The problem of facing many regulatory environments, and the expense that this entails, is not new, the report said. "The reality is that e-commerce has brought this issue to the fore because it is a global medium," Philip Gough, one of the authors of the report, told Reuters in an interview. He said financial firms with global reach have an advantage in that they are already authorised to do business in pretty well every major market around the world.

"The problem really arises for domestic players who want to start selling via e-commerce across borders and for new entrants to the financial services industry," Gough said. Regulators around the world are beginning to discuss the problems but are still a long way from any cohesive strategy. Gough said the European Union's recently adopted e-commerce directive is a step in the right direction, but is limited in that it only governs the 15 EU member states. The directive proposes the "country of origin Principle" in regulation of e-commerce where a firm will be regulated in the member state from which the services are provided.

OECD leads international cooperation
On a global level, work is taking place within the OECD, the World Trade Organisation (WTO) and the International Organisation of Securities Commissions (IOSCO) on international co-operation, but currently the focus is greater supervision of financial companies and enforcement or rules rather than on facilitating the development of e-commerce. The danger is unless regulators get their act together, this will hurt the ability of consumers to gain access to financial service providers except at a domestic level. "Consumers would benefit if the market became more international and competition is not restricted," Gough said.

The report also discusses the question of how the regulators themselves can benefit from developments in Internet technology to improve monitoring of the industry. Gough said that apart from the US Securities and Exchange Commission (SEC), which monitors market information on a real-time basis, few regulators have started to use this tool. Examples of how this could be used would be to monitor the market practice of "best price execution" of securities deals and to test the suitability of advice in the area of pensions.

Regulators seem to be willing to pass the burden of having appropriate IT systems on to the management of the Financial services companies themselves. "They are saying that firms have to get it right or `we will come after you'," Gough said. However, how good a firm's IT is, is already emerging as one of the risks they have to take into account in their business in the e-commerce field and this has already been demonstrated in the area of electronic share broking. Consumers have found that sometimes their e-brokers experience breakdowns, known as system down-time, at highly inconvenient moments when the market, for example, has turned against them.

The individual investor's only redress is to shift the account to another broker or, and this is being seen increasingly in the US, to have multiple accounts to enable access to the market when one or other broker is down. "It could be that e-brokers will have to disclose their system up-time performance and that this will turn out to be a key indicator for consumers," said Gough.