14 May 2002
Implementation of the E-Commerce Directive
EXPLANATORY MEMORANDUM
The draft Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (Electronic Commerce Directive) Order 2002
Introduction
1. The above draft Order ("the Financial Promotion Amendment Order") is one of four Statutory Instruments ("S.I.s") to be made for the purpose of implementing the European directive on electronic commerce (2000/31/EC) ("the Directive"). The others will be:
(i) the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (Electronic Commerce Directive) Order 2002, to be made by the Treasury under powers conferred by the Financial Services and Markets Act 2000 ("FSMA");
(ii) the Electronic Commerce Directive (Financial Services and Markets) Regulations 2002, to be made by the Treasury under section 2(2) of the European Communities Act 1972;
(iii) the Electronic Commerce (EC Directive) Regulations 2002 ("the DTI Regulations"), to be made by the Secretary of State for Trade and Industry under section 2(2) of the European Communities Act 1972.
2. Put simply, the first three of these instruments will give effect to the Directive in the field of financial services; the last - the DTI Regulations - will implement it for all other purposes. The Financial Promotion Amendment Order alone is subject to the affirmative resolution procedure, by virtue of section 429(4)(d) of FSMA, and is accordingly laid before Parliament in draft. The other three instruments are subject to the negative resolution procedure. However, all four instruments are inter-linked. The intention is that (subject to its approval by Parliament) the Financial Promotion Amendment Order will be actually made only after the other S.I.s have been made, and that all four instruments will come into force on the same day.
Policy objectives
E-Commerce Directive
3. The Directive is designed to enhance the functioning of the internal market by removing specific legal barriers to the free movement of "information society services" between EEA member states, and by improving the level of legal certainty surrounding the provision of such services. Information society services are defined, broadly, as services provided for remuneration, at a distance, by electronic means and at the individual request of the recipient. They are primarily services provided over the internet. EEA States are required to ensure that providers of information society services established on their territories comply with national legal requirements falling within the "coordinated field", as defined in Article 2(h) of the Directive. They are also prohibited from restricting, for reasons falling within the coordinated field, the freedom to provide information society services from other EEA States. Article 3.3 of the Directive excludes certain matters (listed in the Annex to the Directive) from these requirements.
The Financial Promotion Amendment Order
4. The Financial Promotion Amendment Order gives effect to the prohibition on restrictions as it applies to the making of communications which constitute information society services, and which otherwise would be subject to the financial promotion regime under section 21 of FSMA, or the regime governing the promotion of collective investment schemes under section 238 of FSMA. The Order provides as follows:
(i) communications constituting information society services made from establishments in the UK to persons in other EEA States are made subject to the FSMA financial promotion regimes in the same way as other communications. This entails partially disapplying existing exemptions for communications made or directed to persons outside the UK (see articles 4 and 9 of the Order);
(ii) communications constituting information society services made to persons in the UK from establishments in other EEA States are exempted from the financial promotion regimes (on the basis that these would constitute a restriction on the freedom to provide those services). These exemptions are subject to certain exclusions reflecting Article 3.3 of, and the Annex to, the Directive (see articles 6 and 10 of the Order);
(iii) some other existing exemptions from the financial promotion regimes are modified so that they are capable of applying where the recipient of a communication is in an EEA State other than the UK (see articles 3(2) and 8(2) of the Order);
(iv) article 5 of the Order creates an exemption from the financial promotion regime for providers of information society services who act as a "mere conduit" for information, or otherwise transmit or store information for others in certain circumstances, reflecting Articles 12 to 14 of the Directive.
Electronic Commerce Directive (Financial Services and Markets) Regulations 2002
5. As explained above, the Financial Promotion Amendment Order is one of four S.I.s implementing the Directive. The following is a brief description on what the other instruments will do when they are made. The Electronic Commerce Directive (Financial Services and Markets) Regulations 2002 will implement Article 3.1 of the Directive, in relation to financial services, by extending the territorial scope of regulation under FSMA to cover outgoing information society services. The Regulations will amend section 418 of FSMA, so that a person carrying on an activity consisting of the provision of an information society service from an establishment in the UK to a person in another EEA State will be regarded as carrying on that activity in the UK. They will also insert new definitions into section 417 of FSMA. These will apply also to the Financial Promotion Amendment Order, and to the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (Electronic Commerce Directive) Order 2002, by virtue of section 11 of the Interpretation Act 1978. Finally, they provide that the DTI Regulations do not apply in cases where provision is made by financial services legislation (including rules made by the Financial Services Authority), in order to avoid duplication.
The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (Electronic Commerce Directive) Order
6. The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (Electronic Commerce Directive) Order will (amongst other things) implement Article 3.2 of the Directive by excluding from the concept of a "regulated activity" activities consisting of the provision of an information society service from an EEA State other than the UK. Such activities will, by dint of other EEA States' implementation of Article 3.1 of the Directive, now become subject to regulation in the country of establishment of the service provider.
Regulatory Impact
7. The Financial Promotion Amendment Order extends the scope of the financial promotion regime to cover promotions made by information society service providers established in the UK to other EEA states. This helps to meet the Government's obligation to implement the E-Commerce Directive into UK law. The Government recognised the need for amendment to the Financial Promotion regime as part of the implementation of the E-Commerce directive during FSMA's parliamentary passage.
8. The Economic Secretary to the Treasury is satisfied that the benefits of this order justify the costs. A Regulatory Impact Assessment accompanies this order and the implementation of the E-Commerce directive in the area of financial services more generally.
ECHR Compatibility
9. The Economic Secretary to the Treasury is satisfied that the provisions of the Financial Promotion Amendment Order are compatible with the Convention rights.
Declaration
10. The Economic Secretary to the Treasury has approved this Memorandum.