The call comes just days after consumer regulator the Office of Fair Trading said that it would be carrying out an investigation into whether behavioural advertising is unfair to consumers.
The All Party Parliamentary Communications Group (ApComms) said the internet advertising industry's self-regulation on behavioural advertising was inadequate, and that a law change was necessary.
"We do not believe that it is at all appropriate to consider the deployment of any type of behavioural advertising system without explicit, informed, 'opt-in' by everyone whose data is to be processed, and whose behaviour is to be monitored and whose interests are to be deduced," said ApComms in a report on its findings.
"We do not believe that 'opt-out', however commercially convenient, is the way that these systems should be run. To that extent, the Good Practice Principles promoted by the Internet Advertising Bureau are insufficient to protect people," it said.
"We recommend that the Government review the existing legislation applying to behavioural
advertising, and bring forward new rules as needed, to ensure that these systems are only operated on an explicit, informed, opt-in basis," it said.
It also said that it had concerns about the way that children's personal details were being gathered by advertising systems, and that such information needed special treatment. That requires "urgent consideration", it said.
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ApComms heard submissions from companies, individuals and trade bodies in hearings on a number of controversial questions related to the internet and the law.
Representatives of the communications and advertising industries were not keen on any further regulation of behavioural advertising, the report said.
The group also looked at privacy on the internet and whether it was well enough protected. It had particular concerns about the education of children and young people in relation to the dangers of a lack of online privacy.
ApComms said that the Government should create a privacy law to clarify exactly what people's rights were.
"The time has now come, we believe, for the Government to create an effective and easy-to-understand Privacy Act to provide the clarity, and security, that everyone needs," it said. "We recommend that the Government bring forward a Green Paper on Privacy, with a view to bringing forward a Privacy Bill in the next Parliament that sets out simply expressed, but far-reaching, protection for everyone’s privacy, in both the offline and online worlds."
The group also said that it opposed the Government's current proposal that the internet connections used by people suspected of illegal file sharing be cut off. "We do not believe that disconnecting end users is in the slightest bit consistent with policies that attempt to promote eGovernment, and we recommend that this approach to dealing with illegal file-sharing should not be further considered," it said.
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