Internet users must give their consent if a service provider wants to send them targeted adverts, the Information Commissioner (ICO) has ruled.
The ad-targeting system Phorm looks at the web-browsing patterns of users and puts adverts related to that history on to websites.
So far BT, Talk Talk and Virgin have signed up to use the system.
Until now Phorm was expecting to operate on an ‘opt out’ basis where all customers of an ISP were enrolled.
Now the Information Commissioner says under data protection laws customers must choose to ‘opt in’.
Critics also say the system breaks laws on the interception of data and privacy, but this was not examined by the ICO.
The ICO said it would keep Phorm under review and any more action would be ‘strongly influenced’ by the experience of users.
Which? technology editor Matthew Bath welcomed the ICO decision. He said: ‘Broadband customers would have been kept in the dark that their web browsing behaviour was being collected and sold to advertisers. This means consumers will now be fully aware of what the system does before any data is collected.’
A spokesman for Phorm said: ‘We believe the approach that we will take to provide transparent meaningful user notice will not only provide for such consent, but will in fact exceed the level of notice provided by anyone else.’