Internet Banking and the Law in Europe Regulation Financial Integration and Electronic Commerce

With the emergence of the Internet as a platform for the provision of online banking services, the creation of a pan-European market for banking services appeared a realistic proposition

I N T E R N E T B A N K I N G A N D T H E L AW

I N E U R O P E

The European Union has long sought to create a single financial area across Europe where consumers in one country benefit from financial markets and activities in other countries With the emergence of the Internet as a platform for the provision of online banking services, the creation of a pan-European market for banking services appeared a realistic proposition In practice, however, this has not happened This book asks why and argues that the creation of banking markets via the Internet relies on both available technologies and appropriate laws and regulations The institutional and legal framework for online banking services in the single European market are examined, as is the level of legal harmonization achieved in the UK, France and Germany under the influence of the EU Directives pertaining to online banking activities.

a p o s t o l o s a t h g k o u t z i n i s is an Associate in the Capital Markets Group of the London oYce of the international law firm Shearman & Sterling LLP His practice includes providing legal advice

to investment banks and major corporate clients regarding equity and debt securities oVerings and other complex capital market transactions, exchange listings, corporate governance and other corporate matters Prior to joining the firm, he was Lecturer in Financial Law and Joint Academic Director of the MSc Programme in Finance and Financial Law at the School of Oriental and African Studies (SOAS), University

of London He also held a Teaching and Research Fellowship at the Centre for Commercial Law Studies at Queen Mary, University of London He is admitted to practise law in the State of New York, England and Wales, and Greece.

Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo

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ISBN-13 978-0-521-86071-0

ISBN-13 978-0-511-34861-7

© Apostolos Gkoutzinis 2006

2006

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C O N T E N T S

Tables of legislation xix

Table of EU legislation xxvii

Table of international conventions xxxvi

Table of cases xxxvii

2 The legal foundations of electronic banking

vii

Electronic finance and credit 40

Online securities trading 42

part ii Online banking and international market access: The

causes of incomplete financial integration and what

3 Legal barriers and necessary regulatory reforms 51

The causes of incomplete European integration in onlinefinancial services 51

International governance of cross-border

electronic commerce and finance 63

EU policies aVecting electronic commerce in

Minimum harmonization of national laws and

enforcement practices as prerequisites of mutual

recognition of national laws and ‘home country’

part iii EU harmonization and convergence of national laws

relating to electronic banking activities 135

5 Risks and regulatory concerns relating to electronic bankingactivities and the convergence of national prudential

The prudential regulation of electronic banking activities in

6 EU measures of legal harmonization concerning electroniccommerce and distance marketing of financial services,data protection, banking contracts and investor

The harmonization of national laws of

Assessing the level of convergence of national

laws regulating Internet banking 226

part iv Applicable law and allocation of regulatory responsibility

in cross-border electronic banking activities 229

7 Cross-border Internet banking and the principle

of ‘home country’ control in the EU Financial

Services Directives 231

Cross-border Internet banking without the benefit of

‘home country’ regulation and supervision 232

Mutual recognition of national laws on the

basis of ‘home country’ control in the Banking

and Investment Services Directives 237

The notion of ‘general good’ in the Banking Consolidation

‘Host country’ powers to apply domestic laws in

8 Mutual recognition of national laws under the principle

of ‘country of origin’ of the Electronic Commerce

Scope of application of the ‘country of origin’

The ‘coordinated field’ 266

The implementation of the ‘country of origin’

The case-by-case derogation of Article 3(4)–(6) 281

The normative impact of the principle of ‘country of

Choice of law and forum in consumer contracts 296

Choice of law and the impact of mandatory rules 305

Select bibliography 319

T A B L E S

1.1 Penetration of Internet banking and brokerage

1.2 Internet banking in the United Kingdom,

6.2 Coverage of Unfair Contract Terms Regulation in key

P R E F A C E

This book is the culmination of a five-year long research project, whichwas carried out initially at the Centre for Commercial Law Studies,Queen Mary, University of London, then at Harvard Law School and,

at the final stages, during my sparse spare time as an attorney at theLondon oYce of Shearman and Sterling (London) LLP The book en-capsulates my fascination with the Internet and my interest in how thepowers of electronic networks, information technology, advanced tele-communications and financial innovation are transforming national andinternational financial markets in Europe and elsewhere It is also a bookabout international financial integration and cross-border trade in fi-nancial services and how the Internet can facilitate consumers’ access tofinancial services and firms’ access to markets across national borders.Artificial legal and structural barriers to cross-border financial servicesseem so unreasonable when one realizes the human and economic cost ofpolicies and actions which purport to eliminate physical barriers At thetime when we spend astronomical amounts of money to improve ourcommunications and systems of transportation by air, land or sea – thusdiminishing time and distance in the circulation of goods and services –

at the same time we are keen to maintain (or at least we tolerate)artificial barriers which are no less eVective than distance and rough ter-rain in disturbing trade in goods and services, particularly financialservices Thus the failure of the single European market project toabolish all direct and indirect legal restrictions on the free movement

of financial services – which are suitable for circulating over computernetworks – in the era of the Internet was a reason for reflection andresearch

I would never have completed this project had it not been for theinfluence, support, encouragement, assistance and advice of a largenumber of people

Chris Reed, Professor of Electronic Commerce Law and my researchsupervisor during my formative years, guided me through this process

xv

magnificently To the best of my knowledge, Professor Chris Reed isunique in his achievement to be an e-commerce expert and a financialservices expert It was my privilege to work under his supervision DrRosa Maria Lastra, Senior Lecturer at the Centre for Commercial LawStudies was my second doctoral supervisor and has now become a closepersonal and family friend She was immensely influential in manyrespects She contributed her world-class expertise in the law and eco-nomics of financial regulation and provided inspiration for key parts ofthe thesis She has oVered me unconditional support on various aca-demic fronts and assisted in the development of this book with herguidance and accuracy I will always remain deeply indebted for theopportunity to test my ideas teaching in her LLM course Regulation ofFinancial Markets at the University of London in the academic year2003–4.

The Greek government and the director and staV of the State ships Foundation (Athens) enabled me to pursue my graduate studieswith the generous funding that I received as a Banking Law Scholar1999–2003 Professor Dr Aristidis Chiotellis of the University of Athenswas my supervisor appointed by the State Scholarship Foundation andsupported me throughout this project I must also thank the CentralResearch Fund of the University of London for funding my researchexpedition to Bonn, Paris and Brussels in the summer of 2002

Scholar-Professor Laurence Harris, Director of the Centre for Financial andManagement Studies, School of Oriental and African Studies, University

of London oVered me a unique working environment and unlimitedsupport to progress with this book as I was teaching and working asLecturer in Financial Law at the Centre I also sincerely thank ProfessorJoseph Norton for oVering me the opportunity to teach as a Fellow at theInternational Financial Law Unit of the Centre for Commercial LawStudies Last but not least, I would like to thank the partners, lawyersand support staV of Shearman and Sterling (London) LLP for providingsuch a stimulating and resourceful working environment at the very laststages of this project The reader should kindly note, however, that

I wrote the book in a personal capacity and no views or arguments heldshould be attributed to Shearman and Sterling LLP, its partners andlawyers in any way whatsoever

I owe deep gratitude to Eric Ducoulombier (European Commission),Alain Duchateau (Commission Bancaire & Electronic Banking Group),Peter Snowdon and Peter Parker (FSA), Stefan Czekay (Bundesanstalt fu¨rFinanzdienstleistungsaufsicht), Sven Jongebloed and Magdalen Heid

(Deutsche Bundesbank) for sharing their views with me; the library staV

at the Institute of Advanced Legal Studies, Harvard Law School, QueenMary College, British Library, London School of Economics, University

of Bonn, University of Paris (Paris II) and Free University of Brussels fortheir professionalism and quality of services

I thank all my friends and family for their strong encouragement andsupport, particularly Manolis and Christina Michaelidis, Kalliopi andVaggelis Spanos, Kostas Georgiadis, Athanasios Stogiannidis, Rosanna

M Annan, Nikolaos Skoulas, Alexis and Niki Lappas, Marinos and EleniKyriakopoulos, Antonios Patrikios, Nikolaos Koutsoupias and GeorgiaFilitsopoulou I owe special thanks and gratitude to Akis and MariaIoannidis for their love, support and warm hospitality in London overthe recent years

I am extremely grateful to my editor Jane O’Regan, the productioneditor Wendy Phillips and their dedicated teams at Cambridge Univer-sity Press for turning my ideas into a book Words cannot describe mypride in publishing my first book with this prestigious institution

My spiritual fathers in the Greek Orthodox Church, in Kavala, MountAthos and London I thank from my heart for praying for me, particularlythe Very Revs Father Constantinos, Father Myron, Father Anthimos,Father Georgios and Father Demetrius

God blessed me with a caring family where no one is left to carry aburden alone and everybody shares his joy with others My belovedbrother the Very Reverend Arch Father Sophronios Gkoutzinis has beensupporting me all my life I thank him for his prayers, love and respect

My parents, Athanassios and Maria, have always carried all the burdensthat I could not This book is theirs more than it is mine Maria,Athanassios and Konstantinos, my lovely children, are supporting theirdaddy in their own way

My wife Despina is what makes all that interesting She has been mystrongest supporter and a resourceful supplier of hope She alonedeserves all the credit This work is dedicated to her

T A B L E S O F L E G I S L A T I O N

FranceCode Civil (Civil Code)

Loi 2003-706 (Financial Security Act), 1 August 2003 160

Loi 2004-575 pour la Confiance dans L’Economie Nume´rique, 2004-575 281 art 14 168, 281

Elektronischer Gescha¨ftsverkehr Gesetz (EGG) (E-Commerce Act) 167

Finanzdienstleistungaufsichtsgesetz (FinDAG) (Integrated Financial Services Supervision Act) 162

Gesetz gegen den Unlauteren Wettbewerb (UWG) (Unfair Competition Act) 176 } 1 176

} 3 176

} 23 177

Gesetz u¨ber das Aufspu¨ren von Gewinnen aus Schweren Straftaten (GwG) (Money Laundering Act)

Gesetz zur A ¨ nderung der Verschriften u¨ber Fernabsatzvertra¨ge bei

Finanzdienstleistungen (Distance Marketing Act) 170

Gesetz zur Regehung des Rechts der Allgemeinen Gescha¨ftsbedingungen (Act on the Regulation of the Law of General Business Conditions) 198

Data Protection Act 1998 182

Consumer Credit (Agreements) Regulations 1983 (SI 1983/1553) 208

Electronic Commerce Directive (Financial Services and Markets) Regulations 2002 (SI 2002/1775) 167, 278

Money Laundering Regulations 2003 (SI 2003/3075) 189

Unfair Contract Terms in Consumer Contracts Regulations 1999 (SI 1999/2083) 196

T A B L E O F E U L E G I S L A T I O N

TreatiesAmsterdam Treaty 1997

86/635 Bank Accounts Directive [1986] OJ L372, 155, 239

87/102/EEC Consumer Credit Directive [1987] OJ L42, 169

95/46/EC Data Protection Directive [1995] OJ L281, 179–82

2004/39/EC Directive on Markets in Financial Instruments [2004] OJ L145, 214–18 art 1(2), 215

in civil and commercial matters (Brussels Regulation) OJ 2001

European Convention for the Protection of Human Rights and Fundamental Freedoms 1950

art 8 179

General Agreement on Trade in Services (GATS)

2nd Annex on Financial Services

art 2(a) 101

art 5 1

Mine Ban Treaty 1997 130

Paris Convention for the Protection of Industrial Property 1883 171

art 10bis 172

xxxvi

T A B L E O F C A S E S

AustraliaDow Jones Inc v Joseph Gutnick [2002] HCA 56, 259

EC cases – numerical orderC-26/62 Van Gend en Loos v Nederlandse Administratie der Belastingen [1963] ECR 1, 85

C-6/64 Costa v ENEL [1964] ECR 585, 85

C-2/74 Reyners v Belgium [1974] ECR 631, 89

C-33/74 Van Binsbergen v Bestuur Vande Bedrijfsvereniging voor de Metaalnijverheid [1974] ECR 1299, 89

C-24/76 Estasis Salotti di Colanzi Aimo e Gianmario Colzani v RUWA

Postereimaschinen GmbH [1976] ECR 1831, 293, 294

C-150/77 Bertrand v Ott [1978] ECR 1431, 299

C-33/78 Somafer SA v Saar-Ferngas AG [1978] ECR 2183, 277

Joined Cases C-110/78 and 111/78 Ministe`re public v Van Wesemael [1979]

ECR 35, 140

C-120/78 Rewe-Zentral AG v Bundesmonopolverwaltung fu¨r Branntwein (the ‘Cassis

de Dijon’ case) [1979] ECR 649, 90, 140, 143

C-130/78 Salumificio di Cornuda SpA v Amministrazione delle Finanze dello Stato [1979] ECR 867, 131

C-34/79 R v Henn and Derby [1979] ECR 3795, 97

C-279/80 Webb (Criminal proceedings) [1981] ECR 3305, 241

C-53/81 Levin v Staatsecretaris van Justitie [1981] ECR 1035, 199

C-96/81 Commission v Netherlands [1982] ECR 1791, 273

Joined Cases C-115/81 and 116/81 Adoui v Belgium [1982] ECR 1665, 282

C-286/81 Osthoek’s Uitgeversmaatschappij [1982] ECR 4575, 146

Joined Cases C-286/82 and 26/83 Luisi and Carbonne v Ministero del Tesoro [1984] ECR 377, 238

C-15/83 Denkavit Nederland BV v Hoofproduktschap Voor Akkerbouqprodukten [1984] ECR 2171, 125

xxxvii

C-71/83 Partenreederei ms Tilly Russ v NV Haven- & Vervoerbedrijf Nova and NV Goeminne Hout [1984] ECR 2417, 294

C-220/83 Commission v France [1986] ECR 2663, 140, 251

C-54/84 Paul v Emmerich [1985] ECR 915, 251

C-205/84 Commission v Germany [1986] ECR 3755, 141, 277

C-89/85 Ahlstrom Osakeyhtio v Commission [1988] ECR 5193, 58

C-352/85 Bond van Adverteerders v The Netherlands [1988] ECR 2085, 264 C-407/85 Drei Glocken v Kritzinger [1988] ECR 4233, 146

C-263/86 Belgium v Humbel [1988] ECR 5365, 264

C-186/87 Cowan v Tresor Public [1989] ECR 195, 94

C-382/87 Buet and EBS [1989] ECR 1235, 307

C-25/88 Ministe`re Public v Buchara [1989] ECR I-1105, 128

C-294/89 Commission v France [1991] ECR I-3591, 144

C-76/90 Sa¨ger v Dennemeyer & Co Ltd [1991] ECR I-4221, 90, 115, 138

C-2/91 Opinion of the ECJ [1993] ECR I-1061, 131

Joined Cases C-267/91 and C-268/91 Keck and Mithouard (Criminal proceedings) [1993] ECR 1-6097, 71

C-275/92 HM Customs and Excise v Schindler [1994] ECR I-1039, 140

C-288/92 Customs Made Commercial Ltd v Stawa Metallbau GmbH [1994] ECR I-2913, 250

C-68/93 Shevill v Press Alliance [1995] ECR I-415, 258–9

C-364/93 Antonio Marinari v Lloyds Bank [1995] ECR I-2719, 258

C-384/93 Alpine Investments BV v Minister van Financie¨n [1995] ECR I-1141, 2, 93,

C-101/94 Commission v Italy [1996] ECR I-2691, 140

C-193/94 Skanavi and Chrissanthakopoulos (Criminal proceedings) [1996]

ECR I-929, 126, 241

C-233/94 Germany v Parliament and Council [1997] ECR I-2405, 98, 139, 141, 240 C-238/94 Garcia v Mutuelle de Prevoyance Sociale d’Aquitaine [1996] ECR I-1673, 240 C-3/95 Reisebu¨ro Broede v Sandker [1996] ECR I-6511, 139, 140

C-57/95 France v Commission [1997] ECR I-1627, 246