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E-Commerce Directive — UK Implementation

exclusion does not apply for insurance services falling withinthe scope of the insurance Directives.

Amending the Financial Promotions Order and thePromotion of Collective Investment Schemes (Exemptions)Order through the Financial Promotion (Amendment) E-Commerce Directive Order, the draft proposal provides thatan electronic commerce activity provider established inanother Member State may communicate a financial promo-tion to the UK without breaching the financial promotionrestrictions. This does not apply for areas, covered by thederogations for advertising or unsolicited commercial com-munication made by e-mail.

Implementing the E-Commerce Directive, the draft Elec-tronic Commerce Directive (Financial Services and Markets)Regulations introduce new powers for the FSA as regards theapplication and the enforcement of rules or requirements inrespect of incoming electronic commerce activity providerswhere those rules fall into one of the general derogations fromthe country-of-origin approach.The general derogation appliesfor contractual obligations concerning consumers, e-moneyinstitutions, for insurance companies, for advertising of theirunits by collective investment undertakings and the permissibil-ity of unsolicited commercial communications.

According to the draft Regulations, HMT proposes toimplement the case-by-case derogations in the financial areaby giving the FSA the power to direct that an incoming elec-tronic commerce activity provider must stop its activity, or isonly allowed to carry on such business,when complying withspecific requirements set out by the FSA on a case-by-casebasis.The power of direction applies when the measure is nec-essary for the prevention, investigation, detection or prosecu-tion of criminal conduct, for the protection of consumers orfor other reasons of public policy and proportionate to the

regulatory objectives in the Financial Services and MarketsAct. The FSA, as the enforcement authority, has to give theMember State in which the service provider is established thepossibility to take action first.The relevant Member State andthe Commission have to be notified of the intention of makinga direction by the FSA. In cases of urgency, the FSA could takeaction first and notify the European Commission and the rele-vant Member State afterwards.

Once the E-Commerce Directive is implemented, the FSAmust ensure that its conduct of business rules do not differ-entiate between customers within the EU, regardless ofwhether they are located in the UK or another Member State.Therefore, outgoing electronic commerce activity providerswill also be subject to the FSA requirements except in thoseareas covered by general derogations. Currently, an e-com-merce service provider established in another Member Stateis bound by UK authorization or financial promotion require-ments when providing its services within the UK.The coun-try-of-origin approach requires the FSA to lift theserequirements placed on incoming providers.

The FSA will also have to amend the Handbook of Rulesand Guidance to impose certain disclosure and other require-ments contained in the E-Commerce Directive (Article 5-11)on all providers whether they provide a financial service topeople in the UK or overseas.

Seeking to simplify the applicable requirements, the FSAproposes to create a new separate sourcebook, called the E-Commerce Directive sourcebook. This will contain all therequirements imposed on incoming providers and the mini-mum information requirements applicable to all providers.

HHeeaatthheerr RRoowwee, Partner and DDoorrootthheeee GGeeyyrrhhaalltteerr, LawyerLovells, London.

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