1This chapter applies to incoming ECA providers.
This chapter outlines:
the FSA's power under the ECD Regulations to direct that an incoming ECA provider, whether a firm or not, may no longer carry on a specified incoming electronic commerce activity, or may only carry it on subject to specified requirements;
the FSA's policy on the exercise of that power.
A key element of the E-Commerce Directive is the freedom of electronic commerce activity providers from one EEA State to provide information society services freely into another EEA State. Consistent with this principle, and subject to certain rules in ECO 1, the Handbook enables an incoming ECA provider to provide services in that capacity to UK ECA recipients without the need to comply with FSA requirements which fall within the Directive's coordinated field.
However, the Directive contains a 'derogation' which allows an EEA State where the recipient is based to restrict the freedom to provide an electronic commerce activity from another EEA State where certain conditions are met. The derogation is implemented in the United Kingdom through provisions of the ECD Regulations. This chapter outlines the relevant provisions of the ECD Regulations and the FSA's policy on the use of the power to make directions against incoming ECA providers.
Under regulation 6 of the ECD Regulations, provided certain policy and procedural conditions are met (see ENF 19.3.2 G to ENF 19.3.3 G), the FSA may direct that an incoming ECA provider may no longer carry on a specified incoming electronic commerce activity, or may only carry it on subject to specified requirements. The requirements may include a requirement that the provider must comply with one or more rules (with such modifications, if any, as may be specified) with respect to the carrying on of the activity. If an assets requirement of a kind mentioned in section 48(3) of the Act is specified in a direction, the requirement has the same effect in relation to the provider to whom the direction applies as if it had been imposed on that provider by the FSA acting under section 45 of the Act.
The policy conditions for the making of an electronic commerce activity direction are that:
the FSA considers:
the making of the direction to be necessary for:
the prevention, investigation, detection or prosecution of criminal conduct; or
the protection of consumers; or
other reasons of public policy relevant to the regulatory objectives; and
that the carrying on of the incoming electronic commerce activity by the person to whom the direction is to apply prejudices, or presents a serious and grave risk of prejudice to, any of the objectives referred to in (a); and
the direction appears to the FSA to be a proportionate means of achieving, or addressing the prejudice or risk of prejudice to, any of those objectives.
The procedural conditions are that:
the FSA has requested the relevant EEA regulator to take measures to remedy the situation giving rise to the request;
the relevant EEA regulator:
the FSA has notified the Commission and the relevant EEA regulator of its intention to make the direction; and
the FSA has notified the person to whom the direction is to apply of its proposal to make the direction, and given the person the opportunity to make representations to the FSA in such manner, and within such period, as the FSA may determine.
However, where the case appears to it to be one of urgency, the FSA may make a direction regardless of whether the procedural conditions in ENF 19.3.3 G are met provided it:
notifies the Commission and the relevant EEA regulator as soon as possible of the direction; and
gives each of these bodies a statement of its reasons for the urgency.
Regulation 6(2) of the ECD Regulations states that an electronic commerce activity direction must be in writing.
The FSA may vary or revoke a direction on its own initiative, or on the application of the incoming ECA provider to whom the direction applies. Under regulation 10(4) of the ECD Regulations, the FSA must not vary a direction on its own initiative unless it has given the provider concerned the opportunity to make representations to the FSA in such manner, and within such period, as the FSA may determine. However, this requirement does not apply where the case appears to the FSA to be one of urgency.
Where the FSA makes a direction, varies a direction on its own initiative, or refuses to vary or revoke a direction on the application of the incoming ECA provider, the incoming ECA provider to whom the direction applies may refer the matter to the Tribunal.
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:
where:
the behaviour complained of was causing, or had the potential to cause, major detriment to consumers in the United Kingdom; or
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
the making of the direction is considered to be necessary for other reasons of public policy relevant to the regulatory objectives; and
either:
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
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.
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.
The extent to which customer assets appear to be at risk.
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.
The risk that the incoming ECA provider's activities present to the financial system and to confidence in the financial system.
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:
the information available to it indicates serious concerns about the incoming electronic commerce activity that need to be addressed immediately; and
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.
An incoming ECA provider may have the status of an authorised person, for example, because that it passports into the United Kingdom in respect of other activities which are regulated activities. The enforcement powers available to the FSA where an incoming ECA provider who is an authorised person breaches an electronic commerce activity direction include powers to seek injunctions (see ENF 6), to require or apply to court for restitution (see ENF 9), and to impose public censures and financial penalties (see ENF 11 to ENF 13).
The enforcement powers available to the FSA where an unauthorised incoming ECA provider breaches an electronic commerce activity direction include powers to seek injunctions (see ENF 6) and to apply to court for restitution (see ENF 9).
The FSA may use the information gathering and investigation powers under sections 165 to 167 and section 168(4) and (5) of the Act where it considers an incoming ECA provider may have contravened an electronic commerce activity direction. These powers are discussed in ENF 2.
The FSA's decision to make, revoke or vary an electronic commerce activity direction will generally be taken by the RDC Chairman. However, this is subject to two exceptions.
In an urgent case and if the Chairman is not available, the decision will be taken by an RDC Deputy Chairman and where possible, but subject to the need to act swiftly, one other RDC member.
If a provider who has been notified of the FSA's intention to make a direction or to vary a direction on its own initiative makes representations within the period and in the manner required by the FSA, then those representations will be considered by the RDC, rather than by the RDC Chairman alone. Having taking into account the provider's representations, the RDC will then decide whether to make the direction, or to vary the existing direction.
Where a provider must be given the opportunity to make representations to the FSA in relation to a proposed direction or variation of a direction (see ENF 19.3.3 G and ENF 19.3.6 G), the RDC Chairman will determine in each case the manner and the period within which those representations should be made.
Regulation 10(8) of the ECD Regulations provides that if the FSA makes a direction, it may publish, in such manner as it considers appropriate, such information about the matter to which the direction relates as it considers appropriate in furtherance of any of the objectives referred to in ENF 19.3.2 G (1)(a). However, under regulation 10(9), the FSA may not publish information relating to a direction if publication would, in the FSA's opinion, be unfair to the provider to whom the direction applies or prejudicial to the interests of consumers.
When deciding what information, if any, to publish and the appropriate manner of publication, the FSA will consider the full circumstances of each case. The FSA anticipates that it will generally be appropriate to publish relevant details of a direction, in order to protect and inform consumers. However, in accordance with the regulation 10(9) prohibition, it will not publish information if it considers that publication would be unfair to the provider or prejudicial to the interests of consumers.
