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Brussels, 9 February 2001

Commission Communication on e-commerce and financial services Frequently Asked Questions

(see also IP/01/185)

What is the link between this Communication and the e-commerce Directive?

The Directive on a legal framework for electronic commerce (2000/31/EC) adopted 8 June 2000 (see IP/00/442) must be transposed by 17 January 2002. It is designed to ensure that information society services can be freely provided throughout the European Union.

But that legislation is necessarily broad in scope because it covers all on-line information society services, including financial services. This Communication takes a closer sectoral look at how the Directive will apply to the cross-border trade of on-line financial services specifically and what changes are necessary to establish a fully integrated European financial services market. The Directive lays the foundations on which further policy developments in financial services will be based.

This Communication meets the immediate concerns expressed by a number of Member States by providing clarification of the e-commerce Directive's impact, its interaction with other financial services legislation and contains steps to ensure that it its implementation in the financial services area is fully compatible with the need to protect consumers and retail investors operating on-line within the European Union.

It also sets out a coherent policy that will enables us to put in place an integrated European market in financial services by the 2005 Lisbon European Council deadline.

Does this Communication make any suggestions for future legislation?

The Communication's primary role is to outline the kind of measures that are necessary now and over the medium term to ensure that there is a coherent framework for the development of a fully integrated market in financial services, whether they are provided on or off line. The Communication covers three essential policy areas - the creation of a coherent legislative framework, improved consumer confidence and improved supervision.

Some legislative and regulatory initiatives may be required to update existing legislation or create new legislation, for example, to bring about further convergence in national consumer and investor protection rules and ensure the free flow of financial services on that basis.

Secondly, to build consumer trust, legislative proposals may be appropriate in the future, for example, to reassure consumers by guaranteeing them a refund if they are unjustifiably charged in case of credit card fraud.

Thirdly, concerning supervision, the immediate priority is co-operation between supervisory bodies.

The Commission will undertake extensive consultation with Member States on these issues and welcomes comments from all interested parties.

What does the e-commerce Directive do?

The e-commerce Directive aims at guaranteeing the freedom to provide information society services in accordance with EC Treaty rules on the freedom to provide services (Article 49). It provides that Member States have to ensure that service providers established on their territory comply with the national requirements applicable to them, which fall within the Directive's co-ordinated field.

In turn, Member States may not restrict the freedom to provide services, i.e. may not take measures which hamper or otherwise make less attractive the provision of information society services from other Member States to their territory, unless such measures are covered by one of the derogations provided in the text of the Directive.

Why are there certain derogations from the e-commerce Directive for financial services?

Some existing financial services legislation at the EU level, notably as regards investment funds (UCITS) and insurance unequivocally establish host country competence. The specific requirements of these Directives conflicted with the country of origin clause of the e-commerce Directive. Therefore appropriate derogations were required.

Does the Communication aim to reopen the debate on these derogations?

The e-commerce Directive has been adopted and derogations to it agreed. This Communication in no way reopens those discussions nor calls into question the derogations.

However, the e-commerce Directive, as a horizontal Directive, is not tailored to meet all the requirements of particular sectors, such as financial services. The Communication sets out a new policy framework for financial services, building on the e-commerce Directive as a foundation, that aims to pave the country of origin philosophy to operate, in practice, across all financial services and distance trading modes.

How will you create a coherent legislative framework?

The Commission proposes a three strand approach.

First, by harmonising core marketing rules. Second, by bringing convergence in sector or service-specific marketing rules so that consumers are better able to understand and compare cross-border offers. And third, by reviewing national rules relating to retail financial services contracts to examine how consumers can access financial services governed by the law of another Member State.

This programme will be the basis for possible future legislation. This will take time and implies a high level of political commitment on the part of Member States and the European Parliament.

What do you mean by harmonising core marketing rules?

The sort of rules that are relevant in the context of the selling of all financial services, for example, so-called 'cold calling' (i.e. unsolicited phone calls) or the provision of information about the product or service.

How do you ensure convergence of sector/service-specific rules?

Either through legislation at the sectoral or service-specific level, for example the proposed standardised mini-prospectus for the selling of UCITS (harmonised investment funds) throughout Europe.

Or through co-regulation providing the political backing or framework within which industry and consumer groups can negotiate a voluntary code of conduct, as will soon be achieved with the regard to the marketing of home loans.

Legislative initiatives are also underway or planned in consumer credit and investment services.

How do you intend to minimise the differences in national rules applying to financial service contracts?

As financial services, particularly banking and insurance services are contract based (e.g. the terms of a bank loan), diverging national rules about contracts can sometimes mean that services legal in one Member State are illegal in others.

The Commission needs to work with Member States to gain a better understanding of the national rules. Based on that work, the Commission's objective is to find a way in which retail financial services can be freely offered throughout the European Union in a framework of legal certainty.

This may involve a degree of convergence in national rules. However, future action will need to balance that convergence with the desirability of product innovation and choice.

What is the role in the financial services area of the planned Commission analysis under the e-commerce Directive of whether Member States' measures in the interests of consumer and investor protection are proportionate?

From 17 January 2002, the e-commerce Directive must be implemented throughout the European Union. That Directive contains a procedure by which Member States may take measures against incoming information society services on a case by case basis where they need to protect the public interest (e.g. to protect consumers).

There remain significant divergences in national rules with regard to financial services particularly those that do not fall within the scope of existing European Union legislation. In recognition of this, and to aid transparency for Member States and providers, the Commission intends to identify certain types of legal provisions in respect of which Member States may wish to use the derogation. An analysis of these will then be carried out to establish their proportionality under the conditions set out in Article 3 of the e-commerce Directive.

The results of that analysis should guide Member States and service providers.

How do you intend to reassure consumers that they will get proper redress in case of a problem trading a financial services product on-line?

Consumer access to cross-border redress is vital. The Commission has launched a European Union-wide network of financial services complaints bodies called FIN-NET that can provide rapid, cheap and effective cross-border redress avoiding the need to seek recourse in Court (see IP/01/152).

How can e-commerce take off if the consumer won't make payments on the net?

Building consumer trust in electronic payments is essential if e-commerce is to flourish. The Commission has a number of initiatives underway, often in partnership with industry, aimed at making electronic payment systems as secure as possible. For example, the work on smart cards under the umbrella of the eEurope initiative or the proposed Framework Decision and forthcoming Communication on fraud and counterfeiting in non-cash means of payment.

We also need to look at the legislative security that European consumers receive when paying on-line. Legislative backing is needed for a refund system that establishes rights for consumers in the event of payment problems or non-delivery of services. This is particularly important for clear cases of fraud, when consumers who do not pay on the net but find that their card details have been used.

There needs to be greater transparency about the cardholder protection rules that currently exist. Similar protection should be developed for emerging payment technologies and not just cards. And the same protection should be enjoyed when paying cross-border within the European Union as when paying nationally.

The Commission will discuss with Member States and industry on the best way forward, bearing in mind the need to minimise any burdens on industry.

How do you intend to respond to the challenge of supervising on-line cross-border services?

Committees of Member States' supervisors in the banking, insurance and securities sectors already exist at EU level. Cooperation and allocation of responsibility are working well. But the extent to which the supervisory authorities in the consumer's country depend on those in the provider's will increase significantly with increased cross-border trade. Together with Member States, the Commission will work to ensure that procedures for cooperation between these authorities are equal to the task of a rapidly changing marketplace.

Particular issues include: in what circumstances and how should cross-border trade be monitored; in an on-line world how can money laundering procedures work for cross-border transactions; and are new risks emerging associated with electronic business models which need to be addressed?

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