What does e-commerce mean for business? What will consumers and shareholders expect in the “new economy”? What is the regulator’s role?
In a December 2000 address, ASIC national director, financial services regulation, IAN JOHNSTON, talked about how ASIC delivers to industry, investors and government a relevant and effective regulatory regime in this electronic age.
Do you remember when people wrote letters by hand and waited a week or two for the reply? Do you remember checking your account balances inside the branch, visiting the insurance office or queuing to pay bills? Well the times they-are-a-changin' – and the way we do business today is changing too. It is now almost a cliche that we are in a "new economy", an economy shaped by huge advances made in information technology and its applications. Today the internet, while only 10 years old as a widespread commercial application, pervades the workplace and household to an astonishing degree. Australian Bureau of Statistics November 2000 indicate that more than half of us had a PC at home and more than a third of us were web-enabled by August 2000. These numbers continue to grow. The Cap Gemini Ernst & Young report on e-commerce within the global financial services industry in October 2000 indicates that the internet handled 3 percent of financial transactions in 1999. However, this figure is projected to increase to 10 percent by 2001 and 20 percent by 2003.
However, we are clearly in a stage of transition. While the paper-based world is fast disappearing, we are not there yet. Looking at the Gap Gemini Ernst & Young statistics in reverse, some 80 percent of financial transactions will still be conducted using existing technologies in 2003 and 97 percent are still conducted in traditional ways today. Successfully managing the transition poses challenges for consumers of financial services, for businesses and for regulators. We need to regulate the old and the new, while at the same time creating capabilities to deal with the economy of the future.
What the internet means for the market The internet is profoundly reshaping our financial services marketplace. The internet has empowered us with faster and more efficient access to information and given us transactional capability. The combination of easier access and reduced costs for online financial services has intensified investment activity by ordinary consumers. The positive benefits of this ever-developing cyberworld are accompanied by changing consumer expectation and behaviour, generating both challenging consumer issues and industry uncertainty. Treasurer Peter Costello noted that "everybody loses interest in corporate regulation when a market booms. It's only when it fails they look to allocate liability. But it's when it's booming, when activity is going on, that people need to be at their most vigilant". This is not a new message for ASIC. We are actively involved in trying to provide trust and certainty within this emerging environment. To achieve this we are focusing on building consumer confidence through educational activity, further developing our ties with industry and taking action against those who break the law.
Our regulatory activity highlights our focus on the future and how we adapt to, not only the changes that are taking place today, but also those that are still beyond our line of sight.
Rentech, Inc: A case study Rentech is a US company that traded on the small cap market of Nasdaq. On 8 and 9 May 1999 messages relating to Rentech were posted on the Yahoo! and Raging Bull internet bulletin boards in the US. A couple of months later between 500,000 and 1 million spam messages (unsolicited e-mail) were sent out in both the US and Australia, with similar messages sent to the bulletin boards. The messages were that Rentech stock would soon increase by up to 900 percent over the next few months. The next day of Nasdaq trading saw the price of Rentech shares double, on trading volume that was at least 10 times the normal average daily trading volume of Rentech shares. You can see the spike in the share price following these incidents. The US Securities & Exchange Commission (SEC) received complaints about the spam and consulted with Rentech. Rentech denied the content of the messages and asserted that they had not originated at Rentech. The SEC's original investigations determined that the source of the Yahoo! and Raging Bull posting was from accounts held with Australian-based Internet service providers (ISPs). So, we had a US Company on a US exchange but an Australian ISP as the source of the messages.
The SEC contacted ASIC and a joint investigation started. We served notices on Australian ISPs and suspects were identified in Queensland and Victoria. Simultaneous search warrants yielded a large volume of documentary and computer data. I need to point out that the messages didn't directly identify the senders. There was various routing of messages, including via university servers. We received guilty pleas from the perpetrators on the grounds of making statements or disseminating information that was false or misleading and likely to induce the purchase of securities, by way of transmission of electronic mail messages and posting messages to internet websites. This case highlighted the fact that the transmission of messages over the internet is not completely anonymous and that ASIC has the ability to trace the authorship and prosecute. We believe that this criminal prosecution involving the transmission of spam e-mail messages and the posting of messages on websites is one of the first of its kind in the world – and a good result for ASIC.
Building a safe cyberworld
The technology may be new but the challenges are perennial. The internet raises a new delivery mechanism but there remains a common interest for consumers, industry and regulators. That common interest is TRUST. Trust in the cyberworld builds confidence and certainty and that builds market integrity. And we're not doing this in a vacuum. Business and consumer groups together with government bodies are all involved. Robert Frost stated that "the woods are lovely dark and deep, but I have promises to keep, and miles to go before I sleep". The internet also places challenges ahead. Yet, we have always aimed to stay abreast of the technology and how it impacts on the financial services sector. This is evident in our progress to date and our record of achievement as facilitators and protectors of e-commerce. We have promises to keep too. Promises to balance the desire for innovation with appropriate consumer controls. We look to the future, aware of these challenges and as keen as ever to engage them and move forward.
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