E-Commerce and Financial Services

Written by Chris Huhne MEP and published in the Law Societies' Brussels Agenda on Fri 21st Sep 2001

Electronic commerce enables financial services institutions to reach a much broader spectrum of clients across borders. Since the sector does not face the obstacle of physical delivery, it is particularly suited for e-commerce. Many transactions already take place online, and the European employers' organisation UNICE has estimated almost one fifth of banking transactions in Europe are done via the internet, direct dial, mobile phone or digital TV, which is nearly double the US level. In Nordic countries, the proportion is more than a third. The e-commerce directive provides a major opportunity for the financial sector to grow in Europe, since it establishes the principle of EU-wide access once you are approved in your home country. But remaining regulatory barriers as well as lack of consumer confidence prevent both consumers and businesses from fully benefiting from the online revolution.

The Commission Communication on e-commerce and financial services aims to clarify how the e-commerce directive interacts with pending and existing legislation, and to examine how the country of origin principle enshrined in the e-commerce directive will work in an area where national legislation diverge significantly.

The most important issue is to ensure effective application of the country of origin principle to on-line financial services. The directive regrettably allows for certain exemptions still subject to national legislation, notably insurance and the advertising of unit trusts, which should be reviewed as soon as possible. Article 3.4 allows for a case by case derogation whereby Member States can apply to the Commission to impose national rules on incoming services where there are real consumer protection issues at stake. The burden of proof must lie on the member state requesting the derogation, and the Commission must not allow this to be abused for protectionist purposes.

As part of the exercise, the Commission will undertake a review of national provisions member states would like to continue to apply to online incoming services, and then provide 'guidance' on the type of rules it may be willing to accept. Whilst this guidance may have some merit in providing clarification, there is a real danger that member states less enthusiastic about the e-commerce directive would try to use it to roll back the country of origin principle. In this context it is of utmost importance that the Commission deals with each and every application for a derogation diligently and does not allow this to be turned into a de facto block exemption.

There are other real issues to settle. Enhanced supervisory co-operation is needed to deal with new challenges posed by institutions that may take deposits in Germany, have a back-office in Dublin and a banking licence in Paris. A high level of consumer confidence is obviously necessary for the development of cross-border financial services. Alternative dispute resolutions schemes such as the European Extra Judicial Network (EEJ-NET) and the Financial Services Complaint network (FIN-NET) are to be welcomed, while preserving consumers' ultimate rights to go to law.

Given the borderless nature of e-commerce, a real test will be whether the EU member states are willing to extend a mutual recognition regime beyond the union. There are plenty of well-supervised financial institutions that could cater to European needs without being in the EU, and a precedent is being set by the ongoing negotiations between Australia and Singapore. These are some of the points raised in my report which is currently being debated in the European Parliament and for possible adoption in October.