PriceWaterhouseCoopers proposes changes in the regulation of financial services on the Internet

If regulation of the delivery of financial services through e-commerce fails to keep up with the online revolution, it could stifle the unprecedented opportunities for innovation, competition and growth presented by e-commerce.

That`s according to a new PricewaterhouseCoopers report titled, Protect & Survive - Regulation of e-commerce in the financial services industry, which reveals that global financial services businesses are concerned by the lack of consistency in the different regulatory frameworks around the world. The report recommends that regulators strive for common standards and approaches at a global level.

Doug Franke, PricewaterhouseCoopers E-business partner in South Africa said: "Historically, regulations/regulators have acted to protect investors, which has resulted in positive outcomes for society. Physical borders were financial boundaries. Today national borders matter much less and have little meaning in the global financial market. The new challenge for Southern African regulators is to react swiftly to the new technologies to ensure that their constituents have the same opportunities as all global investors."

"The financial services industry is ideally suited to the internet. The challenge for regulators and financial services organisations is to provide a global standard that creates safety and security for financial services transactions over the Internet, while protecting privacy. A balance has to be found between protecting consumers and letting the markets function without too much interference." said John Tattersall, Partner, PricewaterhouseCoopers.

By 2004, forecasts are that 29.5 million customers in Europe will be accessing financial services by internet, interactive television and mobile phone technology.

So, regulators and the industry need to move fast to identify possible regulatory mandates and models of the future to avert the risks posed by security, privacy and reliability issues that undermine consumer confidence in buying over the internet as well as other issues such as share ramping, fraud, mis-selling and money laundering.

The report recognises the importance of consumer education in developing appropriate safeguards for the online age, along with a commitment by regulators to adopt and adapt to new technology.

Above all, by setting high standards of good practice and risk management, the industry can strengthen consumer confidence and play its part in creating a more coherent and consistent worldwide regulatory framework.

Tattersall continued: "In the `real world`, domestic markets offer investors assurances that their transactions are covered by national, legal and private sector consumer protection. However, in the global electronic market-place, such protection cannot be taken for granted."

The report identifies some sign of progress in the development of harmonised international standards for online financial services such as the European Commission`s recent E-commerce Directive. However, continuing uncertainty could discourage potential investment.