changes to give full effect to the proposed Directive

  Article 2(e)—See our comments in the Summary above on the need to ensure that the overall framework of European legislation as it applies to financial services accords appropriate treatment to "expert" individuals.

  Article 3.4 and Recital 27—Article 3.4(a)(i) contains a new provision for derogation on grounds of "protection of consumers, including investors". This provision was considered by the European Parliament at first reading, and we assume that it was intended merely as a clarification that the definition of consumers include consumers who are investors. A more important issue is that the derogation is stated to be "in respect of a given information society service". The press release on the political agreement stated that the derogation is intended to apply only to a particular service provided by a particular service provider. Recital 27 does not clarify the ambiguity in Article 3(5) about whether the derogation applies to a particular service only, or whether it could apply to a category of services. The derogation should be restricted to "a given information society service provided by a particular service provider".

  Annex and Recitals 55 and 56—The derogation from Article 3 for contractual obligations concerning consumer contracts is probably the most worrying remaining stumbling block in the directive. It will be important to ensure that European provisions on international private law cannot be used by Member States to restrict the freedom to provide Information Society services otherwise than in accordance with Community law.

  Articls 5, 6, 7, 10 and 11—The exclusion from detailed disclosure requirements for non-consumer disclosures is still restricted to Articles 10 and 11 only. The application of Article 5, 6 and 7 measures to non-consumers could be burdensome (though the exclusion from the harmonisation measures of contracts formed by exchange of e-mails is noted). This is a matter which should be considered in the proposed Green Paper on electronic commerce and financial services.

Articles 10 and 11—The exclusion for interprofessional disclosure is subject to agreement between the parties. It would be helpful to have clarification that "agreement" can be implicit (ie if the other party does not object). Also, as noted in the Summary above, it will be important in the framework of European legislation as a whole to ensure appropriate treatment of "expert" individuals in the context of financial services.

17 February 2000

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