There is the example of E*trade, an on-line broker based in Palo Alto, California, which was founded in 1992. Earlier this year, E*trade said it would offer its services in Canada, Australia and New Zealand. Now, E*trade wants to sell in Britain as well. But in all these countries, securities regulators have required that E*trade open a physical office before doing business. Even more unfortunate, Britain's Securities and Investments Board (SIB) may go further. Worried about the exact location of E*trade's share-price quotes and trades and unimpressed by E*trade's argument that cyberspace is both everywhere and nowhere the SIB may require the firm to locate its computers in Britain as well.

Nor can virtual finance houses avoid regulators' control by sitting back and waiting for customers, as opposed to actively seeking them out. In Britain, for example, foreign firms that are not authorized by regulators to sell financial services to the public may make unsolicited sales. However the SIB has decided that a website alone, whether or not it is aimed specifically at Britons may amount to solicitation if customers can reach the site from their computers. That, of course, amply covers about every page on the Net.

This has other unpleasant consequences. Banks and brokers which advertise in Britain must have their copy approved by an authorized firm. Because the SIB has ruled that an ad on the Internet has in effect been issued in Britain, it must therefore comply with Britain's laws. The SIB has sent hundreds of letters to foreign firms pointing this out. The penalty for not having approval, say these letters, is prison, a fine, or both. In the opinion of many fund managers, the SIB has gone crazy.

Financial regulators are obliged to uphold national laws, and their job is easier if those they are supposed to oversee have an office within their jurisdiction. For this very reason enforcing national laws on the Internet will be difficult. It is not possible to filter Internet traffic automatically from its country of origin. A firm can restrict access to its website in other ways, for example, by giving passwords only to customers who claim to be from countries where it has regulatory blessing, but customers can say they are from a friendly country while living in a hostile one. Furthermore, those who wished to legally get around complying with the law could still fly to the Caribbean with their laptops.

Regulators should repeal many of the laws that make criminals out of even the Web's most upright citizens and instead offer some practical guidance for consumers. This seems by far the most sensible course of action because Internet shopping has plenty to offer and it would be a shame if, in trying to protect consumers, regulators destroy the Net's potential by denying these very consumers the freedom and convenience that the Net offers.