ENF 19.4 The FSA's policy on the making of electronic commerce activity directions

The FSA will exercise the power to make an electronic commerce activity direction on a case-by-case basis. When deciding whether to make a direction, the FSA will undertake an assessment of whether the circumstances of the particular case meet the policy conditions set out in ENF 19.3.2 G.

The FSA envisages that its approach to the use of the direction power will be as follows. On obtaining information concerning possible financial crime facilitated through or involving an incoming ECA provider, or detriment to United Kingdom markets or UK ECA recipients caused by the activities of an incoming ECA provider, the FSA would contact the relevant EEA regulator of the incoming ECA provider. The FSA would expect the relevant EEA regulator to consider the matter, investigate it where appropriate and keep the FSA informed about what action, if any, was being taken. The FSA may not need to be involved further if the action by the relevant EEA regulator addresses the FSA's concerns.

However, there are likely to be circumstances in which the FSA will need to use the electronic commerce activity direction power. Examples could include where it was necessary to stop the behaviour complained of, or to make the continued provision of services by the incoming ECA provider conditional upon compliance with specified requirements. Overall, the FSA may use the direction power:

1. (1)

   where:

   1. (a)

      the behaviour complained of was causing, or had the potential to cause, major detriment to consumers in the United Kingdom; or

   2. (b)

      the incoming ECA provider's activities have been used, or have the potential to be used, to facilitate serious financial crime or to launder the proceeds of a crime; or

   3. (c)

      the making of the direction is considered to be necessary for other reasons of public policy relevant to the regulatory objectives; and

2. (2)

   either:

   1. (a)

      the relevant EEA regulator is unable to take action, or has not within a reasonable time taken action which appears to the FSA to be adequate; or

   2. (b)

      the relevant EEA regulator and the FSA agree that, having regard to the circumstances of the particular case, action against the wrong-doing would be taken more effectively by the FSA.

The question of whether the FSA decided to prevent or prohibit the incoming electronic commerce activity, or to make it subject to certain requirements (for example, compliance with specified rules), will depend on the overall circumstance of the case. A relevant consideration will be whether the FSA is satisfied that its concerns over the incoming electronic commerce activity can be adequately addressed through the imposition of a requirement, rather than a complete prohibition on the activity. Set out below (in (1) to (5)) is a list of factors the FSA may consider. The list is not exhaustive.

1. (1)

   The extent of any loss, or risk of loss, or other adverse effect on UK ECA recipients:The more serious the loss or potential loss or other adverse effect on them, the more likely it is that the FSA's exercise of its powers to prohibit the activity altogether will be appropriate, to protect the interests of UK ECA recipients.

2. (2)

   The extent to which customer assets appear to be at risk.

3. (3)

   The risk that the incoming ECA provider's activities may be used or have been used to facilitate financial crime or to launder the proceeds of a crime:Information available to the FSA, including information supplied by other law enforcement agencies, may suggest that the incoming ECA provider is being used for, or is itself involved in, financial crime. Where this appears to be the case, a direction that the incoming electronic commerce activity should cease may be appropriate.

4. (4)

   The risk that the incoming ECA provider's activities present to the financial system and to confidence in the financial system.

5. (5)

   The impact that a complete prohibition on the activity would have on UK ECA recipients.

The FSA may consider that a case is urgent, in particular, where:

1. (1)

   the information available to it indicates serious concerns about the incoming electronic commerce activity that need to be addressed immediately; and

2. (2)

   circumstances indicate that it is appropriate to use the direction power immediately to prohibit the incoming electronic commerce activity, or to make the carrying on of the activity subject to specified requirements.

The FSA will consider the full circumstances of the case when deciding whether exercising the direction power without first taking the procedural steps set out in ENF 19.3.3 G is an appropriate response to such concerns. The factors the FSA may consider include those listed in ENF 19.4.4 G (1) to (4). There may be other relevant factors.