As Internet-based banking gains ground, U.S. banks are developing plans to provide cross-border services at the click of a mouse.
But no one really knows or understands how financial e-commerce meshes with the regulatory and legal structures of other countries or whether other countries will let U.S. banks enter their markets through the Internet.
"Getting commitments from governments would be helpful to planning," said Robert D. Kramer, vice president and manager for international government relations at Bank of America Corp.
Bankers are pressing the Geneva-based World Trade Organization to put Internet banking on next year's round of talks on liberalizing world trade. Hoping to sort out the confusion, companies such as Bank of America Corp., Chase Manhattan Corp., and Citigroup Inc. are working with the WTO to draft global rules defining the parameters of electronic cross-border banking.
"The name of the game is how banks can use electronic commerce to avoid having to establish brick-and-mortar operations all over the world," said Robert Vastine, president of the Coalition of Service Industries, a Washington lobbying association for free trade in 150 financial services.
Mr. Vastine argued that there is not much need for an entirely new set of agreements because existing ones can be extended or amended.
Doing that would not be easy. One reason is that most countries still do not let foreign banks supply banking services, electronic or otherwise, without setting up a locally licensed subsidiary. In fact some countries, including China and India, barely allow foreign bank entry at all.
Fraud is also a worry, and banking regulators are particularly concerned about Internet-based banks from poorly supervised jurisdictions, such as some Caribbean islands.
Other obstacles are tax and regulatory jurisdiction. If someone in San Francisco carries out a foreign exchange swap via the Web site of a French bank, was the transaction carried out in the United States or in France? Who can tax it? And in the event of a dispute, which country's jurisdiction prevails?
This month Web site providers were in an uproar after a decision by the European Commission that any dispute between a customer in one country and an Internet-based supplier in another country would have to be resolved under rules of the customer's country of origin. Web site owners complained that the ruling would mean dealing with the 15 different legal structures of the member countries.
Bankers predict that the fastest gains in international Internet banking will come in corporate banking, much of which already crosses national borders.
Most of this business is done on a contractual basis, in which the parties agree in advance on which legal and regulatory jurisdictions will prevail if problems crop up.
Regulators are particularly apprehensive about retail banking. "Areas where you have relatively unsophisticated individuals buying services from banks will be quite sensitive," said Edward W. Russell, senior vice president for government affairs at Chase.
Yet there may be little that anybody can do to stop the spread of either wholesale or retail Internet banking, said Lawrence Uhlick, general counsel of the Institute of International Bankers, a New York association representing foreign banks in the United States.
"The rules have yet to come together in this area," Mr. Uhlick said. "But the potential is there, and I have a hard time seeing how anybody can stop it."
