Regulation as a barrier to electronic commerce in Europe: the case of the European fund management industry
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Regulation as a barrier to electronic commerce in Europe: the case of the European fund management industry Jeremy Fisher1 and G. Harindranath2 1
T. Rowe Price International, Inc., London, U.K.; School of Management, Royal Holloway, University of London, Egham, Surrey, U.K. 2
Correspondence: G. Harindranath, School of Management, Royal Holloway, University of London, Egham, Surrey TW20 0EX, U.K. Tel: þ 44 1784 443787; E-mail: [email protected]
Abstract This paper presents results of exploratory research into the question of whether the distribution of investment funds via the Internet in Europe is being deterred by regulatory barriers. The paper examines the theoretical underpinnings behind financial services regulation and then asks if current regulation in place within the European Union and its Member States is consistent with this theory or indeed if regulation is acting as a barrier. Using both primary data and secondary sources, this exploratory study argues that European fund management firms face different regulatory obstacles, often the result of protectionism and the inconsistent application of financial regulations, in different EU countries. As a result, they are unable to reap the benefits that electronic commerce should bring in an industry that appears highly suited for it. European Journal of Information Systems (2004) 13, 260–272. doi:10.1057/palgrave.ejis.3000510 Keywords: electronic commerce; financial services; EU and Member State regulation
Introduction
Received: 1 April 2003 Revised: 2 December 2003 2nd Revision: 11 June 2004 3rd Revision: 30 July 2004 Accepted: 9 August 2004 Online publication date: 5 October 2004
In 1787, the philosopher Jeremy Bentham said, ‘the more strictly we are watched, the better we behave’. While the European financial service regulatory regime seems to be built on such a philosophical basis, we will show in this paper that in reality European Union (EU) and EU Member State regulation is actually impeding the electronic delivery of fund management services within Europe. The first part of this paper provides an overview of the business opportunities offered by the Internet and ecommerce for the European fund management industry. We then examine some theoretical perspectives on the issue of financial services regulation, addressing in particular the question of whom regulation seeks to serve and what its aims should be given a situation of conflicting interests. The paper then examines the regulatory scenario in the EU as well as regulations within selected EU Member States that govern the distribution of investment funds via the Internet in Europe through both primary research as well as secondary sources. We attempt to highlight some of the regulatory inconsistencies between Member States and the potential problems that fund distributors may encounter as a result. Finally, we provide some conclusions on the deterring effect of EU and Member State regulation on e-commerce in the fund management industry, and address the issue of whether the regulation in
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