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1. These explanatory notes relate to the draft Electronic Communications Bill which was published by the Government on 23 July 1999. They have been prepared by the Department of Trade and Industry and the Home Office in order to assist the reader of the draft Bill and to help inform debate on it.

2. The notes need to be read in conjunction with the draft Bill. They are not, and are not meant to be, a comprehensive description of the Bill. So where a clause or part of a clause does not seem to require any explanation or comment, none is given.

3. The Government’s policy is to facilitate electronic commerce. It has also set itself targets for making Government services available electronically: 25% by 2002, 50% by 2005 and 100% by 2008. The Government has also set a target for 90% of its routine Government procurement of goods to be done electronically by 2001.

4. The Government’s general policy towards electronic communications and information technology is set out in:

5. Cryptography and electronic signatures are important elements for electronic transactions.

• An electronic signature is something associated with an electronic document that is the equivalent of a manual signature. It can be used to give the recipient confirmation that the communication comes from who it purports to come from ("authenticity"). Another important use of electronic signatures is establishing that the communication has not been tampered with ("integrity").

6. Various organisations provide cryptography services, including certifying the public key of an individual used in the generation of electronic signatures. There is a need for the public to be able to have confidence that these services are secure and not open to fraud; and for people to be free from unnecessary restrictions in their use of new technology. On the other hand, there is the problem that encryption can be used for criminal purposes and to frustrate the work of law enforcement and security services.

7. The main purpose of the Bill is to help build confidence in electronic commerce and the technology underlying it by providing for:

• the removal of obstacles in other legislation to the use of electronic communication and storage in place of paper.

8. The Bill also contains provisions to maintain the effectiveness of existing law enforcement powers in the face of increasing criminal use of encryption, and to update procedures for modifying telecommunications licences.

9. The Bill is in four parts.

• Part IV, Miscellaneous and Supplemental.. This Part amends section 12 of the Telecommunications Act 1984 and inserts new sections (12A and 12B) into that Act. The proposed new provisions are concerned with the modification of telecommunication licences otherwise than in pursuance of a reference to the Competition Commission. This Part also concerns matters such as general interpretation, the short title, commencement and territorial extent of this Bill.

10. The Bill contains two Schedules relating to Part III:

• Schedule 2, The Tribunal. This concerns the constitution and procedure of, and appointments to, the Tribunal to be established under Clause 18 to hear complaints about written notices served as a result of authorisations granted by the Secretary of State.

11. The first consultation on most of the matters covered by Parts I to III was undertaken by the previous administration in March 1997.

15. There have been two formal consultations on the revised licence modification procedure provided for in Part IV of the Bill. The first, "Licence Modification Procedure: Proposed Changes to the Telecommunications Act 1984" (URN 98/1049), was issued in May 1998; the second, "Licence Modification Procedure: Updated Proposals for Changes to the Telecommunications Act 1984" (URN 99/945), in March 1999 (available on the DTI website at www.dti.gov.uk/telecom/teleprop.htm.)

16. Responses to all these consultation exercises have contributed to the measures set out in the Bill.

18. The broad aim of the Bill, facilitating electronic commerce, is similar to that of the draft EU Directive on Certain Legal Aspects of Electronic Commerce in the Internal Market, which seeks to remove barriers to the development of electronic commerce in the internal market, but there is no overlap in the detailed provisions. The main areas addressed in the proposed directive are simplifying and clarifying rules of establishment, ensuring consistency in approaches to commercial communications such as definitions of advertising, ensuring legal validity of electronic contracts and clarifying the liability issues of intermediaries.

This clause places a duty on the Secretary of State to establish and maintain a register of approved providers of cryptography support services, and specifies what information is to be contained in the register. The clause also requires the Secretary of State to make arrangements for the public to have access to the register and for any changes to the information in the register to be publicised.

The main purpose of the register is to ensure that providers on the register have been independently assessed against particular standards of quality, in order to encourage the use of their services, and hence the development of electronic commerce and electronic communication with Government.

Where two people are communicating electronically, it may be necessary for one person to rely on the services provided to the other: for example, where the first person receives a communication which purports to have been signed electronically by the other.

The register is voluntary: no provider is obliged to apply for approval and a provider who is not on the register is at liberty to provide cryptography services.

This Clause places a duty on the Secretary of State to ensure that there are arrangements in force for granting approval, handling complaints and disputes and modifying or withdrawing approval.

Subsection (1) places a duty on the Secretary of State to ensure that there are arrangements for granting approvals for any person providing, or proposing to provide, cryptography support services in the United Kingdom, and applying to be approved.

Subsection (2) sets out what the arrangements for approvals are to achieve.

Subsection (4) allows for regulations made by virtue of subsection (3)(a) or (b) to frame the requirement for compliance with these requirements by reference to the opinion of a person specified, either in the regulations or chosen in a manner set out in the regulations.

Subsection (6) provides for the enforcement of any requirement to provide information imposed by the conditions of an approval, by the Secretary of State in civil proceedings.

Subsections (7) and (8) make provision about the payment of fees.

The arrangements for approvals, outlined above, envisage providers requesting approval for one, or a number, of different cryptography support services. The granting of such an approval would depend on the applicant meeting the conditions specified in the relevant regulations.

This Clause enables the Secretary of State to delegate the approvals functions set out in Clauses 1 and 2 to any person.

This Clause protects certain information obtained under Part I, sets out the purposes for which it may be disclosed, and makes improper disclosure a criminal offence. In particular, it safeguards individual privacy and commercially confidential information, except where disclosure is desirable.

There is no restriction on who may make the disclosure or to whom it may be made, provided that the purpose is proper.

This Clause makes further provision relating to the regulations the Secretary of State may make under Part I and contains standard provisions commonly accorded to powers to make subordinate legislation, such as an ability to make supplementary provision.

This Clause provides for the interpretation of various terms used in Part I of the Bill.

Subsection (2) makes it clear that the approval scheme for cryptography support services includes only those services that primarily involve a continuing relationship between the supplier of the service and the customer. The scheme is not intended to cover the purchase of an item (whether software or hardware) unless such purchase is only intended to be incidental to the provision of the cryptography support service.

Subsection (3) sets out what is meant by cryptography support services being provided in the United Kingdom.

Cryptography support services, falling within the scope of this Clause, would include registration and certification in relation to certificates, time-stamping of certificates or documents, key generation and management, key-storage and providing directories of certificates.

This Clause provides for the admissibility of electronic signatures and related certificates in legal proceedings.

It will be for the court to decide in a particular case whether an electronic signature has been correctly used and what weight it should be given (e.g. in relation to the authentication or integrity of a message) against other evidence. Some businesses have contracted with each other on paper about how they are to treat each other's electronic communications. Clauses 7 and 8 do not cast any doubt on such arrangements.

Subsection (1) allows an electronic signature, or a certificate, to be admissible as evidence in respect of any question regarding the authenticity or integrity of an electronic communication. Authenticity and integrity are both defined in Clause 23.

Subsection (2) defines an electronic signature for the purposes of the Clause.

Subsection (3) explains what is meant by certified in this context.

This power is designed to remove restrictions in other legislation which prevent the use of electronic communication in place of paper, and to enable the use of electronic communications to be regulated where it is already allowed. The power can be used selectively to offer the electronic alternative to those who want it.

There is a large number of provisions in statutes on many different topics which require the use of paper or might be interpreted to require this. Many of these cases involve communication with Government Departments by businesses or individuals - including submitting information or applying for licences or permits. Other cases concern communications between businesses and individuals, where there is a statutory requirement that the communication should be on paper. The power can be used in any of these cases.

Some examples of the way in which the power could be used relate to the Companies Act 1985. On 5 March 1999 the DTI consulted about whether the Act should be changed to enable companies to use electronic means to deliver company communications, to receive shareholder proxy and voting instructions and to incorporate. The consultation letter "Electronic Communication: Change To The Companies Act 1985" is available from DTI’s Company Law and Investigations Directorate, telephone 0171 215 0409. The proposals attracted strong support from respondents.

There are, by contrast, many communications where paper is not currently required - for example the vast majority of contracts fall into this category. People will remain free to undertake transactions of this kind using whatever form of communication they wish.

Subsection (1) gives the appropriate Minister the power to modify, by order made by statutory instrument, the provisions of any legislation for which he is responsible. He may authorise or facilitate the use of electronic communications or electronic storage (instead of other methods of communication or storage) for any purpose mentioned in subsection (2). This power is limited by subsection (3) which places a duty on the Minister not to make such an order unless he is satisfied that it will be possible to produce a record of anything that is done by virtue of the authorisation. It is also limited by subsection (6) so that a person cannot be required to abandon paper unless he has previously chosen to do so.

Subsection (2) describes the purposes for which modification by an order may be made.

Subsection (4) specifies the types of requirement about electronic communications or the use of electronic storage that may be provided for in an order under this Clause.

Subsection (6) provides that an order under this Clause cannot require the use of electronic communications or electronic storage except when someone has previously elected or decided to make use of such communications or storage. When someone has previously chosen the electronic option, restrictions or conditions may be imposed on the variation or withdrawal of such a choice.

Subsection (7) provides that this Clause does not apply to matters under the care and management of the Commissioners of Inland Revenue or the Commissioners of Customs and Excise. Such matters are already covered in Part VIII of the current Finance Bill.

This Clause sets out supplementary provisions relating to orders made under Clause 8 and contains standard provisions commonly accorded to powers to make subordinate legislation, such as an ability to make supplementary provision.

Subsections (3) and (4) provide that the regulations made under Clause 8 will be subject to a choice of either affirmative or negative resolution procedure in both Houses of Parliament. The Government intends to use affirmative resolution at least for the first order, so that the general principles can be debated.

This Clause sets out the conditions under which notices can be served requiring disclosure of a key necessary to make lawfully obtained protected information intelligible.

This Clause introduces a power to enable properly authorised persons (such as members of the law enforcement, security and intelligence agencies) to serve written notices on individuals or bodies requiring the surrender of information (such as a decryption key) to enable them to understand (essentially make intelligible) protected material which they legally hold or are likely to. By way of illustration, this could include material:

• which has lawfully come into the possession of an agency but not by use of statutory powers (e.g. material which has been voluntarily handed over).

Subsection (1) limits the information to which this power to serve notices applies. It does so by defining the various means by which the information in question has been or is likely to be lawfully acquired.

Subsection (2) states that persons with the "appropriate permission" (see Schedule 1) can serve a notice demanding that the key be provided to make the unintelligible data intelligible if it appears to them that they:

• they cannot obtain the key by other reasonable means.

Subsection (3) explains the way in which the notice must be given and what it must state.

Subsection (4) specifies the persons to whom the key may be disclosed.

Subsection (5) ensures that a key which has been solely used for the purpose of generating electronic signatures does not have to be disclosed in response to a notice.

Subsection (7) safeguards existing powers to demand lawful access to protected information. For example, it ensures that this Bill will have no bearing on the use of powers under the Criminal Justice Act 1987.

Section 2 of the Criminal Justice Act 1987 empowers the Director of the Serious Fraud Office to require a person to answer questions, furnish information or produce any specified documents which are relevant to an investigation.

This Clause provides that a person required by a written notice to disclose a key may instead provide the data in an intelligible form, unless the person who gave the authorisation to require the disclosure, or a person entitled to give such authorisation, has specified that only the disclosure of the key itself is sufficient.

This Clause would, for example, allow a company - that might have received an encrypted message from the target of a particular enquiry (e.g. a criminal) - to offer up a intelligible copy of the message (e.g. a printed document) rather than any decryption key.

This Clause makes it an offence to fail to comply with a notice given under Clause 10. It allows a defence to a person who shows that he did not have the key to the information (or, where appropriate, the information itself) but gave as much information as he had about how the key could be obtained; or that he did what was required of him as soon as was reasonably practicable.

This Clause creates a new offence where the recipient of a notice, or a person that becomes aware of it, tips off another that a notice has been served or reveals its contents.

This Clause is to preserve, where necessary, the covert nature of an investigation by, for example, a law enforcement agency. Among the various defences outlined is one where the software used by the recipient of a notice (for example an IT administrator in a company) causes the owner(s) of keys to be alerted when a key is accessed.

Subsection (1) limits this offence to occasions where the notice served explicitly demands secrecy.

Subsection (3) to (5), and (7) and (8)), provide various defences against a charge of tipping off.

The effect of subsection (6) is that the protection in subsections (4) and (5) will not apply where a professional legal adviser tips off a client with a view to furthering any criminal purpose.

Subsection (1) specifies the maximum sentence for the offence of failing to comply with a notice. As regards financial penalties, there is no upper limit.

Subsection (2) specifies the maximum sentence for tipping-off a third party about the serving of a notice. As regards financial penalties, there is no upper limit.

Section 9(1) of the Interception of Communications Act 1985 provides that in any proceedings before any court or tribunal no evidence shall be adduced and no question in cross-examination shall be asked which tends to suggest that an offence under section 1 of that Act (which prohibits interception except in certain circumstances) has been or is to be committed by any person holding office under the Crown, or anyone engaged in the business of the Post Office or in the running of a public telecommunication system; or which tends to suggest that an interception warrant has been or is to be issued to any of those persons.

This Clause describes the safeguards that must be in place for the protection of any material handed over in response to the serving of a notice under this Bill.

Subsection (1) ensures that the safeguard requirements apply to all those who may have responsibility for organisations that will handle material provided in response to a notice. In the case of the security and intelligence agencies for example, this will mean the Secretary of State.

Subsections (2) and (3) place an onus on those identified to ensure that:

• the material is shared with the minimum number of people.

1. This Clause requires the Secretary of State to issue a Code of practice covering the exercise of the powers to authorise the issuing of disclosure notices under Part III of the Bill. It provides that:

• the Code may be revised from time to time by means of the same steps as it was originally brought into force.

This Clause provides for the appointment of a Commissioner to oversee the use of the powers of the Secretary of State to authorise the issuing of disclosure notices under Part III of the Bill.

In practice, this will apply to material acquired pursuant to a warrant signed by the Secretary of State under the Interception of Communications Act 1985, the Intelligence Services Act 1994, and the Security Service Act 1989 as amended by the Security Service Act 1996.

The powers granted to other bodies under this Bill can be reviewed by the courts.

"High Judicial Office" is defined in section 25 of the Appellate Jurisdiction Act 1876 as follows:

This Clause establishes a Tribunal to hear complaints in certain cases and award compensation.

Subsection (1) outlines the instances where the Tribunal will hear complaints. The first case is where permission of the Secretary of State is required for the issuing of a notice under Clause 10. This applies to cases arising from warrants signed under:

• Intelligence Services Act 1994.

The second case is where a person is restricted from relying in any proceedings before a court or tribunal on anything done under this Part of the Bill or on any contravention of this Part by virtue of section 9 of the Interception of Communications Act 1985. For example, this could occur where legal proceedings were being taken against a service provider who had been the recipient of a Clause 10 notice in relation to intercepted material.

Subsection (5) states that section 9 of the Interception of Communications Act 1985 is not to apply to hearings before the Tribunal.

Subsection (7) specifies those who may apply to the Tribunal.

This Clause provides for the interpretation of various terms used in Part III.

Subsection (2) serves two purposes. It allows senior officers to issue notices relating to material possessed by more junior officers. It also ensures that the powers apply, for example, where the police do not possess material but have the power to search or inspect the material.

The EC Telecommunications Services Licensing Directive (97/13/EC) requires licensing for telecommunications to be non-discriminatory. In practice this means that modifications usually need to be made to all licences of a particular type at the same time. However, the current licence modification procedure, as detailed under section 12 of the Telecommunications Act 1984, requires the Director General of Telecommunications (DGT) to obtain the written consent of an individual licence holder if he wishes to proceed with a modification without reference to the Competition Commission (CC). Thus if the DGT wishes to make a licence modification without reference to the CC, he must now obtain written consent from all those whose licences are to be modified. Given that there are a large number of individual licensees - well over 100 - gaining this consent is an unduly difficult requirement. For example, some licensees may feel they have insufficient interest to bother to answer the DGT’s letter. This could lead to licences becoming silted up with out of date requirements, as well as preventing the DGT from responding appropriately to new developments.

Clause 20 accordingly provides for the procedure for modifying telecommunications licences to allow for simultaneous modification of many licences. It aims to provide more responsive regulation and easier deregulation, while recognising the need for any new obligations facing substantial opposition to be examined by the CC. In particular, the Clause would enable the DGT to proceed without reference to the CC in cases where a proposed modification has general, but not unanimous, support or is deregulatory.

The Clause operates by making modifications to the existing section 12 of the Telecommunications Act 1984 (the 1984 Act) (which sets out the procedure for making modifications) and inserting a new section 12A (setting out the criteria for making modifications).

Subsection (1) provides that notice of modification, in addition to its being published, must be given to every "relevant licensee" (see the new section 12(6E), inserted by subsection (3)).

Subsection (2) replaces section 12(4) of the Telecommunications Act 1984 with two new subsections 4A and 4B. Subsection 4A provides that class licences (i.e. general authorisations, which are deemed to be granted to all those within a particular "class of persons" - e.g. every person in the UK - normally with no fee or registration involved) may be modified despite outstanding representations, provided that no objections come from persons benefiting from the class licence. Subsection 4B paves the way for the criteria in Clause 12A which must be satisfied before a modification is made in the case of a licence granted to a particular person.

Subsection (3) inserts six new subsections in section 12 of the 1984 Act:

Subsection (4) inserts a new section 12A into the 1984 Act, which sets out the criteria for modifications to be made. This is illustrated in the flow-chart below.

Subsections (5) and (6) make consequential amendments.

Figure 1 below provides a diagrammatic representation of the proposed revised licence modification procedure.

Part IV: Licence Modification Procedure

Under the existing provisions of section 12 of the 1984 Act, any licensees whose licences are to be modified can force a reference to the Competition Commission if they are unhappy with the decision of the DGT to make the modification. This provides an appeal against licence modification proposals. Since the provisions of Clause 20 give the DGT new powers to modify licences even when there are objections raised by relevant licensees, there is now to be a balancing right of appeal on wider grounds than the normal grounds for judicial review. Clause 21 inserts a new section 12B into the 1984 Act, setting out the mechanism by which such an appeal can be made.

This Clause provides for the interpretation of various terms used throughout the Bill.

Subsection (1) inter alia defines:

electronic communications to include communications by means of a telecommunication system within the meaning of the Telecommunications Act 1984, or by other means but in electronic form.

• In this Act telecommunications system means a system for the conveyance, through the agency of electric, magnetic, electro-magnetic, electro-chemical or electro-mechanical energy of-

subordinate legislation as having the same meaning as in the Interpretation Act 1978, and also including certain statutory rules in Northern Ireland.

Subsection (2) allows the Secretary of State to commence provisions on the Bill on such days as he may appoint. Different days may be appointed for different purposes.

Subsection (3) prevents the Secretary of State from bringing into force anything relating to authorising the Secretary of State to grant permission for the purposes in Schedule 1 until such time as the Tribunal mentioned in Schedule 1 has jurisdiction.

Schedule 1 deals with the duration and types of appropriate permission which may empower a person to serve a notice under Clause 10 of this Bill requiring disclosure of information.

This paragraph deals with notices requiring disclosure, where the unintelligible information was obtained under a statutory power exercised in accordance with

Examples of legislation under which the Secretary of State may issue a warrant include the Interception of Communications Act 1985 and the Intelligence Services Act 1994. Examples of legislation under which a person holding judicial office may issue a warrant include the Police and Criminal Evidence Act 1984 and the Drug Trafficking Act 1994.

Sub-paragraph (2) states that the warrant or authorisation may empower a person to serve a notice requiring disclosure if

• the warrant or authorisation gave explicit permission for the notice to be given; or
• written permission has been given by the authority since the warrant or authorisation was issued.

The authority needed for the issue of a written notice requiring disclosure varies according to the power under which the material in question is obtained (see sub-paragraphs (3) to (5)).

Sub-paragraphs (6) to (8) describe those persons who may issue a warrant or authorisation under Clause 10.

In sub-paragraph (6)(c), an authorising officer within the meaning of Clause 93 of the Police Act 1997 means the Commissioner, a person appointed under that Act and who holds or has held high judicial office within the meaning of the Appellate Jurisdiction Act 1876 (for which see the explanatory notes on Clause 17).

Sub-paragraph (9) excludes from this paragraph unintelligible information

• which has been obtained in the course of, or in connection with, an exercise of another power for which a warrant was required.

This might include, for example, cases where a constable has a right to enter premises under a warrant and while on the premises uncovers matter which he suspects to be evidence of a crime unrelated to the warrant itself, in accordance with e.g. Police and Criminal Evidence Act 1984 section 19.

This paragraph deals with unintelligible information to which Paragraph 1 above does not apply, and which has come into the possession of any person as described under Clause 10(1)(a), (b) or (c) of this Bill (i.e., because the case does not involve a warrant issued by the Secretary of State or a person holding judicial office, or an authorisation under Part III of the Police Act 1997).

This paragraph deals with unintelligible information that has come into the possession of an intelligence agency, the police or Customs and Excise by any other lawful means not involving the exercise of statutory powers.

This paragraph makes some further stipulations about the categories of person who may be empowered to require disclosure. It also makes some stipulations about the permissions that may be given by members of the police, Customs and Excise and the armed forces.

Section 13A of that Act specifies such ranks as:

This paragraph provides for the duration of the validity of authorisations to serve a notice and prevents the issue of a notice after the authorisation has expired. The Bill does not require that a limit must be placed on the duration of an authorisation.

Paragraph 6 states that any permissions granted by the Secretary of State in accordance with Schedule 1 may only be granted

• if signed by a member of the Senior Civil Service and expressly authorised by the Secretary of State. The express authorisation must be in relation to that particular warrant (i.e. there can be no standing authorisation).

Schedule 2 provides for the constitution and functions of the Tribunal established under Clause 18.

This paragraph determines the constitution of the Tribunal.

Sub-paragraph (1) ensures that members of the Tribunal may be drawn from the legal profession in all parts of the United Kingdom. The requirement of ten years’ standing means that only those eligible for appointment to the judiciary can serve. These criteria and the subsequent provisions are essentially those for the IOCA Tribunal (Schedule 1 of the Interception of Communications Act 1985).

The Courts and Legal Services Act 1990 states that a person has a "general qualification" if he has a right of audience in relation to any class of proceedings in any part of the Supreme Court, or all proceedings in county courts or magistrates’ courts.

Sub-paragraph (3) limits the term of office to 5 years. A member whose term of office expires is eligible for reappointment. Were he to serve a second time he would have to be re-appointed by further Letters Patent. There is no retirement age.

Sub-paragraph (4) provides the means whereby a member may resign.

Sub-paragraphs (1), (2) and (3) establish the positions of President and Vice-President who will be members of the Tribunal.

Paragraph 3 sub-paragraphs (1) to (6) concern the rules under which the Tribunal will operate for hearing complaints. The rules are to be made by the Secretary of State, who is to ensure that complaints are properly considered while ensuring that information is not disclosed that would, for example, be prejudicial to national security.

Paragraph 4 states that the Tribunal’s rules will be established by statutory instrument, a draft of which will first be laid before Parliament.

This provides for the appointment of persons (Special Representatives) whose function will be to represent the interests of the appellant in proceedings before the Tribunal from which he and any legal representatives are excluded by virtue of the procedural rules set out in paragraph 3, above.

Sub-paragraph (2) defines who may be appointed to carry out the role of Special Representative.

this paragraph imposes a duty on persons to provide to the Tribunal any documents or information it may require in order that it may carry out its functions under Clause 18 of the Bill.

This paragraph provides for an appeal to an appropriate appeal court (defined in sub-paragraph 3) on any question of law material to a final determination from the Tribunal.

This paragraph deals with the payments of the members of the Tribunal and of its expenses.

Sub-paragraph (1) provides for the appointment of officers of the Tribunal by the Secretary of State, after consultation with the Tribunal. The Secretary of State may not therefore proceed unilaterally to make appointments. The provision itself places no limitation on the number of officers and (subject to the usual Treasury approval as to numbers) allows flexibility over the numbers, grades and individuals.

Sub-paragraph (2) enables an officer who is authorised by the Tribunal to obtain documents on the Tribunal’s behalf.

The parts of the Schedules referred to in this paragraph list the bodies whose members are disqualified from membership of the House of Commons and the Northern Ireland Assembly respectively. They include Tribunals and public Boards, Commissions and Councils. Members of this Tribunal (as people paid for adjudicating in a quasi-judicial capacity on the decisions of Ministers, and able to overturn those decisions) clearly fall within the category of those who are normally disqualified.

The approvals scheme under Part I would have no net impact on public expenditure because the Government intends that the fees would cover the cost of running the scheme. It is thought that Part II will result in significant savings, over time, as the option of electronic communication or storage is enabled for different purposes, and as greater use is made of electronic signatures. The Government does not envisage that significant public expenditure implications will arise from the new lawful access powers (Part III). The new licence modification procedure established by Part IV of this Bill is likely to reduce public expenditure by avoiding unnecessary Competition Commission references.

The approvals scheme (Part I) is likely to result in a small increase in manpower. It is not envisaged that the law enforcement agencies will need an increase in manpower as a result of the powers provided for them in Part III.

The provisions in Part II of the Bill are expected to lead to substantial savings for business in transacting with Government.

The proposed approvals scheme for cryptography service providers is voluntary in nature and therefore whether or not a company seeks approval will be a business decision for it. Only those companies in the specialised sector of providing cryptography services will be directly affected and the total cost will be modest. The precise cost of approval will depend on the nature of the services a company may wish to be approved for and the scale of their business. There could also be marginal costs of meeting the standards required to gain approved status if these were set higher than the market required.

In deciding whether to seek approval a company will need to take account of the additional revenues which being approved might bring. Approved suppliers of some public-key certificates are likely to have a significant marketing advantage due to their certificates having legal recognition throughout the EU.

The objective of the new powers contained in Part III of the Bill is to ensure, as far as possible, that there is no overall reduction in the ability of the law enforcement, security and intelligence agencies to fight crime and threats to national security. Without these powers, there is a risk that criminal use of encryption will undermine the effectiveness of vital powers of interception and search and seizure.

The proposed new lawful access powers will apply to individuals and businesses alike. Costs will occur where persons are served with authorised written notices requiring the production of decryption keys or plaintext. Where the production of plaintext is deemed acceptable, compliance costs may be limited to the administrative costs of processing the notice and delivering up the required data. But where a notice specifies that a key be handed over, the individual/business served with a written notice may decide that their security has been compromised and may incur considerable costs in implementing new security systems or changing the keys of other trading partners, customers or associates.

The proposals on telecommunications licences principally impact only on those telecommunications operators who have individual licences. They will enable licence modifications which command general, though not unanimous, support in the industry, or those which are deregulatory, to be implemented without the need for a complex and expensive Competition Commission enquiry. The precise impact of these proposals will depend upon the nature of the modifications which may from time to time be proposed by Oftel, but the overall impact is likely to be deregulatory and to the extent that expensive competition commission references can be avoided, substantial savings could be made.

Section 19 of the Human Rights Act 1998 requires the Minister in charge of a Bill in either House of Parliament to make a statement, before second reading, about the compatibility of the provisions of the Bill with the Conventions rights (as defined by section 1 of that Act). The Secretary of State for Trade and Industry made the following statement when publishing the draft Bill:

12 (1) Subject to the following provisions of this section, the Director may modify the conditions of a licence granted under section 7 above.

(5) The Director shall also send a copy of a notice under subsection (2) above to the Secretary of State; and if, within the time specified in the notice, the Secretary of State directs the Director not to make any modification, the Director shall comply with the direction.

(6) The Secretary of State shall not give a direction under subsection (5) above unless-