Laws and Regulation of Electronic Finance

Law and Regulation of Electronic
Finance and Internet Banking

Course Introduction and Overview
Contents
Course Objectives 3
The Course Author 3
What this Course is About 3
An Overview of the Course 4
Learning Outcomes 6
Study Materials 6
Teaching and Learning Strategy 6

Law and Regulation of Electronic Finance and Internet Banking
2 University of London
Course Objectives
Welcome to the course Law and Regulation of Electronic Finance and Internet
Banking. The course aims to link two apparently distinct topics: information
technology and online networks and financial services and markets, and to
introduce and examine the legal issues connected with them.
The Course Author

Apostolos Gkoutzinis is an associate in the Capital Markets Group of the
London office of Shearman and Sterling, a major international law firm,
where he advises investment banks and corporations on all aspects of
international securities and capital markets law.
Prior to joining the firm, he was Lecturer in Financial Law at the University
of London, where he taught a range of courses on international finance and
capital markets law. He has also published extensively in international
banking and financial law journals and has spoken in conferences and
seminars in Europe and the U.S. Apostolos is a graduate of Harvard Law
School (LLM ’05), the University of London (PhD ’04, LLM ’04) and the
Aristotle University of Thessaloniki (BA 1997). His book on Internet Banking
Law was published by Cambridge University Press in November 2006.
What this Course is About

On close inspection, the legal problems arising from the provision of finan-
cial services, and the creation of financial markets over computer networks
merit independent study in their own right. In the basic form, financial
transactions are about creating, transferring and settling claims for payment
between market participants.
These monetary claims are intangible in nature and do not rely on paper to
circulate. They are merely contractual obligations, which can be easily
stored, processed, transmitted and distributed in the form of data. Just think
the economic cycle of the most basic financial asset: a bank loan. A bank loan
represents the bank’s monetary claim against the borrower for repayment of
a sum borrowed and the applicable interest. From the initial point of contact
of the borrower, to the processing of the application, to the granting of the
loan, to the repayment of the loan and the final extinguishment of the
borrower’s obligation, the entire asset is created, delivered, and satisfied
through entries in computer-based and electronically administered data-
bases and subsequently transferred or settled by appropriate book entries, in
response to messages transmitted via means of telecommunication.
Information technology, computer networks and the Internet enable the
swift transmission of this information from one party to another and elimi-
nate the constraints of distance and geography on the creation,
administration and trading of financial claims and assets. You can replace
the example of a bank loan with any conceivable type of financial asset,
Centre for Financial and Management Studies 3

including securities such as stocks and bonds. The mechanics and legal
framework may change, but the basic conceptual principles and legal issues
will not.
This course aims to introduce and discuss these legal issues. Unit 1 provides
an introduction to the activities, markets and services that fall within the
concept of electronic finance and Internet banking. The basic legal concepts
and issues under English law will be picked up in Unit 2. This unit will
examine the commercial operations and activities of online financial services
firms and apply the traditional principles of English law with the aim to
identify the main legal issues that require our attention. The most exciting
feature of online networks – their ability to facilite access to information that
transcends national borders on a global basis – will be the subject of Unit 3.
Information technology and computer networks are probably the main
drivers of financial globalisation. Thus, this is a topic that requires separate
treatment. The law of electronic finance and Internet banking consists of two
main sets of legal principles and rules: the first one relates to the regulation
and supervision of online banking and financial activities by regulatory
authorities; the second relates to the laws governing the private contractual
relationships of market participants. Unit 4 will examine the regulatory
aspects, while Unit 5 will focus on the law relating to the contractual rela-
tionships in online financial contracts and any non-regulatory laws
applicable thereto.
Securities activities such as securities trading over the Internet have their
own legal background, quite distinct from the regulation of electronic
banking activities. Unit 6 will therefore discuss the main legal issues
pertaining to online securities trading and the impact of the Internet in
capital markets. The European Union has sought to create a genuine
pan-European financial market for a long time. Unit 7 will examine the
legislative initiatives and EU law relating to financial activities, with an
emphasis on legislative initiatives relating to online financial services.
Finally, Unit 8 will discuss the conflict of laws issues generated by cross-
border online contracts between market participants operating under
different systems of law.
An Overview of the Course

The course consists of eight ‘Units’, each with its own core text, set readings,
questions and exercises. You will also do assignments, and have the oppor-
tunity to discuss the course with your fellow students through the Online
Study Centre.
The Structure of the Course

Unit 1 Introduction to Electronic Finance and Internet Banking
1.1 Introduction
1.2 The Internet and the Securities Markets
1.3 The Use of the Internet in the Banking Industry
1.4 International Market Developments - Electronic Finance in Europe and Beyond
1.5 Electronic Finance Across Borders - A Dynamic Form of International Financial Integration
1.6 Essential Institutional and Legal Conditions

1.7 Concluding Remarks
References and Websites
Unit 2 Basic Legal Concepts and Foundations of Electronic Banking and

Financial Activities
2.1 Introduction
2.2 The Law of Bank Accounts, Deposits and Electronic Transfers of Funds
2.3 The Law of Consumer Credit, Loans and Overdrafts
2.4 The Law of Online Securities Trading
2.5 Contractual Relationships via the Internet
Unit 3 Electronic Finance and the Globalisation of Financial Markets

3.1 The Second Era of Financial Globalisation
3.2 Cross-Border Capital Flows and Financial Services
3.3 The Contribution of Electronic Finance to Financial Globalisation
3.4 International Regulation of Electronic Finance
3.5 Conclusions
Unit 4 Prudential Regulation and Supervision of Electronic Finance and Banking

4.1 Introduction
4.2 Prudential Financial Regulation
4.3 Internet Banking
4.4 The Basel Committee and Electronic Financial Activities
4.5 Prudential Requirements in Key European Jurisdictions
Unit 5 Law of Electronic Banking in the United Kingdom

5.1 The Bank-Customer Relationship
5.2 The Bank as Depository of the Online Account
5.3 Electronic Transfers of Funds via the Internet
5.4 A Basic Overview of the English Law of Online Credit
5.5 The Law of Online Financial Services in the UK
Unit 6 Regulation of Securities Activities over the Internet

6.1 Introduction
6.2 Online Securities Offerings
6.3 The Use of Electronic Media in Capital Markets
6.4 Online Securities Transactions in the European Union
Unit 7 EU Law - The Financial Services Action Plan

7.1 The European Union Law of Financial Services
7.2 The First Generation of EU Banking and Financial Law - 1985-1998
7.3 The Financial Services Action Plan - 1998-2005
7.4 The European Approach to Electronic Commerce

Unit 8 Cross-Border Electronic Contracts

8.1 Conflicts of Laws in the Online Environment
8.2 Choice of Law in Cross-Border Electronic Banking Contracts
8.3 Applicable Law in the Absence of Choice
8.4 Applicable Law in Consumer Contracts for the Provision of Electronic Banking Services
8.5 Choice of Law and Mandatory Rules of the Forum of Litigation
8.6 Choice of Forum of Litigation
Learning Outcomes
When you have completed your study of this course, you will be able to
• define and distinguish the concepts of ‘electronic finance’, ‘Internet
banking’ and ‘electronic banking’
• identify and critically discuss the legal problems relating to the
completion of cross-border electronic funds transfers and securities
transactions
• critically discuss the impact of economic and financial globalisation on
the development and current state of traditional jurisdictional
principles of international law
• define and distinguish the concepts ‘prudential banking regulation’,
‘financial and non-financial risks’, ‘operational risk’, ‘internal controls’
and ‘regulation and supervision of online financial activities’
• critically discuss the impact of regulatory measures of consumer and
investor protection on the development and current state of electronic
commerce in financial services in the United Kingdom
• analyse the key issues and challenges relating to the regulation of
securities activities via the Internet
• identify and critically discuss the main components of the Financial
Services Action Plan, and the philosophy of the policies of the
European Commission towards the establishment of a functioning
market in electronic financial services
• explain the criteria used to determine the applicable law to cross-
border banking contracts for the provision of online services.
Study Materials
In addition to the eight units of the course guide, this course has a range of
recent and classic articles on the subject, which are incorporated in the
Course Reader.
You will also study a textbook:
Apostolos Gkoutzinis (2006) Internet Banking and the Law in Europe.
Teaching and Learning Strategy

As indicated earlier, this course provides the legal background to help you
participate successfully in the world of electronic banking.
To facilitate your learning, there are Review Questions and Exercises in the
units. You will get feedback and advice on your progress with the course in
the comments on your assignments, and to help you prepare for the final
examination, there is a Specimen Examination Paper.

Law and Regulation of Electronic
Unit 1 Introduction to Electronic
Contents
Unit Content 2
Learning Outcomes 2
1.1 Introduction 3
1.2 The Internet and the Securities Markets 5
1.3 The Use of the Internet in the Banking Industry 7
1.4 International Market Developments – Electronic Finance

in Europe and Beyond 9
1.5 Electronic Finance Across Borders – A Dynamic Form

of International Financial Integration 11
1.6 Essential Institutional and Legal Conditions 17
1.7 Concluding Remarks 18
References and Websites 20

Unit Content
The main purposes of Unit 1 are to introduce the applications, products and
services collectively known as electronic commerce in financial services,
electronic finance and Internet banking – or, simply, e-finance and e-
banking. In doing so, we will examine the growth of this industry in various
parts of the world and explain the reasons behind the increasing customer
acceptance of such services and products. The unit will also outline and dis-
cuss the process of international financial integration, its main elements, its
current status and how the Internet may facilitate cross-border financial and
capital flows and the provision of financial services across national borders.
Learning Outcomes
When you have completed your study of this unit and its readings, you will
be able to
• define and distinguish the concepts of electronic finance, Internet
banking, electronic banking
• identify and critically discuss the benefits and risks of electronic
financial and banking applications and services
• outline the main reasons for the growth of this industry and critically
discuss whether the advent of the Internet and its many applications
by financial institutions and markets may strengthen or improve the
global financial system
• outline and critically discuss the various methods of delivering
financial services via the Internet.
Readings for Unit 1

Course Reader
Franklin Allen, James McAndrew and Philip Strahan (2002) ‘E-Finance: An
Introduction’
Stijn Claessens, Thomas Glaessner and Daniela Klingebiel (2002) ‘Recent
Trends in Financial Services’
Karen Furst, William Lang and Daniel Nolle (2002) ‘Internet Banking in the
National Banking System’.
Textbook
Apostolos Gkoutzinis (2006) Internet Banking and the Law in Europe,
‘Introduction’ and Chapter 1 ‘Internet Banking in Europe: Basic Concepts
and Recent Trends’.
1.1 Introduction
The advent of the Internet and advances in information technology and
telecommunications unquestionably are having significant effects on
financial markets and institutions. No one seems to doubt that, in the
long run, electronic finance will result in more efficient financial
intermediation. Declining costs of information will reduce some of the
uncertainty that gives rise to financial risks. New financial instruments
and risk-management techniques will reduce the required rates of return
for bearing the risks that remain by allowing them to be unbundled and
shifted more effectively than has been possible. However, many
observers are concerned about the short-run challenges that those rapid
advances in technology pose for financial institutions and markets and
for policymakers. Some institutions inevitably will suffer erosion of their
franchise values as competitors, new and old, prove more adept at
tapping the potential gains from the new technology. Electronic finance
represents an acceleration of the process that noted economist Joseph
Schumpeter many years ago termed ‘creative destruction’ – the
continuous shift in which emerging technologies push out the old.
(Greenspan, 2000)
Today, several years after Federal Reserve Chairman Greenspan’s remarks,

the profound effect of the Internet and electronic commerce on financial
markets and the financial services industry is not seriously challenged. It is
now hard to find a financial institution that does not offer financial services
via the Internet or offer some other kind of electronic interaction with its
customers, regulators or competitors.
To such an extent have information technology and open computer net-
works transformed the world of finance that discussing the legal and
regulatory problems generated by electronic finance or Internet banking
may sound a little bit like discussing the legal problems relating to the
automobile: in modern life, the law of personal injury is more often than not
applied in connection with injuries sustained in car accidents; but despite
the influence of the car accident in the development of the law of torts and
personal injury in the second half of the twentieth century, we are far from
having a distinct branch of automobile law, with its own underlying princi-
ples and rules.
Similarly, despite the transformation of the financial services industry under
the influence of computer networks, the World Wide Web and powerful
financial software, electronic commerce in financial services has not created
a distinct field of law pertaining to the use of the Internet in the financial
services industry. It has simply raised certain new types of legal risks and
problems, which have been dealt with by innovative market practices, the
general law of banking and finance and a limited number of Internet-specific
legal reforms that were necessary to replace outdated legal forms and con-
cepts.
The advent of electronic finance has also helped us better understand the
wisdom of our banking and financial laws and regulations and their ability
to adapt to fresh financial applications and types of contracts and assist fi-
nancial innovation in the creation or delivery of products and services in
today’s global financial markets.

1.1.1 The concepts of electronic finance and Internet banking

Although electronic commerce in the sense of the production, distribution,
marketing, sale or delivery of goods and services by electronic means is
hardly new, the growth of trade in goods and services over the Internet has
rightly occupied its very own place in the contemporary economic, legal,
and public policy discourse. The unprecedented value of the Internet as a
market for goods and services is largely attributed to the concerted effects of
key technical properties of the Internet architecture:
• the seamless, costless, reciprocal and interactive transportation of data
between two decentralised units or simultaneously between a given
decentralised unit and any other unit regardless of location
• advanced software which may turn into transportable data any
conceivable format of human intelligence
• computing power and storage capacity at the terminal ends of the
network which multiply the value and ‘productivity’ of transportable
data and software applications.
For trade in goods, finance and services, the effects of the Internet have been
catalytic. Constraints associated with geography, time zones and distance
are declining dramatically. Overseas markets become realistically accessible.
Transaction and information costs for purchasing or supplying services and
goods across borders are significantly reduced and customers enjoy more
choice and better prices.
In their basic form, banking and financial transactions involve the creation,
transfer and settlement of contractual claims. For example, when Bank A
lends $100 to Customer B, the subject-matter of the transaction is the deliv-
ery of $100 to B and the creation of a debt of $100 that B owes to A (or A may
claim from B). This contractual claim (i.e. the right of A to request payment)
is intangible in nature and does not rely on paper-based vehicles to circulate.
It could be evidenced by a document but it does not have to. It may be
stored, processed, transmitted and distributed electronically, as a unit of
information in the form of digital data. Bank A will simply record a debt of
$100 in its computer-based electronic records. It may also transfer this claim
(which is a financial asset in its own right) to another bank by simply trans-
mitting an electronic message to the new owner of that claim. This simple
form of financial claim may be created, stored, transferred and extinguished
solely in the form of digital information processed by a computer some-
where and transmitted over the Internet. This very essence and property of
financial transactions to exist solely in digital form is what makes the Inter-
net a suitable medium for the creation of electronic financial markets.
Electronic finance may be broadly defined as the provision of financial
services and the creation of financial markets using means of electronic
communication and computation. It involves the use of information tech-
nology, telecommunications and computer networks to connect investors,
financial institutions, securities markets, rating agencies, their clients and
service providers such as law firms and accountants in a global, 24/7/265,
financial market for the movement of securities, capital, currencies and other
types of financial services and products.
Most people rightly associate electronic finance with the recent revolution in
advanced technologies but, in a strict sense, the use of telecommunications
for the delivery of funds or financial services predates the Internet by several
decades. Domestic and cross-border telegraphic funds transfers appeared in
the mid-nineteenth century, giving rise to legal questions interestingly fa-
miliar to the modern electronic banking lawyer: in the 1890 case Bank of
British North America v Cooper, 137 US 473 (1890), the bank was sued for
damages for the negligent performance of a transatlantic wire funds trans-
fer. Moreover, the US Federal Reserve System performs telegraphic transfers
of funds since 1918 and transfers of Treasury securities since 1920 (see the
References below for the Federal Reserve Bank of New York).
Electronic finance is therefore not all that new. What is new, however, is the
scale and unprecedented capabilities of modern electronic networks that
have revolutionised the international financial landscape, creating a global
financial marketplace for issuers, investors and financial institutions.
1.2 The Internet and the Securities Markets

In securities markets, where corporations issue stocks and bonds to inves-
tors in return for capital, the Internet has created unique opportunities for a
better and more efficient flow of information and transactional activity
among corporate issuers, investors, analysts and investment banks.
1.2.1 Investors
The Internet provides an unprecedented amount of information to individ-
ual investors who use the Internet for obtaining research, market data and
the latest news reports relating to their invested companies or securities.
Fund managers and retail investors are increasingly using the Internet to
open and maintain accounts on-line and to place trading orders. Moreover,
major securities regulators such as the US Securities and Exchange Commis-
sion (www.sec.gov) and the UK Financial Services Authority
(www.fsa.gov.uk) have established websites of the highest quality where
investors obtain financial information about public issuers, review discipli-
nary histories of financial service providers, receive general warnings of
security frauds and lodge complaints.
1.2.2 Issuers
Many corporate issuers are using the Internet to communicate directly with
their shareholders, potential investors and analysts. They are also using the
Internet to assist them in the public offering process. For example, issuers
use the Internet to make information more broadly available to investors in
the form of electronic ‘roadshows’. Roadshows are traditional marketing
activities in which company management meets with investors to explain
the company’s prospects and answer questions in connection with a con-
templated securities offering. These meetings have been limited both with
respect to location and number of participants. Providing access to the road-
shows over the Internet, both on a real-time and recorded basis, broadens
the number and nature of investors who participate.

Less frequently but equally interestingly, issuers are making offerings of

securities to the public directly through their websites without hiring an
investment bank to underwrite the securities and ensure their sale to the
public. Because of the marketing and legal risks associated with a direct on-
line securities offering, there have been fewer instances of that practice over
recent years. In certain countries, issuers are permitted to use the Internet to
disseminate prospectuses and financial information to potential investors.
Issuers also are using the Internet to meet their obligation to deliver annual
reports and proxy statements to those shareholders who have agreed to re-
ceive this information electronically.
1.2.3 Securities firms

Securities firms, such as the major investment banks operating in the securi-
ties industry, are mostly using the Internet for marketing and advertising
purposes, for presenting information on portfolio analysis and market in-
formation, and for communicating with and receiving orders from potential
investors and customers. Most major securities firms have websites con-
taining information ranging from general corporate information to account
opening documents. Capital market analyses, economic data, research in-
formation, real-time or delayed information on share and derivative prices,
and information on special subjects are also offered.
One of the most visible aspects of electronic finance is online securities
trading (a topic that will be discussed further in subsequent units of this
course). As a brief introductory note, it suffices to say at this stage that secu-
rities brokers and dealers use the Internet as a medium to receive from their
clients and transmit to the pertinent market instructions for the sale or pur-
chase of securities. Orders are placed over the Internet to a broker-dealer,
which in turn sends the trade to the exchange floor through its own or the
exchange’s order routing system. This process could be automated in an
electronic market. In addition to serving as a platform for carrying our secu-
rities transactions, the Internet has become an important means for securities
firms to advertise their financial services and products. This can be accom-
plished effectively on their websites or by e-mail, in place of conventional
direct-mail advertising. Moreover, the Internet enables investors to access an
increasing amount of information related to investments, as securities firms
are actively disseminating research reports, market data, performance indi-
cators and other types of relevant information through the Internet.
1.2.4 Securities markets

At present, conventional securities exchanges such as the New York Stock
Exchange (www.nyse.com) are using the Internet primarily as a tool for dis-
seminating a variety of information to the public on individual security
prices, trading volume, contract terms, member organisations, trading
mechanisms, margin requirements and exchange rules and for advertising
their products and services. Some exchanges provide information on the
listed companies, either in total or in specific market segments. These data-
bases could include information about a company’s head office,
management, shareholders and financial condition. In addition to communi-
cating with the public, exchanges and other market infrastructure providers
are exploring using the Internet for communicating with their members.
In brief, the Internet has transformed every aspect of the securities industry
and the international capital markets. It permits the online advertising of
contemplated capital markets transactions and the interactive solicitation of
potential investors. It therefore facilitates issuers in overcoming the inherent
limitations of the traditional underwriting process and allows them to reach
formerly unreachable sources of capital, regardless of location. Moreover, it
enhances the transparency and efficiency of the market through the timely
and convenient communication of the regulatory prospectus and any related
financial and corporate information to interested investors, underwriters or
regulators. Further, the Internet has enabled the development of electronic
facilities for securities trading. Electronic markets transcend national
boundaries and geographic restrictions and open up cross-border market
access for financial intermediaries and investors at greater efficiency and
lower cost than traditional trading floors.
Of course, the Internet adds value in many other respects. Investors establish
peer-to-peer electronic bulletin facilities that bring together buyers and sell-
ers of financial instruments and enable the discovery of prices and trading
intentions. The lack of professional intermediation entails, of course, the full
list of benefits and risks that are normally associated with ‘do-it-yourself’
finance. Further, banks and other intermediaries provide information on the
performance of markets, individual stocks and issuers. They publish their
own research and participate in the wider public policy discourse. Ex-
changes use the Internet as a means of advertising their services, operations
and performance. They publish information on their members and commu-
nicate their internal rules and by-laws to the financial community.
1.3 The Use of the Internet in the Banking Industry

The Internet enables the electronic communication between the bank and the
customer. Electronic banking is broadly defined as the provision of retail and
small value banking products and services through electronic channels as
well as electronic payments and other wholesale banking services delivered
electronically. Electronic banking is an ‘umbrella’ term that covers the total-
ity of electronic banking applications, services and products that use or rely
on electronic devices and means of communication such as the Internet, the
personal computer or the telephone.
Internet banking involves the provision of electronic banking services via the
Internet, normally through a personal computer, although other electronic
devices with Internet capabilities are also being used. The concept of tele-
phone banking is self-explanatory. It may not, however, be widely known that
in addition to the automated audio interface, telephone banking may also be
performed through screen-enabled terminals with videotext capabilities.
Other terms denoting narrower aspects of electronic banking are less techni-
cal. Online banking is currently regarded as synonymous to Internet banking
although strictly it probably encompasses any type of electronic banking

service via the Internet or otherwise. Home banking would include any cus-
tomer-centred remote delivery channel, including telephone banking.
The Internet affects the banker-customer relationship by enabling the seam-
less transportation of data between the bank and the customer. Online
banking services and transactions fall into three broad categories:
• banking services in the strict sense, including the acceptance of
deposits, the performance of funds transfers, which may be sole or
perpetual, by way of a standing order and the availability of
statements of account and transaction history
• the availability of an online interface to apply for and be granted credit
for consumer or business purposes by way of a direct loan, normal
credit card or an overdraft credit facility linked to a current account
• online securities trading activities in which the customer transmits and
the bank receives via the Internet orders for the purchase or sale of
securities for the account of the customer (Internet brokerage).
The key driving force of Internet banking has been the convenience of car-
rying out online banking transactions. Retail and business banking
customers use the Internet as an alternative channel to perform any of the
following operations:
• viewing and downloading up-to-date account information on their
savings, investments and bank debts
• viewing and downloading account balances and itemised transactional
activity
• verifying the prompt completion of cash deposits and withdrawals
• carrying out transfers of funds to a third party bank account
• carrying out transfers of funds from and to their own account(s) with
the same or another bank
• setting up, amending and cancelling standing orders
• viewing, creating, amending or cancelling direct debits
• administering their accounts – for example, changing their PINs or
passwords – and ordering cheque books
• communicating with customer services personnel.
Moreover, the provision of online credit to consumer and corporate custom-
ers may take the form of an unsecured loan, a mortgage or a credit card
purchased online. Finally, one of the most visible aspects of the electronic
finance industry is online securities trading. Most securities firms have
launched an online platform for receiving and transmitting their customers’
orders for the sale or purchase of securities over the counter or in organised
securities markets.
From a business organisation standpoint, online banking services may origi-
nate in diverse business structures and be driven by different business
strategies. The universe of online banks includes established banks that offer
online services to existing customers as an additional method of delivering
their core banking services; distinct online banking brands, created by es-
tablished institutions, to compete with their traditional ‘brick-and-mortar’
affiliates, and a small number of Internet-only banks that provide services
solely via the Internet without maintaining branch networks.
Reading Franklin Allen, James

McAndrew and Philip
Strahan (2002) ‘E-
You now have three readings, which introduce different aspects of electronic finance and Finance: An
banking. Your first reading comes from the Journal of Financial Services Research, a Introduction’, and Stijn
Claessens, Thomas
leading economics journal which frequently publishes papers on electronic banking and Glaessner and Daniela
finance. This paper is one of the first attempts to define the boundaries of electronic Klingebiel (2002)
finance as a distinct business segment, to describe the main types of financial services ‘Recent Trends in
Financial Services’,
and products offered electronically and discuss the benefits and risks of this business both reprinted in the
model. Please turn to your Reader now, and study the article by Franklin Allen and his Course Reader from
the Journal of
colleagues, ‘E-Finance: An Introduction’. Financial Services
Your second reading is sourced from the same journal, and was published in 2002 by Research; and Karen
Furst, William Lang
three leading economists who argued that electronic finance was changing the financial and Daniel Nolle
landscape of the world. This paper summarises the global financial trends that have been (2002) ‘Internet
Banking in the
driving the financial services industry over the recent years. Now please read Section 2 National Banking
‘Recent Trends in Financial Services’, pp. 30–42, from the article ‘Electronic Finance: System’, from the
Reshaping the Financial Landscape our the World’ by Stijn Claessens and his colleagues. Centre for Information
Policy Research at
Finally, we have selected a section from a paper published in 2002 by three economists of Harvard University.
the US Office of the Comptroller of the Currency, the federal authority responsible for the
regulation of nationally chartered banks in the United States. In the section assigned
here, Chapter 3 (pp. 9–16) ‘Internet Banking in the National Banking System’, the
authors briefly describe the range of services offered by online banks in the United States.
The selected piece offers a concise summary of the main types of online banking activities
available in the largest banking market in the world. Now please read the chapter by
Karen Furst et al.
Review Questions
When you have completed the study of this section and its readings, please try to
consolidate your knowledge and work by answering the following questions:
What were the main economic drives of electronic finance and banking?
What is Internet banking, and what types of activities does it encompass?
What has the impact of the Internet been on securities markets?
Why do Claessens and others argue that electronic finance is changing the financial
landscape of the world? Can you identify how financial markets are being affected?
Do you agree with their analysis?
1.4 International Market Developments – Electronic

Finance in Europe and Beyond
Internet banking and online securities trading had achieved significant
penetration in most developed countries and key emerging markets, in-
cluding India, by 2002 and demonstrated potential for further growth (See
Table 1.1 for data published by the World Bank). With regard to individual
customers, demographic factors are the most important determinants of the
acceptance of electronic financial tools. A series of empirical studies has
identified income, education, age and profession to be the most influential
demographic variables affecting the usage of network technology for per-
sonal finance: the typical user of Internet banking is a degree holder, aged
between 23 and 46, urban, professional and with a relatively high income.

Table 1.1 Acceptance of Internet banking amongst the general population

Core Internet Online Trading
Income Group/Economy Banking (% of total bank
(% of total bank customers)
customers)
Industrial Country Average 8 27
Australia 4 22
Belgium 4 20
Denmark 6 38
Finland 20 ?
France 2 18
Germany 12 32
Italy 1 16
Japan NA 32
Netherlands 15 40
Norway 8 25
Portugal 2 7
Singapore 5 10
Spain 2 8
Sweden 31 55
United Kingdom 6 26
United States 6 56
Emerging Markets Average 5 30
Brazil 5 6
India 11 2
S. Korea 13 65
Mexico 3 41
Source: Claessens et al., 2002b
Banks are not required to report specific information about their Internet-
based services for regulatory or statistical purposes and therefore the precise
measurement of the size and business model of the market for Internet
banking and online securities trading is problematic. Available data how-
ever, published by various sources, invariably confirm the steady and
sizeable growth of the industry, although the exact figures are not always
consistent. According to the directory of European banks maintained by
Qualisteam, over nine hundred banks across Europe performed online serv-
ices over the Internet in 2005. Internet-based services are predominantly
provided by established banks alongside their mainstream operations,
whereas instances of ‘Internet-only’ projects are rare.
Customer acceptance is also on the rise. In mid-2002 figures, one in five bank
customers performed transactions over the Internet and the figure rose to
approximately one in four among Internet users. The growth of online secu-
rities trading has also been considerable, with over five million investors
trading online by the end of 2001. A more recent survey, in 2005, reported an
average growth rate of users of Internet banking of from 8–10 percent in
advanced European economies, with approximately 50% of all Internet users
managing their personal finances online.
The growth of the industry is directly linked to the growth and affordability
of Internet access and the quality of IT skills and, therefore, it is not spread
evenly across countries. Due to high rates of Internet connectivity and
awareness, Internet-based services are particularly popular in the Scandina-
vian and Nordic countries. In Sweden, for example, over a quarter of the
total adult population use the Internet for purposes of personal finance. The
Nordea group, a regional bank operating in the Nordic and Baltic region, is
one of the largest online banks in the world with a customer book of over 3.4
million online accounts. In the European south, on the other hand, the mar-
ket is less developed, although it is growing rapidly. Spain is largely
regarded as the second fastest growing e-banking market with annual rates
of growth in excess of ten percent, whereas Greece has recently seen all ma-
jor players, which represent more than ninety percent of the market,
developing full interactive and transactional Internet-based services.
In the United Kingdom, France and Germany, industry investment in and
customer acceptance of electronic finance are predictably high, reflecting the
leading position of the three European nations within the global network
and information economy, the favourable customer demographics and the
resourceful and competitive national financial centres.
In the UK, it is estimated that between 8 and 10 million bank customers per-
form their financial transactions on the Internet. This currently represents
half the population of Internet users in the country. Demand is high in
France too. The number of customers is estimated at 10–12 million, whereas
one in four transactions in the Paris Stock Exchange is currently performed
in response to orders routed via the Internet. The size of the German market
is even larger. With nearly 16–18 million bank account holders and over four
million investors, Germany accounts for half the European customer base of
Internet-based banking and financial services.
1.5 Electronic Finance Across Borders – A Dynamic Form of

International Financial Integration
The article you read earlier by Claessens and his colleagues discusses the
global impact of the Internet, and this section explores further the interna-
tional repercussions of electronic finance, starting with a definition of
financial integration.
1.5.1 The concept of financial integration

According to the Oxford English Dictionary, integration is the action or
process of integrating; the making up or composition of a whole by adding
together or combining the separate parts or elements; and crucially, the or-
ganisation of economic activities so that national boundaries do not matter. A
leading academic text defines economic integration as a state of affairs or a
process that involves ‘…the amalgamation of separate economies into larger free
trading regions’. The essential elements of perfect international economic in-
tegration are the unrestricted movement of goods, persons, services and
capital across national borders.
The global process of economic integration comes close to the notion of eco-
nomic globalisation. David Henderson, former chief economist of the OECD,
defines globalisation as the free movement of goods, services, labour and
capital, thereby creating a single market in inputs and outputs – and full
national treatment for foreign investors (and nationals working abroad) so
that, economically speaking, there are no foreigners. Brink Lindsey a scholar

at the Cato Institute, makes a crucial distinction between globalisation as a

political process, whereby government policies eliminate barriers to free
economic movement, and globalisation as an economic process, chiefly trig-
gered by developments in information technology and telecommunications.
The political process of globalisation through the reduction of policy-based
barriers establishes the potential for the operation of economic forces. In his
own words, Lindsey sees globalisation in three distinct but interrelated
senses:
…first, to describe the economic phenomenon of increasing integration of
markets across political boundaries (whether due to political or
technological causes); second, to describe the strictly political
phenomenon of falling government-imposed barriers to international
flows of goods, services and capital; and, finally, to describe the much
broader political phenomenon of the global spread of market-oriented
policies in both the domestic and international spheres. Since I contend
that globalization in the first sense is due primarily to globalization in the
second sense, and that globalization in the second sense is primarily due
to globalization in the third sense, I do not think it unduly confusing to
use the same word to mean three different things.
(Lindsey, 2001, p.275)
The concept of financial integration is a species of the genre ‘economic inte-

gration’. It denotes the economic integration of financial markets and
activities – that is, first, the elimination of legal obstacles to the movement of
capital, financial services and financial institutions across borders and, sec-
ond, the economic and technological forces that facilitate cross-border
financial activities, so that with respect to finance, there are no ‘foreigners’
within the integrated area.
The political component of financial integration (i.e. the elimination of artifi-
cial legal barriers obstructing financial flows, services and institutions) is an
essential but not sufficient condition of international financial integration.
The archenemy of market integration is geography, not law. Historically, the
principal causes of the fragmentation of national markets have been dis-
tance, poor transport and poor communications. Law-based obstacles
became apparent only after various technological advances had rendered
the prospect of trans-national economic relations more economical and real-
istic. Advances in information processing, transportation and
telecommunications, the advent of the Internet and, of course, commercial
and economic justifications and competitive pressures are all significant de-
terminants of international financial integration.
In the ideal form of international integration, national financial markets are
perfectly merged into a truly global market. As a result, in the case of perfect
financial integration the distinction between residents and non-residents
with regard to financial flows becomes absolutely meaningless. In financial
markets, financial assets are transferred from those who have surplus funds
to invest (‘savers’) to those whose spending exceeds or is going to exceed
their income and therefore need funds to invest in tangible assets or finance
their current operations or even consume (‘borrowers’). In the middle, finan-
cial intermediaries and financial markets facilitate the flow of funds from
‘savers’ to ‘borrowers’.
Regarding the mode of financial flows, funds flow from ‘savers’ to ‘borrow-
ers’ either directly or via the operations of a financial intermediary. In the
first case, ‘borrowers’ receive funds directly from ‘savers’. In return, ‘savers’
acquire debt, equity or mixed-type claims in the form of primary securities.
Financial intermediaries facilitate this process by assisting in the design,
marketing and completion of the transaction. A typical example of this proc-
ess would be the issuance of a corporate bond by a major corporation, the
acquisition of that bond by investors and the transfer of the purchase price
of the bond to the corporation, net of the fees and expenses of the invest-
ment banks that facilitated the transaction.
In intermediated financial flows such as bank finance, financial intermedi-
aries engage in the business of receiving funds from ‘savers’ and lending
funds to ‘borrowers’. The flow of funds from intermediaries to ‘borrowers’
occurs either in the form of direct financial accommodation or by means of
purchasing from borrowers primary debt, equity or mixed-type securities. A
typical example of an intermediated financial flow would be the deposit of
funds by a depositor in his or her bank and the use of the proceeds of the
deposit by the bank to finance its lending operations.
In its perfect form, international financial integration renders national bor-
ders irrelevant for the flow of funds from ‘savers’ to ‘borrowers’. This state
of affairs encompasses all types of financial flows and activities. For exam-
ple, in perfectly integrated markets, the transfer of capital in exchange for
primary securities is unrelated to the residence of the parties (e.g. institu-
tional investors in Europe buying corporate bonds issued by a company
located in South Africa). Moreover, trading of marketable securities in sec-
ondary markets is also unconnected to the location of the market and the
residence of parties and their intermediaries; for example, an investor in
Europe sells his bonds in a South African corporation in the Irish Stock Ex-
change where such bonds are listed for trading. Third, in intermediated
financial flows, financial intermediaries may receive funds from ‘savers’ and
transfer funds to ‘borrowers’ as well as provide other financial services
across national borders, or set up a physical presence in another country
facilitating financial flows overseas, such as the deposit of funds in a Swiss
bank by a Greek resident and the loan of money by that Swiss bank to an
Italian company. In short, ‘borrowers’, ‘savers’ and intermediaries are able
to engage in financial activities with non-residents without impediments,
delays, higher risk, uncertainty and cost when compared to the same trans-
action executed domestically.
1.5.2 The state of international financial integration over recent years

During the past twenty years, the growth of financial linkages among na-
tions has been phenomenal. On average, foreign assets and liabilities tripled
as a share of GDP. More specifically, foreign direct investment increased
four-fold, portfolio equity assets and liabilities six-fold and debt assets and
liabilities 2 _ times. Despite the phenomenal progress, financial integration is
spread unevenly. Two-thirds of the global stock of inward FDI represents
financial flows from and to the developed industrial world, with just four
countries (USA, UK, France and Germany) receiving the lion’s share of for-
eign capital investment. Of the remaining one-third that flows to the

developing world, a group of five countries (China, Argentina, Brazil, Hong

Kong and Mexico) account for more than half. This is a strong indication that
large parts of the world remain unable to draw funds from savings overseas
and a signal that the integration of financial markets remains incomplete. A
closer look at recent developments in several key components of the inter-
national financial system indicates a similar scenario.
International financial integration is strong in the banking sector. The foreign
assets of all banks reporting to the Bank for International Settlements – which
include claims against non-residents booked by the bank’s headquarters and
claims booked in branches or subsidiaries abroad – totalled more than 17
trillion dollars at the end of June 2004, and they continue to grow (BIS, 2004).
Like foreign direct investment, bank lending predominantly originates in
and flows to certain parts of the world. Generally, international bank lend-
ing appears to be primarily a ‘rich-to-rich’ affair. More than two-thirds of the
seventeen trillion dollars of bank claims against non-residents is booked by
international banks in a handful of developed countries against borrowers in
the same group of rich industrial nations. Less than 18 percent of total bank
lending has flowed to countries other than the rich industrial nations, and
the actual amount flowing to developing and emerging economies is even
lower. If you disregard the claims booked against offshore financial centres,
developing and emerging economies have received a total of 1.6 trillion
dollars or a mere 9 percent of the total value of cross-border bank flows. On
closer inspection, even this amount is actually concentrated in a handful of
emerging markets (South Korea, China, Indonesia, Mexico, Brazil, Argen-
tina) while the rest of the developing world, particularly in Africa, remains
practically isolated from the flows of global finance.
In contrast to large-scale corporate or sovereign lending, international finan-
cial integration of retail banking services has a long way to go. Retail
markets are difficult to integrate. Put simply, most consumers and small
businesses appreciate proximity and convenience and would rather estab-
lish relationships with local financial institutions than seek financial services
in a distant location, domestically or abroad. A recent study by the Federal
Reserve has found that 92.4 percent of small businesses in America use a
depository institution that is within a distance of 30 miles (Brevoort and
Hannan, 2004).
Similarly, in the EU, for all the regulatory measures to encourage the estab-
lishment of a single market in retail financial services, cross-border loans to
the private sector make up less than 5 percent of the total loan book of Euro-
pean banks (European Central Bank, 2004). Similar observations can be
made for the market for bank deposits, savings accounts and residential
mortgages. Despite a far-reaching legislative programme and the emergence
of a single European currency, retail financial markets in Europe remain
fragmented.
1.5.3 Electronic finance and international financial integration

Against the background of the aforementioned statistics on the state of in-
ternational financial integration, my point for the purposes of this learning
unit is that the Internet and electronic financial applications can facilitate
cross-border financial flows and trade in financial services across borders.
The Internet enables the swift transmission and reception of information
over computer networks and may therefore eliminate the constraints of dis-
tance and geography on the creation, administration and transfer of
intangible claims. As already noted, the archenemy of market integration is
geography, not law. Law-based obstacles became apparent only after trans-
national trade had become a realistic prospect. Network technology
eradicates the constraints of geography and distance in the movement of
digital data that do not require storage facilities, packages, docks, motor-
ways or airports to circulate. The basic idea is that the Internet may function
as a potential catalyst, alongside other macroeconomic and legal develop-
ments, towards more open, integrated and more vibrant financial markets
and a better-performing single financial area, particularly in Europe where
the European Union has been working to establish a single European finan-
cial market over the last fifty years.
Banking and financial services are information-intensive and intangible,
whereas the Internet enhances transparency and the convenient transmis-
sion of and access to information. If used properly, the Internet could serve
as a facilitator of cross-border banking and financial activities and relation-
ships between banks and their customers. Every single aspect of the banker-
customer relationship may take place online, including initial advertising
and marketing, pre-contractual enquiries, the formation of the contractual
bond and the performance, administration and settlement of contractual
obligations. The availability of cross-border banking and financial services
via the Internet could have a number of important benefits for consumers
and financial institutions.
On the Internet the volume and quality of available information on suppli-
ers, services and prices, and the accuracy and convenience in the discovery
of information are the joint components of an open marketplace of unprece-
dented transparency, regardless of borders or the location of market
participants.
Combined with the growing sophistication and information appetite of de-
positors, borrowers or investors, transparency enhances competition, leads
to better pricing, empowers customers and contributes towards a ‘level
playing field’ for small firms and individuals vis-à-vis larger borrowers,
investors or depositors. Internet-based services are capable of liberating this
process from constrains of time, geography and distance, spreading financial
competition across borders.
The Internet enhances banks’ access to cross-border markets and customers’
access to cross-border services. For banks, it opens up vital market opportu-
nities abroad. For savers, borrowers and investors, it enlarges the pool of
available capital, increases choice in diverse and innovative services and
enables the geographical spread and diversification of credit, savings and
investment portfolios with beneficial effects for performance and growth
which are desperately needed in the emerging macroeconomic environment
of adverse demographics, fiscal constraints and state welfare discipline.

Further, it enables the active recipient of services to seek better financial so-
lutions in other, probably more efficient, financial markets from the comfort
of his or her desk. Without the Internet, consumers may interact with for-
eign financial institutions only to the extent that they are able to travel. The
Internet rectifies this largely unsatisfactory situation, enabling less mobile
consumers or residents in countries that do not usually attract foreign finan-
cial firms to go directly to the preferred source of capital and services.
Automation of services and processes, the standardisation of products and
the opportunity to develop a single marketing strategy from within a single
operational unit trim down the costs of providing domestic and cross-border
services, produce efficiency gains, lead to economies of scale, facilitate entry
into the market and thereby enhance competition with potential financial
benefits, including lower commissions, lower or higher rates of interest for
credit and savings respectively and a resurgence of excellence and innova-
tion in services and operations. In particular relation to fee-generating
activities, most notably securities trading, cost savings resulting from the
migration to Internet-based services have verifiably been passed on to cus-
tomers in the form of reduced commissions.
For customers and banks in smaller and less economically advanced coun-
tries, the benefits of cross-border electronic finance may go even further. The
availability of Internet-based services originating overseas will stimulate
competition and unleash dormant domestic forces towards reform and
modernisation of operations and services. Domestic customers will enjoy the
convenience of Internet-based banking and finance which poorly perform-
ing domestic firms may have failed to provide. Most pertinently, cross-
border provision of services via the Internet may stimulate local economic
growth and development:
• reaching remote and isolated communities and thereby enhancing the
efficiency or affordability of available microfinance
• providing foreign investors with direct access to local financial
markets through online securities trading services exported by local
intermediaries
• providing dynamic local businesses with access to wider pools of
capital and better performing or innovative financial services
• offering a convincing alternative strategy or a market testing
opportunity for banks wishing to expand across borders but currently
dissuaded by the high cost associated with a physical presence
• possibly also encouraging businesses from wealthier countries to
invest in less developed countries, creating jobs and tax revenue in the
assurance that the trusted services of banks in their home country are
only a ‘click’ away.
A similar argument can be made with regard to the movement of natural
persons for purposes of employment, studies or retirement to a country
other than their own. Expatriates can now enjoy their new lifestyle in their
new home without foregoing the long and trusted relationship with their
financial adviser, bank or investment firm, which are all readily accessible
online.
1.6 Essential Institutional and Legal Conditions

Electronic commerce in financial services cannot and does not operate in a
legal vacuum. It needs and makes use of the general legal and institutional
framework within which online banks operate, including the rule of law, the
national court system, efficient commercial laws, banking and financial laws,
regulatory and supervisory standards of consumer and investor protection,
monetary policy, safety and solvency of the banking system, data protection,
privacy laws, and the laws relating to information safety and security.
In the next unit of this course, we will examine the core legal framework
relating to electronic financial and banking activities. For the purposes of
this unit, you should keep in mind that advances in technologies in them-
selves are not sufficient to create markets – any kind of markets. The
provision of financial services via the Internet, especially, requires an effi-
cient legal and regulatory framework, which creates confidence among
financial institutions and their customers that the undertaken promises will
be kept and that the contractual arrangements will be performed.
The architecture of the Internet is deliberately minimalist. Its protocols are
indifferent to the geographical origins or destination of the data, their con-
tent, the purpose of transportation or whether the originator or the recipient
of data has a legitimate claim upon them. It was intended for research, not
social control, financial services or trade, and therefore it reflects a political
decision to disable control and a technical decision to stimulate speed and
efficiency in the circulation of data.
Take the retrieval of account data from the bank’s website. To the server,
where the website is hosted and towards which the customer transmits her
request for the delivery of data, the Internet protocol does not reveal any-
thing other than the IP address of the customer’s computer. On that
information alone, the Internet protocol is designed to ensure that data will
be copied and delivered as requested. Although ingenious for facilitating the
free circulation of content, this minimalism is useless for purposes of social
control and a major source of risk in the business of banking. For that rea-
son, control of access or content is imposed peripherally through the use of
access control devices such as passwords and PINs (Personal Identification
Numbers) by the individual components comprising the architecture of the
Internet, at their will, normally in no prior bilateral or multilateral consulta-
tion or coordination, and without the core Internet protocol being otherwise
affected.
Electronic finance and banking lies at the heart of the tension between ‘free
flow of data’ and ‘legal or social control’ in a paradoxical way. Few data-
intensive activities could benefit more from the open-source structure of the
Internet architecture; and hardly any other activity is subject to so many
layers of legal control and so many laws and regulations which, more often
than not, must be implemented by banks themselves through self-imposed
mechanisms of access control and network security. It is not always clear
how best to reconcile the two competing claims. The properties of the core
Internet protocol point towards further integration but cannot conceal the

many political, institutional and legal forces that point in exactly the oppo-
site direction.
Mancur Olson demonstrated that when sound legal foundations are lacking,
commercial transactions tend to concentrate in spot markets where personal
trust and confidence replace law enforcement in safeguarding that the un-
dertaken obligations will be honoured (Olson, 2000, page 186). Conversely,
the absence of personal relationships in transactions at a distance leaves a
gap that must be filled by the parties’ confidence in the quality of the legal
framework or (perhaps) by the high benefits of the project, which render
high legal risks worth taking.
Put simply, bank customers will always do their banking business with fa-
miliar local brands. They will never sign up to the Internet service of a
distant provider unless either
a) the distant online bank outperforms local institutions in the
financial benefits offered, such as a very attractive interest rate on
consumer loans, thus rendering the assumption of additional risks
worthwhile, or
b) the legal framework is so efficient and sound that distance does not
matter as far as the legal protection afforded to consumers is
concerned.
Cross-border Internet banking upsets the legal status quo in two respects.
First, as a form of cross-border trade in financial services, it does not fit
neatly into the applicable legal framework, which was designed decades ago
for regulating market access by way of local establishment. Second, as a
form of banking service, it is provided over a delivery channel that presents
a new range of risks. Unless this tension is settled and market players are
assured that departure from their familiar local markets will not be penal-
ised by unacceptable levels of legal risk, the prospects of the project are
unpromising. This is not an easy task but we will see in the subsequent
learning units how this tension is resolved in various parts of the world.
Apostolos Gkoutzinis
Reading (2006) Internet

Banking and the Law
in Europe,
From your course textbook Internet Banking and the Law in Europe, please read the ‘Introduction’ and
Introduction and first chapter. There will be very little new information in those pages. Chapter 1 ‘Internet
Banking in Europe:
The aim of this reading assignment is to consolidate what you learned about this exciting
Basic Concepts and
industry in this first unit of the course. You are now ready to go to the next one, where Recent Trends’.
we will discuss the fundamental legal aspects of electronic finance.

This first unit is intended to offer an introduction to the services, products
and applications collectively known as electronic finance and Internet
banking. We described the services and products of electronic finance, the
growth of the market and recent trends, its importance and position in the
global financial industry and how it could facilitate international financial
integration with increasing benefits for financial institutions, investors, con-
sumers and depositors as well as the economy as a whole.
We also briefly indicated that the market for electronic finance, like any
other market, requires a solid institutional and legal framework to thrive.
This subject will be examined in the next unit. For now, you have worked
hard and deserve a break.


Allen, Franklin, James McAndrew and Philip Strahan (2002) ‘E-Finance: An
Introduction’, 22 Journal of Financial Services Research 5–27
BIS (2006) 2005 Annual Report, consolidated banking statistics, 2nd quarter,
Basel: Bank for International Settlements.
Brevoort, Kenneth P. and Timothy H. Hannan (2004) ‘Commercial Lending

and Distance: Evidence from Community Reinvestment Act Data’,
Washington DC: Board of Governors of the Federal Reserve System Finance and
Economics Discussion Series 5.
Claessens, Stijn, Thomas Glaessner and Daniela Klingebiel (2002a)

‘Electronic Finance: Reshaping the Financial Landscape around the World’,
22 Journal of Financial Services Research 29–61
Claessens, Stijn, Daniela Klingebiel and Thomas Glaessner (2002b)

Electronic Finance: A New Approach to Financial Sector Development?
Discussion Paper 431, March, Washington DC: World Bank.
European Central Bank (2004) ‘Report on EU Banking Structure’, 10,

Frankfurt am Main: European Central Bank.
Federal Reserve Bank of New York

http://www.ny.frb.org/pihome/fedpoint/fed43.html
Furst, Karen, William W. Lang and Daniel E. Nolle (2002) ‘Internet

Banking: Developments and Prospects’, Centre for Information Policy
Research at Harvard University, April, available at
http://www.occ.gov/netbank/ebankingdpapr02.pdf .
Gkoutzinis, Apostolos (2006) Internet Banking and the Law in Europe,

Cambridge UK: Cambridge University Press.
Greenspan, Alan (2000) Remarks at the Financial Markets Conference

sponsored by the Federal Reserve Bank of Atlanta, Sea Island, Georgia (via
videoconference), October 16, available at
http://www.federalreserve.gov/BoardDocs/Speeches/2000/20001016.htm .
Lindsey, Brink (2001) Against the Dead Hand: The Uncertain Struggle for
Global Capitalism, New York: Wiley.
New York Stock Exchange (www.nyse.com)
Olson, Mancur (2000) Power and Prosperity: Outgrowing Communist

andCapitalist Dictatorships, New York: Basic Books.
UK Financial Services Authority (www.fsa.gov.uk)
US Securities and Exchange Commission (www.sec.gov)

Laws and Regulation of Electronic Finance

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Law and Regulation of Electronic

Finance and Internet Banking

The Course Author 3

What this Course is About 3

An Overview of the Course 4

Teaching and Learning Strategy 6

The Course Author

What this Course is About

Centre for Financial and Management Studies 3

An Overview of the Course

The Structure of the Course

1.6 Essential Institutional and Legal Conditions

Unit 2 Basic Legal Concepts and Foundations of Electronic Banking and

Unit 3 Electronic Finance and the Globalisation of Financial Markets

Unit 4 Prudential Regulation and Supervision of Electronic Finance and Banking

Unit 5 Law of Electronic Banking in the United Kingdom

Unit 6 Regulation of Securities Activities over the Internet

Unit 7 EU Law - The Financial Services Action Plan

Centre for Financial and Management Studies 5

Unit 8 Cross-Border Electronic Contracts

Teaching and Learning Strategy

Centre for Financial and Management Studies 7

1.2 The Internet and the Securities Markets 5

1.3 The Use of the Internet in the Banking Industry 7

1.4 International Market Developments – Electronic Finance

1.5 Electronic Finance Across Borders – A Dynamic Form

1.6 Essential Institutional and Legal Conditions 17

1.7 Concluding Remarks 18

References and Websites 20

Readings for Unit 1

Today, several years after Federal Reserve Chairman Greenspan’s remarks,

Centre for Financial and Management Studies 3

1.1.1 The concepts of electronic finance and Internet banking

1.2 The Internet and the Securities Markets

Centre for Financial and Management Studies 5

Less frequently but equally interestingly, issuers are making offerings of

1.2.3 Securities firms

1.2.4 Securities markets

1.3 The Use of the Internet in the Banking Industry

Centre for Financial and Management Studies 7

Reading Franklin Allen, James

1.4 International Market Developments – Electronic

Centre for Financial and Management Studies 9

Table 1.1 Acceptance of Internet banking amongst the general population

1.5 Electronic Finance Across Borders – A Dynamic Form of

1.5.1 The concept of financial integration

Centre for Financial and Management Studies 11

at the Cato Institute, makes a crucial distinction between globalisation as a

The concept of financial integration is a species of the genre ‘economic inte-

1.5.2 The state of international financial integration over recent years

Centre for Financial and Management Studies 13

developing world, a group of five countries (China, Argentina, Brazil, Hong

1.5.3 Electronic finance and international financial integration

Centre for Financial and Management Studies 15

1.6 Essential Institutional and Legal Conditions

Centre for Financial and Management Studies 17

Reading (2006) Internet

1.7 Concluding Remarks

Centre for Financial and Management Studies 19

References and Websites

Brevoort, Kenneth P. and Timothy H. Hannan (2004) ‘Commercial Lending

Claessens, Stijn, Thomas Glaessner and Daniela Klingebiel (2002a)

Claessens, Stijn, Daniela Klingebiel and Thomas Glaessner (2002b)