The Government has agreed to allow the controversial web monitoring company Phorm to continue its service.

Phorm has developed a system called Webwise that tracks users' browsing habits and categorises them so that advertising can be targeted more effectively.

The service caused controversy after it was found companies had conducted trials of the technology with BT customers. BT had not sought consent from customers.

Following a two-month investigation, the Department for Business Enterprise and Regulatory Reform (BERR) said Phorm could operate but only “with the knowledge and agreement of the customer."

Viviane Reding, EU commissioner for information society and media, wrote to the Government in July asking it to clarify whether Webwise complied with current data protection law.

After consulting with other agencies, such as the Home Office and the Information Commissioner's Office, BERR decided that there was no “inherent reason why Phorm shouldn't be allowed to continue to operate".

Opt-out demand
BERR ruled that Phorm could continue to market its services providing it followed data protection guidelines that make it easier for UK web users to opt-out of the ad-targeting system.

This will be done by presenting users with a statement about the product, which will then ask them if they want to be involved. It has also asked Phorm to give people easy to access information on how to change their mind at any point and provide an opt-out facility.

To keep users privacy BERR also recommended that Phorm based its searches on a unique ID allocated at random, which means that there is no need to know the identity of the individual users.

Phorm said the Government's position on the technology "reflects our common commitment to transparency and superior standards of online privacy".

A representative for the company said: “We also believe that revolutionary technologies should be introduced in line with stringent criteria.

“For instance, our unique 'privacy by design' approach means our internet advertising and online fraud protection system stores no personally identifiable information or browsing histories."