`The development of the Internet presents numerous opportunities and benefits for consumers and investors throughout the world. It also presents significant challenges for regulators charged with protecting consumers and investors. -- SEC paper Lawyers, regulators and others dealing with mutual funds wrapped up a conference on the industry yesterday, and one of the big topics of debate among delegates was the growth of the Internet in marketing their wares across borders.

At last year's conference fund marketers exulted about the rise of the Internet in the industry. Mutual fund marketers, like lots of people aiming to make money through the Internet, have high hopes that the worldwide computer network will attract legions of new customers.

Now the industry has taken a firm foothold on the Internet it was the turn of regulators from various jurisdictions to look at the difficult task of dealing with what has become a serious cross-border issue.

Simply put, regulators are concerned about protecting investors from dealing with funds that don't meet their rigorous standards. They are concerned that mutual funds are using the Internet to target investors they can't reach while operating outside their domains.

As the relatively unregulated Wild West of the communications frontier the Internet has posed a significant problem for regulators. Confronted with the ease with which fund companies can now market and sell their funds they had set up a confusing mix of regulatory policies and practices.

Regulators dealing with advertising generally consider a fund to be operating in a jurisdiction if they are marketing directly. However since an Internet site is accessible from anywhere in the world regulators are stuck under the old regulations as considering it direct marketing. This would mean they would have to chase down hundreds of funds that were really focusing on marketing elsewhere.

While lawyers last year complained about a lack of clear guidelines on the Internet creating a "Gordian knot'' of regulatory problems, this year the regulators were back with solutions.

Now they talk about the use of search engines, Internet tags, newsgroups, E-mail spams and how these fit into their guidelines for registered and unregistered funds. Now they talk about general guidelines and policies as they wait to see how the use of the technology develops before rushing in with set rules.

At least that's the way the US Securities and Exchange Commission (SEC) is going about its task. SEC associate director in the division of investment management Doug Scheidt said the regulatory agency was concerned about not crushing "creativity'' in the way mutual funds were being marketed on the Internet.

That's why the SEC has so far issued only general principals and guidelines instead of issuing new regulations. Most of these guidelines were stated in a paper issued on March 23.

Mr. Scheidt said while working on the document he and the other regulators tried to take out the words "should'' and "must'' from the document as use of the technology was evolving.

Basically the SEC has taken the stance that promotion of the fund on the Internet would not by itself result in a registration obligation under the US securities laws.

But the funds managers would also have to demonstrate -- through disclaimers and background checks -- they were taking measures to prevent US residents from investing in the fund.

"The interaction between the US securities laws and the Internet can be expected to continue to evolve,'' the paper states. "... The development of the Internet presents numerous opportunities and benefits for consumers and investors throughout the world. It also presents significant challenges for regulators charged with protecting consumers and investors. Regulators in many countries are attempting to administer their respective laws to preserve important protections provided by their regulatory schemes without stifling the Internet's vast communications potential.'' The 33-page SEC paper then goes on to describe in more detail some of the Internet uses a fund might or might do, and what the SEC might consider an "offer'' under its jurisdiction.

Carl Landauer, senior corporate counsel for Charles Schwab & Co. Inc., said the SEC releases on the Internet were significant in that it had for the first time announced a limit to its jurisdictional powers. The SEC had also acknowledged for the first time that mere accessibility didn't mean jurisdiction in the US.

"They are taking a leadership role,'' he said. "The SEC has established a sensible philosophy of regulation of the Internet on a cross border basis.'' The UK, meanwhile, is currently completing the reorganisation of its regulatory body under the newly renamed Financial Services Authority, and rules and regulations are still in the draft stage.

Financial Services Authority senior executive in the enforcement and legal services division Martin Hollobone said the rules were aimed at ensuring investors were no worse off using the Internet than if they used other means to find out about funds.

"The FSA is not looking to stifle legitimate commercial use,'' he said.

Mr. Hollobone said that in contrast to the US, the UK regulators had less discretion on interpreting current laws in their application to the Internet.

"A breach is a breach,'' he said.

There was some push to make changes to the advertising policies to cater for Internet use, however law makers decided not to amend the old regulations.

In Europe, meanwhile, regulators are more used to dealing with cross-border issues and so laws there are more amenable to Internet use, German lawyer Christoph von Teichman said.

"German legislation has had to deal with crossborder issues because of the proximity of other countries,'' he said. "The Internet has added a new layer of complexity.'' While there has been no official pronouncement by German regulators on the Internet, those enquiring are sent a form letter outlining general principles and are asked to come in and discuss it in person.

"As the technology evolves and creates new situations it's a reasonable position at this point,'' he said.

The annual Globalisation of Mutual Funds conference at the Southampton Princess attracts about 450 delegates a year to discuss mainly regulatory and legal issues. The conference began on Monday and ended yesterday.