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The exponential growth in Internet banking continues despite the spate of hacker scare stories which continue to dominate the headlines. A recent survey of financial services by Cap Gemini Ernst & Young indicates that Europe is poised to take a powerful lead over the U.S. in Internet and mobile banking. It predicts that European banks will carry out a quarter of all transactions through the Internet by 2003, as opposed to just 12 percent in the US. However, as lawmakers on both sides of the Atlantic create legislative frameworks designed at facilitating online transactions, the response of lawyers to the Internet banking gold rush is likely to prove crucial. But what exactly are the legal implications of Internet Banking? The U.K.’s recent implementation of the EU Electronic Signatures Directive — the Electronic Communications Act 2000 — aims to place digital signatures on a legal par with paper signatures. One way in which the Act aims to do this is by regulating cryptography — the technique used to provide digital signatures — thus ensuring that e-commerce messages can only be received by the intended recipient. It is anticipated that banks and customers will now have greater confidence in relying on instructions received over the Internet. One senior London lawyer claims that everything is geared to providing confidence among both businesses and consumers. He says: “The real thing is generating confidence on both sides. Once you have crossed that bridge the whole thing will rocket. “Once the online banks are trusted then the movement of money will become far more efficient.” David Maislish, partner at Edwin Coe, agrees: “So much money these days has to move through the lawyers and somehow whole days get lost, with banks closing early and throughout the weekend. These constraints will just disappear.” The days of lawyers working flat-out on Friday afternoons to complete transactions before the banks close for the weekend are likely to be a thing of the past. But according to Maislish, online fraud is an issue that will never go away, however sophisticated Internet transactions become. He claims that however secure online bankers make their business, technically minded criminals will always find ways to defraud them. “Internet crime will be the biggest growth industry of the century. It is much easier than violent crime and the rewards are far greater. “As soon as the banks close one door, another two will open. The nature of online business is to have access. “It is impossible to close all the doors if you wish to remain online,” he says. Maislish’s comments follow the recent revelation that the Internet bank, Egg, was the victim of a serious attempted fraud. Credit card issuers are also trying to keep pace with online criminals, following a 40 percent increase in card fraud last year. Experts claim that little technical expertise is required and that hacker software is freely available on the Internet. PERSPECTIVE However, Ian Kirby, IP and technology partner at Arnold & Porter, feels the Internet must be put into perspective. He says: “As the Internet matures, encryption technology will improve and the ability to track fraud will increase. “The Internet is a great advance and only a Luddite would suggest that these teething problems are going to get in the way of online transactions becoming the norm. … Some banks are already saying they will reimburse any losses suffered a result of Internet fraud,” he says. Moreover, the desire among European banks to launch products quickly appears to have displaced security worries as the key issue for banking bosses. They predict that once online banking is embraced by the mass-market, then costs will fall dramatically. One London partner says: “Banks are regarding online fraud as just another cost to be swallowed, like employee wages. “Eventually branches and many different types of employee will just disappear, allowing massive savings by the banks.” It appears then, that Internet banking is here to stay, despite the huge potential for fraud that quite obviously exists. For lawyers, the outcome is a win-win situation. European banks will race to roll out their new online services and, as the mass-market embraces Internet banking, then the potential for widespread fraud increases. The net result either way is an abundance of work for the legal profession. According to David Maislish: “It will keep lawyers busy for the next 100 years.”

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