Electronic Transactions Bill

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Following is the speech by the Secretary for Information Technology and Broadcasting, Mr K C Kwong, in moving the second reading of the Electronic Transactions Bill in the Legislative Council today (Wednesday):

Madam President,

I move the Second Reading of the Electronic Transactions Bill.

Electronic Commerce

Generally speaking, electronic commerce encompasses both business-to-business and business-to-consumer (retail) transactions conducted through electronic means. Based on the latest industry forecast, the total value of electronic transactions on a global basis will rise to over US$400 billion annually by 2002. The projected growth rate is 40 times that of the global Gross Domestic Product. Electronic commerce is therefore widely recognised as the engine to drive future economic growth. The development of electronic commerce will enhance our productivity and efficiency, and thereby strengthening our overall competitiveness. Countries around the world are actively promoting the development of electronic commerce. In order to enable us to interface effectively with our major trading partners who are driving intensively in developing electronic commerce in the Information Age, we must seek to facilitate and promote the development of electronic commerce with the same vigour.

Electronic commerce is in its early stage of development in Hong Kong. With the right environment, it is ready to grow. To promote the wide adoption of this new mode of doing business, the Government is committed to providing a conducive environment for electronic commerce to take hold and flourish in Hong Kong, and for electronic commerce to be accepted by the community as a part of our daily lives. The Government is also committed to taking necessary actions to address public concerns about the legal status as well as the security and certainty of electronic transactions.

Electronic Transactions Bill

The objectives of drafting the Electronic Transactions Bill are two-fold : first, to establish a clear legal framework to give electronic records and digital signatures the same legal status as that of their paper-based counterparts; and second, to establish a suitable framework for the operation of certifications authorities so as to ensure trust and security in the conduct of electronic transactions.

Electronic Records and Digital Signatures

To give electronic records and digital signatures used in electronic transactions the same legal status as that of their paper-based counterparts, we propose to introduce the following provisions in the Bill, along the line of the United Nations Commission on International Trade Law - Model Law on Electronic Commerce -

(a) where a rule of law requires or permits information to be given or presented in writing, the use of electronic records will satisfy the rule of law;

(b) where a rule of law requires information to be retained, or to be presented or retained in the original form, that requirement is met by retaining or presenting the information in the form of electronic records;

(d) contracts shall not be denied legal effect solely on the ground that electronic records are used in their formation; and

(e) electronic records shall not be denied admissibility as evidence in court on the sole ground that they are electronic records.

Exemptions

While it is our policy objective to promote the wider adoption of electronic transactions, we recognise that for the time being certain types of transactions and procedures would preferably be conducted through conventional means for the time being because of their solemnity, significance, complexity or other factors. We therefore propose to exempt certain generic items from the operation of the relevant provisions in the Bill. These items include wills, trust, statutory declarations, affidavits, power of attorney, court orders, warrant, bills of exchange, and documents or instruments concerning land or property transactions, etc. In addition, judicial proceedings will also be exempted from the operation of the relevant provisions inthe Bill. When the courts and tribunals have ascertained that electronic information can be accepted in their proceedings in future, the authorities for making court rules may withdraw the relevant exemptions.

We recongise that some Government departments may not be able to accept electronic information under certain rules of law because of operational, technological or other reasons. To address this, we have proposed a mechanism in the Bill whereby specific rules of law can be exempt from the operation of the relevant provisions in the Bill by means of subsidiary legislation. The departments concerned will review the exemptions from time to time and consider removing them at appropriate time. We also recognise that individual departments which can accept electronic information under certain rules of law may only be able to do so if such electronic information has been prepared in a specified format and using a specified type of software. To deal with such situations, we have also proposed a mechanism in the Bill whereby individual departments may, where necessary, specify format and procedural requirements for the submission of electronic information under a rule of law.

Certification Authorities

To provide a secure and trusted environment for the conduct of electronic transactions, Government will establish a local public key infrastructure through the support of certification authorities. With the issue of digital certificates by certification authorities and through the use of digital signatures and public/private key encryption, individuals and businesses will be able to establish the identity of the opposite party in electronic transactions, authenticate electronic messages received, ensure that the confidentiality and integrity of electronic messages exchanged will not be breached and safeguard against the repudiation of electronic transactions.

Voluntary Recognition Scheme

We do not propose to introduce a mandatory licensing scheme for the regulation of certification authorities so as to encourage the development of certification authorities to meet the needs of the market. However, to protect consumer interest, we propose to introduce a voluntary system of recognition whereby certification authorities are free to apply for recognition from Government.

. The Director of Information Technology Services will be the authority for granting Government recognition to certification authorities under the Bill. Certification authorities applying for recognition must achieve a trust standard in their operation which is acceptable to Government and adopt a common and open interface to ensure inter-operability with other recognised certification authorities under the local public key infrastructure before Government recognition will be granted. The Bill further stipulates that certification authorities must comply with the following requirements -

(a) publication of a certification practice statement which clearly specifies the practices and standards adopted for issuing certificates to subscribers;

(b) use of a trustworthy technical system in performing certification authority services;

(c) engagement of an approved professional to conduct an annual audit on the provision of certification authority services; and

(d) compliance with a code of practice issued by Government.

If we detect any failure to comply with these requirements by a recognised certification authority, we may suspend temporarily or revoke the recognition granted. We believe that, through the operation of the voluntary recognition system, we can facilitate the development of certification authorities in Hong Kong. Consumers will also be able to assess the trust standard of individual certification authorities and to make an informed choice when obtaining certification authority services.

To encourage certification authorities to seek Government recognition under the proposed voluntary regime, we have stipulated in the Bill that the provision therein regarding legal recognition of digital signatures applies only to those digital signatures supported by recognised certificates issued by certification authorities which are recognised by Government. In addition, we have, in line with common practice adopted elsewhere, introduced a provision to allow recognised certification authorities to limit their liability in the issue of recognised certificates under prescribed situations. The limitation applies only when the recognised certification authority concerned has complied with the various requirements under the Bill, and has not acted negligently, intentionally or recklessly. We consider these measures crucial in encouraging the development of a public key infrasturcture and the establishment of certification authorities in Hong Kong.

Certification authorities which have not obtained recognition from Government are outside the application of the Bill. They will rely on common law principles in providing certification authority services to their subscribers.

In order to establish a public key infrastructure in Hong Kong as soon as possible, Government will take the lead in establishing a public certification authority through the Hongkong Post, which will start to provide public certification services to the local public and businesses on a non-exclusive basis by the end of 1999. The early approval of this Bill will facilitate the promotion of public certification services. In addition to the Hongkong Post, the private sector is free to set up certification authorities in Hong Kong to serve the needs of the community. The number of certification authorities to be established in Hong Kong will be determined entirely by market force.

Conclusion

Madam President, the Electronic Transactions Bill will lay the foundation for the development of electronic commerce in Hong Kong. To enable Hong Kong to take the stride forward, to cope with the development in the new era and to maintain our competitiveness in the new Information Age, I wish to appeal to Members that the Bill should be examined at the earliest opportunity. I also appeal for Members' support to the Bill so that the Bill can be enactedas soon as possible, thus providing a safe and secure environment in the community for the conduct of electronic transactions.

Madam President, I beg to move.

End/Wednesday, July 14, 1999

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