The brisk pace of the e-commerce and e-finance development has left legislatures in their wake. In Asia, only a handful of jurisdictions have enacted legislation governing electronic transactions, the status of electronic contracts, digital signatures, or internet banking. This is despite the rising popularity of the internet as a medium for the provision of financial services and in re-engineering commerce and trade as we know it.
At a recent conference on internet banking held by Baker & McKenzie in Hong Kong, legal eagles gathered to flesh out the legal issues in the financial industry and the legislation in place so far to address them around the region.
Wherever the jurisdiction, however, the issues that have to be tackled remain the same. In business to business (B2B) e-marketplaces for example, the issues center on the numerous payment infrastructures and settlement solutions developed by financial and non-financial institutions.
These infrastructures aim to satisfy the need for safe, legal and reliable solutions that can verify the identity and the creditworthiness of counter parties and their financial institutions. How? By validating the identity of parties and the messages that they exchange. The critical issues that arise are: are these infrastructures legal, and can the message be trusted?
The status quo in Asia
The Hong Kong SAR enacted the Electronic Transactions Ordinance (ETO) on 7 January of this year. The ETO is meant to provide a basic legal framework for e-commerce in Hong Kong and aims to address the above issues in two ways. Firstly, the ETO recognizes the legality of electronic records and contracts, and secondly, it provides for the establishment and operation of certification authorities.
Competing against Hong Kong for status as a leading regional financial center is Singapore. Accordingly, Singapore has enacted a key piece of legislation aimed at facilitating and promoting e-commerce, the Electronic Transactions Act (ETA). The ETA provides for a commercial code, which gives effect to electronic contracts by setting out rules governing offer and acceptance via electronic means.
Further, the act provides for rules and obligations on public key infrastructure (PKI), which forms the basis for digital certificates, and permits electronic records as admissible evidence in legal proceedings. The Monetary Authority of Singapore (MAS) has also taken an active role in promoting e-commerce. A number of MAS guidelines and policy statements have emerged, such as the policy statement on internet banking, and guidelines on offering securities online.
Japan currently does not have any laws that regulate e-commerce transactions, although in November the Japanese government announced plans for a general law relating to the delivery of documents via the internet. This law will amend 50 other laws and allow financial institutions to deliver electronically notices currently required to be delivered to customers in written form. Further legislation includes the Law Concerning Electronic Signatures and Certification services (effective April, 2001), which will establish a mechanism for the "registration" of digital signatures. A registered digital signature will be acknowledged to be authentic.
The Chinese government has not yet enacted any specific or comprehensive law on e-commerce, however, the Contract Law of the People's Republic of China (Unified Contract Law) which was adopted by the National People's Congress on 15 March 1999, contains two articles related to e-commerce. One article provides that contracts can be formed through e-mail and electronic data exchange (EDI). An electronic offer can be made if the offeror designates a specific system to receive electronically transmitted documents and acceptance is deemed to have taken place when the offeree sends the offeror the document via the same system. However, the law does not allow for possible failure of a company's internal computer system and hence delivery failure. Further, it does not deal with the case where the document has not been opened or is left unread.
The legality of private operating rules
Whilst headway is being made in some countries, a number of private initiatives have already been established to address, or arguably even circumvent some of laws governing transactions, according to Baker & McKenzie. The efficacy of these private operating rules rest upon all parties agreeing to be bound by them. Most e-marketplaces have their own rules for buyers and sellers, as do trade facilitators like Bolero and TradeCard for participants.
Already a number of digital certification authorities have sprung up ahead of legislation in some countries. Examples include players like Identrus and VeriSign which work with participants and the banking community to set up rules and obligations to facilitate secure messaging and payment infrastructure over the internet. These operating rules often aim to: limit liability for system outages, acts of negligence and data security measures, provide for the prompt resolution of disputes, create predictable and legally enforceable obligations that do not offend applicable law, and satisfy that writing and signature requirements of law are enacted and applicable.
But just how legal are these rules - since the relationship of buyers and sellers is typically governed by the local law? Furthermore, to what extent can banks and customers be bound by operating rules, and do these rules themselves violate applicable law? These questions remain to be answered and tested.
