Eversheds Digital Banking Seminar 30 September 2015 Matthew Gough Partner, Head of Digital banking

Matthew Gough, Partner, Eversheds Matthew leads our digital banking team Advises financial institutions on products terms and conditions and on technology contracts Heads our Consumer Law Team Matthew has advised clients on internet banking since 1997

Today’s programme 09:30 Welcome and introduction – Matthew Gough 09:35 Digital banking and the customer journey – Matthew Gough 09:55 Open banking – Daryl Wilkinson 10:25 The digital agenda for payment services – Nilixa Devlukia 10:55 Break 11:15 Digital banking and data protection – Paula Barrett 11:35 Obtaining the right technology – Eve England 11:55 Combatting Cybercrime: Risks, Consequences and Mitigation – Polly Sprenger 12:15 Delivering compliant digital products – Clare Hughes 12:40 Networking lunch

What are we looking to achieve from today? Raise and summarise the key legal issues involved with Digital Banking Provide the regulator’s view point Provide an innovator’s perspective This is the first in a series of events and briefings, your feedback is important to help us provide future events Provide an opportunity for everyone here to network within this legal area

A brief history of internet and digital banking Home Banking New York Banks 1981 Nottingham Building Society 1983 First UK online account 1997 EGG is Founded 1998 First banking app developed 2010 £2.9 billion transferred weekly by apps in the UK 2015

Digital banking in the UK Two recent publications by the BBA summarises digital banking in the UK Digital disruption: UK Banking report, March 2015 (BBA and Accenture) The Way We Bank Now: World of Change, Summer 2015 (BBA and EY)

Digital banking in the UK Some interesting figures from the BBA: One in five of a bank’s customers only use mobile banking 167,000 of one bank’s customers use mobile banking between 7:00 am and 8:00 am each week day 33% of one bank’s loan applications are processed and approved entirely online 10.5 million banking apps logins each day in the UK In 2010 Metro Bank was first bank to receive a UK banking licence in 100 years, in 2014 29 firms applied for a licence

How does this affect the UK Banking Industry? Number of branches Investment in new technology Recruiting different people New entrants to the market

How are we approaching digital banking and legal advice? Commercial law Consumer law Privacy Cyber crime Financial Disputes Payments Regulatory We have been advising financial institutions on the key issues raised by Internet and Digital Banking for many years We have a holistic approach with our digital banking team coming from across the relevant specialisms We will now look at the first item on today’s programme GOUGHM

Digital banking and the customer journey Topics to be covered: Contracting with customers online Digital Banking products and the Consumer Rights Act 2015 (The ‘CRA’) Social media and Digital Banking

Contracting with customers online What services and products are involved? Accessing information online and digitally for example personal and business current accounts Online and mobile payments e.g. Faster Payments, Paym, Apple Pay Applying for new products online e.g. bank accounts, unsecured loans and mortgages Where a wet signature is required the process cannot be completed on-line, for example, mortgages What technology is involved? PCs, tablets, smartphones, watches, and wristbands

Contracting with customers online (cont’d) There are a number of key issues applying to online contracts: Product specific requirements, for example the CCA, Payment Services Regulations Durable medium Data Protection and privacy Financial promotions Distance marketing E-Commerce regulations – I will look at this in more detail Electronic signatures and digital signatures Incorporating the contract terms and concluding the contract – I will look at this in more detail

Contracting with customers online (cont’d) The Electronic Commerce (EC Directive)Regulations 2002 Applies to services provided online including financial services An additional layer of regulation and compliance A number of information requirements in a manner which is easily, directly and permanently accessible Requirements for the formation of contracts and the technical steps to conclude the contract Prices to be indicated clearly and unambiguously

Contracting with customers online (cont’d) Incorporating the contract terms and concluding the contract Application of contract law – most of these principles apply to B2B and B2C Making the customer aware of the terms The use of user-friendly methods Various terms and conditions may apply to the relationship – need for careful wording in case of conflict of terms “Prominent and transparent” from 1 October 2015 – Section 64 of the CRA – a challenge with smartphones and watches Obtaining the customer’s agreement to the terms and conditions – click and accept? B2B customers and online contracts Cooling off periods Varying the contract GOUGHM

Digital banking products and the CRA 2015 The legal position changes at midnight today Digital content under the CRA is data which are produced and supplied in a digital form Digital content will then be treated as similar to goods where required to by the CRA Section 33 of the CRA means the new laws applying to digital content will apply to: Paid for digital content; or Digital content supplied free with goods or services or other digital content that is paid for This means paid for online banking services and apps will be treated as digital content UK Government endorsed guidance suggests the CRA will not apply to “free” online bank accounts despite the wording of Section 33 – the Trading Standard Institute’s Business Companion Guide : Digital Content, March 2015 GOUGHM

Digital banking products and the CRA 2015 (cont’d) Where a digital banking product is digital content a careful approach is required: Different standards apply – compliance with description, fitness for purpose and satisfactory quality Different statutory remedies are required – repair or replacement remedies apply Appropriate terms and conditions will need to be used reflecting this Care not to mislead the consumer by suggesting services are supplied Need to review how digital content is provided to consumers and the effect of the CRA

Digital banking products and the CRA 2015 (cont’d) Whether or not Section 33 applies, banks need to be aware of Section 46 of the CRA. Under Section 46 of the CRA: A business is liable where digital content is provided under a contract (for example a free app) and cause damage to a device or other digital content Required to repair the damage and bear any costs A business can show it has exercised reasonable care and skill Need to flow down this new liability to consumers in your technology supply chain You can consider your potential liability and your use of “reasonable care and skill”

Social media and digital banking Some Examples: Facebook Twitter Linkedin YouTube

Social media and digital banking What are the legal issues? Financial promotions - FCA Guidance 2015, FG15/4 Social Media and Customer Communications Consumer protection from Unfair Trading Regulations 2008 CAP Code Free prize draws/promotions - Gambling Act 2005 and the applicable social media rules Defamation and your liability for employees Reputation and managing criticism/attacks on the business GOUGHM

Social media and digital banking (cont’d) Social media and good practice Accountability within your business for the use and interaction with social media Monitoring third party content on your websites/blogs/social media and your potential risk of liability Internal social media policies – managing business sections and individual employees External social media policies – contributors and customers GOUGHM

Questions?

Partner Matthew Gough Company Commercial +44 29 2047 7943 matthewgough@eversheds.com Eversheds 1 Callaghan Square Cardiff CF10 5BT