Verbatim: Comptroller: Trust, Reliability Essential to Electronic Money

Comptroller of the Currency Eugene A. Ludwig spoke Sept. 20 at the Treasury Department conference "Toward Electronic Money and Banking: The Role of Government." Excerpts from his speech follow.

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The fundamental value of a conference like this is that it gives the private sector and the public a chance to pick up some of the drumbeats - the preliminary thinking, if you will - of government policy makers.

Of course it goes both ways - it also give us a chance to listen in on what the industry and consumers are thinking. This exchange of information allows us to work together to develop solutions to significant issues - solutions that do not involve heavy-handed regulation.

Conferences like this one, plus careful study of the issues, minimize the need for regulation. They ensure that, if regulation does become necessary, it addresses the issues involved without unduly burdening the market.

Second, a number of themes began to emerge in virtually all the presentations. Perhaps the most significant is the importance of trust. The new marketplace offers businesses opportunities for increased efficiencies, larger markets, and greater profits, and offers consumers greater convenience and access to new products and services.

At the same time, how useful this marketplace becomes depends on how much confidence participants - particularly consumers - have in its dependability and integrity. We heard different views on what is required to develop this trust - assurance of privacy, clear statements of liability if systems fail, elimination of fraud, the need for some form of disclosure. But everyone agreed trust is the key to developing a robust e- money system.

It was also interesting to me to see the wide range of opinions about how quickly electronic money will develop. I think the consensus at the conference is that the market is developing rapidly, although opinions differ on what may reasonably be expected in the near term. But while there is disagreement on the precise pace of change, there is clear agreement on the need to plan for and develop risk management systems for e-money systems.

Equally important, throughout the conference, it has become clear that there is an international dimension to virtually all the major issues. For example, in one of the discussions, a panelist pointed out that one possible solution to the potential misuse of smart cards to facilitate financial crimes would be to establish limits on how much value could be stored on a card. But that would only work, the panelist said, if these load limits are the same in all countries.

Thinking about these themes, I am coming to the view that certain attributes are essential to an orderly market for electronic money and banking. Let me mention some of the most important:

*Transactions should be enforceable and reliable. Many basic legal questions concerning electronic commerce remain, and the resolution of these issues is essential to building confidence in electronic money transactions. These questions are compounded by the borderless nature of electronic commerce. It is unclear what laws apply in many transactions, or what courts have jurisdiction to resolve disputes. In individual cases, it may be possible to settle some differences through contractual arrangements. But the market may not develop as quickly if transactions continue to be governed solely be contractual agreements.

*The market should be largely free of fraud. The market should facilitate efforts to enforce laws against financial crimes and unsafe and unsound practices. At the same time, the concern of law enforcement must be balanced against consumer privacy concerns.

*Consumers must have reasonable protection from abuse of privacy. New technology facilitates the accumulation and manipulation of vast quantities of personal information. This has already led to rising public concern about who has access to that information and how it is used. In addition, foreign governments already are imposing their own privacy standards.

*Consumers must have adequate information to make informed choices about the payment systems they are using, as well as the products they are buying. Consumers need to understand the risks involved with using electronic money and banking products and conducting commerce over the Internet.

*Development of new electronic forms of payments must not get in the way of broad consumer access to financial services. In addition, these new forms of payment services offer opportunities to serve those who are now unserved by the financial services system.

Now, as to the role of government in facilitating a vigorous market that has these attributes, we in government must be guided by three principles:

First, we should work with the private sector and the public wherever possible. Electronic money and electronic payments are evolving so rapidly that government cannot possibly develop and retain all the expertise necessary to accomplish any of its objectives without the support and cooperation of industry.

Second, we should avoid premature regulation. We recognize the dangers of involving government too early in such a rapidly evolving area and do not want to chill or unduly influence the market by encumbering it with regulation what may quickly become outmoded, in appropriate, or detrimental.

Third, we should be prepared to take action when action is required. While we are mindful of the dangers of acting prematurely, waiting too long to address problems also will impede the full development of this promising market.

The Consumer Electronic Money Task Force will meet within the next several weeks to address in detail many of the consumer issues raised at this conference. And let me assure you we have no intention of working in a vacuum - we must and will depend heavily on input from industry and consumers as we tackle these issues. Let me conclude by saying this have been an exciting conference for me, not just because we have had first- class speakers but because this is an exciting subject. Electronic money and banking are more than important changes in the way financial services are delivered. They are nothing less than a revolution in financial services that holds great promise for Americans and for people around the world.

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