Laws and Regulations on Online Auction - Case Study Example

Online Auction Sites Customer Inserts His/Her Name Customer Inserts Grade Course Customer Inserts Tutor’s Name 25th March, 2012 Outline Introduction UK Auction Market Rationale of Online Auctions Laws and Regulations on Online Auction Challenges in the UK Online Auction Industry Regulation Measures Conclusion Introduction The business world has transformed tremendously when the information age emerged and grew. As a result, the business world has benefited a lot from these developments. One of the sectors that has benefitted alloy is the online commerce field. Internet auctions sites such as EBay, Amazon among many online companies have come up with strategies to sell goods online. The sites sell goods under the auction system whereby a seller of a good advertises for his goods while sellers seek information for goods to be sold. The proliferation of these sites has increased security issues in terms of consumer protection. These auctions sites have now become targets for unscrupulous business people and hackers out to exploit consumers. Therefore this essay is going to analyze the regulation of online auction in the United Kingdom. UK Auction Market The UK is made up of a huge consumer with a high spending power that enables various forms of markets to exist. One of the growing formats of trade is through the use of the internet in trade. Thus, E-commerce firms have thrived a lot in the United Kingdom with a huge number of these firms reaping good profits. As per the year 2011, there were over 70 online auction sites in the United Kingdom. These sites are made up of huge conglomerate firms to little start ups trying to curve a niche in the online auction market. However, the number of consumers who make use of the UK auction sites is quite huge leading to huge volumes of online transactions. Moreover, over 40% of UK homes have access to the internet and this makes it easier to sell or buy goods through the online methods (Geraint, 2009). The ease and speed of conducting business through the use of the online auction has also contributed to the growth of these auctions. For instance, there are several supporting amenities to the online auction, such as speedy delivery of purchased goods or the good online payment systems. The increased transactions has provided a leeway for hackers keen on intruding insecure systems or for unscrupulous businesspeople to open sites which do not offer genuine services. Most online auctions do not sell goods or services but they do provide a gateway for sellers and buyers to meet and sell their goods (Delta, 2008). The online auction business in Europe is dominated by the UK whereby an average of over 700 million transactions took place in 2011. The importance and growth of the online auction market can be seen with the tremendous growth that the auction market has been growing over the years. Today the online auction market in the UK is worth over £ 10 billion. Rationale of Online Auctions There are varies reasons why the online auction market in the UK has grown tremendously over the years. The online auction market is quite different from the traditional retail or wholesale shops. Unlike the traditional shops, the online auction sites bring many sellers and buyers together under one platform. Moreover, some online auction sites are categorized into different sections. For instance, there are online auction sites dedicated to exchange of books only while others offer all kinds of products and services. There are several reasons why people prefer online auctions sites and they are listed below: Search and Choice: Many online shoppers prefer shopping online because of wide choice of goods or services that they can procure using online auction sites. Sellers using online auction sites have the capability of reaching a huge market of customers. Moreover, sellers have the advantage of advertising their goods and they can amend the prices or product offering easily. While on the other hand, buyers have the privilege of a wide selection of goods. According to Smith (2007, p. 68), buyers can even buy goods which are not available in the UK and even buy goods at cheap and affordable prices. Interactivity: Online auction sites allow buyers and sellers to interact easily over the internet. Consequently buyers can buy or sellers sell their goods quickly over the internet since several payment gateways have been developed for making payments online such as PayPal. Sellers on the other hand can respond to their customers quickly though use of the online auction site. While advertisers can target buyers easily through use of online auction sites. Delivery: Online auction sites make use of well known players in the transportation industry to deliver their goods. As a result, buyers do not necessarily need to have a physical address in conducting their transactions. In some cases, delivery is done in real time like in the case of e-tickets which can be auctioned online easily. The ease of the delivery of goods auctioned online helped in improving the online auction trade in the UK (Rowland, 2005). Laws and Regulations on Online Auction Several measures have been taken to regulate and protect the online auction in the UK by different stakeholders. The UK government has an obligation to protect consumers from exploitation and thus, they have to pass several laws to ensure consumer protection is achieved in the online auction side. The United Kingdom is home to the largest online trade business in the world and as a result, we witness the growth of the online business. The practice of selling online is different from other forms of selling because of the parties/stakeholders involved. Moreover, online auctions sites operate globally and thus some of these sites might not necessarily meet the conditions of sale in the United Kingdom. Protecting the online auction trade is very difficult and since the growth of online auction sites, several problems have emerged. As a result, the UK government and other stakeholders introduced regulations and standards to safeguard the online auction business. Regulations used in governing the sale of goods and unfair trade practices have been enforced for a long period of time. For instance, the Consumer Protection Act of 1988 protects against misleading prices (Smith, 2007). Other laws which were enacted that could be used in regulating the online auction trade in the UK include the Control of Misleading Advertisements Regulations of 1988. This law protects consumers against misleading consumers through advertisements, while adverts have been regulated. In 1998, the Data Protection Act was enacted and it was used in ensuring that personal information is used properly. The buying or selling habits of online auctions users is protected using this law. Since this act prohibits the sharing of information used by online auctions users. Under the Unfair Terms in Consumer Contract Regulations of 1999, trade terms have to be clear for consumers. As a result, online auction sites have an obligation of protecting consumers and sellers against unfair trade terms. Online auction sites make use of different marketing methods to target consumers. As a result, non-users of online auctions sites might be targeted in marketing schemes by sellers in auction sites. Therefore, the Privacy and Electronic Communications Regulations was enacted in 2003. These laws were meant to curb direct marketing through use of E-mails or other online tools. The UK and Europe have regulations meant to protect consumers using online auctions systems. For instance, the DSD (Directive Selling Directive) and the Electronic Commerce Directive (ECD) are the two core laws that protect consumers. On the other hand, industry players have established regulations and standards that protect consumers and users of their sites. Online auctions sites have come up with self regulation mechanisms that were to protect consumers. Most of these regulation methods are packaged as schemes whereby certain terms have to be met within the set code scheme for a business to join (Delta, 2008). Most of the schemes were free to join and most of them ended up folding up due to the high cost of maintaining these sites. In the UK, Trust UK189 was used in ensuring that these sites met certain requirements. In the US, the (Better Business Bureau) is used while in Japan the DMA applies. Challenges in the UK Online Auction Industry The online auction industry in the world is a tough business to operate or run and the online auctions in the UK are no exception. There are several risks associated with carrying out transactions using the online auction in the UK. These risks have presented challenges to the online auction in the UK hampering the growth of the industry. Most of the challenges facing the growth of the online auction in the UK are related to security and user information. Some of the challenges facing the online auction in the UK are listed below: Data Theft: Online auctions companies are susceptible to data attacks whereby data is hijacked by interception. New and up start online auctions companies face the problem of securing their websites. For instance, online auction sites have to make use of SSL (Secure Socket Layer) as a security standard in encrypting data and transferring it over secure networks. When SSL is not used, suspicious attacks become more frequent and thus in such cases client data can be easily accessed (Rowland, 2005). Malicious Software: The growth of the online auction trade has also witnessed the growth of numerous attacks on auction websites. Malware is one of the frequent attacks that online auction sites suffer from. Malware programs can destroy information stored in a computer, network or system. These programs are packaged into a format that fools the user that it is good message either in E-mails. Moreover vulnerabilities in a web browser can allow malware software to install itself within the computer system. Malware could compromise the system through key logging software that allows an intruder to get logins and passwords of users on online auction sites. Online security site McAfee noted that between the years 2004 and 2006, there were an increase of 250% of key logging incidents. Unencrypted data could also be stolen through potential malware programs. This information could be user transactions or financial information which could be diverted to fraudsters (Geraint, 2009). However, the most serious form of malware is session hijacking which occurs when a user hijacks a session between two machines when a transaction has been authenticated. In most, cases, session hijacking occurs when auction transactions occur between different users such as the buyer and the seller. Corporate Attacks: The online auctions trade in the UK like other places in the world rely on cards for making payments. Corporate attacks occur when hackers steal information stored in company databases. This information is then sold to other parties in different places in the world. Online auction systems have to weary of this form of attack and store their information securely whether it is online or offline (Rowland, 2005). For instance, in the year, 2004 CardSystems Company suffered a corporate attack that compromised over 40 million credit cards issued by the company. Insider Fraud: The online auction sites in the UK are supported by different staffs who maintain different sections of the business. Some of these employees might be corrupted into selling customer information to third party sites. Moreover, it is difficult to gauge the trustworthiness of a site since the customer is not aware of the owners of these sites of how they conduct their businesses. Several other forms of challenges are encountered in the online auction businesses in the UK. Phishing is one of the greatest security challenges that the online auction business faces. Phishing is an attack that occurs when a buyer or seller is redirected to a clone site that looks like the original but intends to fool the user into disclosing his/her information by logging into the system using the fake site (Rowland, 2005). Most of these challenges can only be addressed through having strong regulations that look into addressing these issues. Regulation Measures Several regulative measures could be instilled in ensuring the UK online auction system is protected. As a result, several bodies will be set up to look into ways of regulating the online auction industry in the UK. These bodies will comprise of governmental and non-governmental bodies. The main body that will be responsible for the enforcement of regulation in the United Kingdom is the Trading Standards Services (TSS). The TSS has varied powers to investigate and prosecute against crime and other forms of activities. In the UK, there are other bodies such as the Office of Fair Trading (OFT) which has been mandated to protect the interests’ of consumers and businesses in the internet. Regulation of the online auction sites in the UK will be a multi-faceted strategy that will see various bodies grouped together to fight online crime. Several governmental bodies will be used in investigating and arresting criminals who undertake online auction crimes. For instance, the Police will be involved in investigating people who are involved in crimes such as phishing or identity theft. Moreover, they will investigate and arrest individuals who are found to have dealt in selling counterfeit goods (Geraint, 2009). The Police through investigative arms such as the Scotland Yard will be involved in monitoring hackers keen on stealing identities of online auction sites’ users. For instance, in the year 2006 there were incidents of online theft that involved Scottish banks that the Scotland Yard investigated and arrested several hackers. Moreover, under the Enterprise Act of 2002, other enforcers will be involved in the regulation process. For instance, the OTF is designated as an enforcer in the online business. The OTF will be responsible for the enforcement of laws dealing with false advertising, scams and other consumer related issues. For instance, in cases where a customer has reported to having been sold fake goods or a scam has been unearthed that has targeted specific users of the online auction sites (Smith, 2007). Then the office of the OTF will investigate and punish the suspected criminals. Moreover, giving guidance and warning signs or campaigns of online auction sites could be helpful. For instance, the government and other bodies should step up their efforts and ensure consumers are aware of the perils of shopping online. Providing guidance and advice on the intricacies of online auction sites would reduce consumer complaints on the use of these sites. Before online auction sites are given the go ahead to commence their operations, the relevant authorities should set up regulations and standards that should be met by new online auction sites. As a result, there will be a compliance programme that will be launched that looks into the online auction sites. The formal compliance program will be used in ensuring that certain procedures are met and if a certain online auction site does not meet the procedure then that site is shutdown (Delta, 2008). Monitoring and compliance tests will be geared towards ensuring that illegal goods are not auctioned over the internet or consumers are not duped. Regular internet sweeps by the authorities will help in ensuring that policy guidelines and compliance is adhered to strictly. Internet seeps have been conducted in the past and most of them have been effective in netting sites which do not meet standards. For example in the year 2001, an internet sweep was conducted by OTF and several TSS and it was found that 52 % of online selling sites were not compliant. Moreover, there is the annual internet sweep conducted by the ICPEN indicates that there are high levels of misleading online adverts. Therefore, the government together with the international bodies should conduct well co-ordinated internet sweeps to ensure compliance is met by all industry players. However, self regulation within the online auction industry will benefit online businesses in the UK. For instance, the UK bodies like the Trust UK189 which was a scheme envisaged by online businesses was effective in ensuring that websites meet certain set out conditions. Code owners with the help of organizations such as the ICSTIS (Independent Committee for the Supervision of Standards of the Telephone Information Services) and ASA (Advertising Standards Authority) could help in regulating the online auction trade in UK. Self regulation involves making use of numerous approaches to tackling challenges that face the industry. Top global auction sites like EBay have invested a lot on security and they also have a complaint’s mechanism. The UK online auctions sites could take a cue from players in the US like EBay and come up with their own independent body. Through the formation of a regulation body, online auction sites in the UK will have the opportunity to vet their members easily. Moreover, the regulation body will be responsible for the publishing online auction sites which meet their standards and blacklist sites which do not meet the set compliance standards. The future of the online auction trade in the UK looks promising since regulation efforts are stepped up. For instance, the Fraud Act of 2006 has helped in the reduction of online fraud cases associated with auction sites (Geraint, 2009). Moreover, more laws and strategies are being developed to ensure there is sharing of information among countries and different players in the industry. For instance, France, Germany and other European will share information with the UK on online auction trade among stakeholders in these countries. Conclusion The internet has transformed many industries including the retail and auction trade globally. One of the industries that has benefited from the trade is the online auction trade. The online auction trade in the UK has grown tremendously and thus, integrity issues have arisen from the use of the internet. Most of the issues that have arisen have to do with security of using online auction sites. As a result, the UK government and other stakeholders have to grapple with regulating the industry. Regulating the online auction trade in the UK is a difficult task due to the fact that millions of transactions are conducted annually using the online auction websites. Numerous concerted efforts have been made towards ensuring security of the online auction trade is maintained. Some of the measures that have been put in place include formation of oversight bodies that look into the activities of these online auction sites. Self regulation by online auction sites ahs also contributed to the improvement of the online auction trade. The future of the online auction trade looks bright if regulation efforts are stepped up. References Delta, G. and Matsuura, J., 2008. Law of the Internet. London: Routledge Falmer. Geraint, H.and Reiner S., 2009. Modernising and Harmonising Consumer Contract Law. London: Sage. Rowland, D., 2005. Information technology law. Chicago, IL: Edward Elgar Publishing. Smith, G., 2007. Internet law and regulation. London: Cengage. Read More