‘Country of origin’ is at the heart of the EU E-commerce directive, due to be law here by summer 2002. But Brussels might just as well not have bothered if the FSA’s proposals for applying the directive to financial promotions are adopted.
Who: The Financial Services Authority (FSA)
When: March 2002
The Financial Services Authority (“FSA”) published its consultation paper on the transposition of the EU e-commerce directive into UK law as regards financial promotions on-line. This followed on the heels of the DTI's general proposals for implementation of this directive (see previous reports on marketinglaw.co.uk) and represents another tardy move in the UK's belated efforts to implement the e-commerce directive. This was due to have the force across Europe by 17 January 2002, but with "summer 2002" now the earliest time by which the directive will have been fully made part of UK law, the UK is very much bringing up the rear in the e-commerce directive implementation stakes. As of 10 April, only Luxemburg, Austria and Germany had implemented the directive, while Finland, France, Denmark, Spain, Belgium and Sweden had draft laws in place which had been notified to the European Commission and Ireland, Greece, Netherlands and Portugal had draft laws which had not yet been notified to the Commission. The two tail-end Charlies are the UK and Italy, which still do even have draft laws in place. The FSA document is the second consultation paper which has been published in respect of this directive. Comments on the proposals are requested before 2 May 2002 and can be sent to email@example.com.
The FSA proposes changes in the light of the directive to its Handbook of Rules and Guidance. It hopes to make these by summer 2002, but although the rules will on the face of it come into force immediately at that time, they suggest a three month transitional period for providers who are taking "reasonable steps to comply with the new provisions". Sighs of relief all round!
Fundamental to the e-commerce directive is the introduction of the "country of origin" approach to content regulation. In essence this means so long as an advertiser of products, including financial services, complies with its home rules affecting the content of its promotional material, it should be free to legally publish that material on-line in any EU member state without fear of being prosecuted or sued.
This is all fine and dandy, and will certainly make life a lot easier for advertisers and marketers. As previously reported on marketinglaw.co.uk, however, the reality is that there are so many carve-outs from this basic principle in the directive that it is difficult to see how the regulatory landscape will in fact be fundamentally changed.
A perfect example of this is contained in the FSA consultation paper. The FSA pays lip service to the "country of origin" approach but rather arrogantly goes on to bemoan the absence in most other parts of Europe of controls over financial promotions which are anything like as sophisticated as those in the UK. It therefore urges the development at EU level of "core standards of consumer protection" for financial promotions.
As the FSA notes, progress in this direction has already started. Particularly in the area of financial services, the European Commission has developed a "road map for a single retail market". This covers three main areas, (1) measures to encourage the convergence of member states' contractual and non-contractual rules including the provision of high quality information to consumers. The draft "Distance Marketing Of Financial Services Directive" is the cornerstone of this programme; (2) a series of measures to encourage consumer confidence in cross-border redress and improved legal security when making payments on-line within the EU and (3) enhanced supervisory cooperation between the “country of origin” regulatory authority and authorities in the member state where either the recipient of the financial service or where a financial promotion is based.
Returning to the e-commerce directive, the FSA paper notes that the directive will continue to allow member states to buck "country of origin" and apply its own domestic controls in certain circumstances. These are the carve-outs we mentioned above. The FSA feels that this is particularly necessary in the financial services sector "where the information mis-match between supplier and consumer can be particularly high". The paper goes on to record that the e-commerce directive will not affect the FSA's ability to police "market abuse" by operators based in EU states outside the UK, nor will it affect questions of which law governs a contract for the provision of financial services or which courts may have jurisdiction in relevant disputes. Also, the e-commerce directive does not affect the provision of promotional information regarding financial services if that is effected by non-electronic means. This means that if a financial services provider wishes to communicate with UK customers on-line and off-line, the on-line information can, subject to carve-outs, safely comply with German rules. The off-line material, however, must comply with UK rules. Daft- yes, the legal position after the e-commerce directive comes into force-yes.
Where financial services are communicated electronically from the UK to other EU member states, however, the FSA accepts that in general terms the UK entity will, once the e-commerce directive is implemented, be required to comply with the FSA's full financial promotion requirements. This is not the case now.
The FSA also accepts that as a result of all this it will have to allocate new resources "in a risk-based fashion to monitor the foreign language websites of UK-based firms" and respond to complaints and enquiries from consumers in other members states in languages other than English, who may be concerned as to whether financial promotion information they have received from a UK-based company complies with UK rules. This also means that the FSA will have to embark upon a promotional awareness exercise so that financial services consumers in other EU member states are aware that any financial promotion information from UK-based firms which they access on-line is covered by UK regulatory requirements.
By the same token, the FSA will have to lift its requirements which at present apply to financial promotions aimed at UK-based consumers but come in electronically from a financial services business based in another EU state. The FSA is concerned, however, that this will put at risk the overall consumer protection objective of the Financial Services and Markets Act 2000. It proposes to mitigate this situation, however, in three ways.
First it will enhance public awareness of the implications of receiving financial promotion information on-line from organisations based in other countries. Secondly it will continue to impose disclosure obligations over and above those contained in the e-commerce directive. It accepts this goes against the "country of origin" principle (and indeed against the whole ethos of the directive and the single market) but refers to the "carve-out" in the e-commerce directive which allows differences in member state rules to continue if this is in the interests of consumer protection and/or in the area of consumer contracts. Thirdly it will take measures on a case-by-case basis to restrict the freedom to provide financial services promotional information on-line where the measures are necessary and proportionate and the provider's behaviour is prejudicial.
Why this matters:
Here we see a perfect example of how the "country of origin" principle as espoused in the e-commerce directive will in practice be at best significantly eroded and at worst rendered nugatory. The FSA itself underlines the risks here in its consultation paper. First it indicates quite clearly that it intends itself to continues to apply UK rules to non-UK based financial services promotions providers on-line where considered necessary. Then it has to accept that by the same token, other financial services authorities in other EU member states may do the same. The effect of this will be that UK based on-line financial promoters will face dual regulation since, in addition to complying with the FSA's rules imposed under the country of origin approach, they may also remain subject to local requirements in other EU states to which they are directing their digital marketing.
In other words, despite the EU directive and "the country of origin" principle, in the financial services sector at least, we face an even more complex regulatory regime than we had before, with an even greater need for financial services providers wishing to promote their products across Europe to obtain local advice in each country where their promotional communications may be read or seen!