(IDG) -- On Tuesday, federal regulators gave companies that do business on the Internet an ultimatum: Improve the privacy of online comsumers or face stiff regulation.

In response, an alliance of 39 Internet companies and a dozen trade associations announced a plan to give privacy-friendly Web sites a seal of approval. The Online Privacy Alliance said that it would look to third parties, specifically the Better Business Bureau and TRUSTe, to enforce good privacy policies at participating Web sites.

Christine Varney, former FTC commissioner and now an advisor to the Online Privacy Alliance, said on Tuesday that laws currently exist to prosecute so-called "bad actors" who, through fraud or other means, violate consumer's online privacy rights. But Varney said the alliance's mission is to promote and enforce good privacy behavior by online companies.

"How do we create an atmosphere of trust on the Internet?" Varney asks. "What we're talking about is the good actors, the companies that want to do right on the Internet, that want to gain consumer trust and confidence, that want to grow the Net. We think they can [create trust] by practicing good privacy policies and certifying that they do through this."

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To earn the privacy seal of approval, sites would have to meet four basic requirements. Besides clearly notifying visitors about their data collection and use practices, the sites would have to get permission from them to use that data. The framework also calls for giving visitors "reasonable" access to their data, and it requires that sites take "reasonable" measures to protect the security of information they gather.

The announcement of the alliance's enforcement policy came the same day as FTC Chair Robert Pitofsky appeared before a House commerce subcommittee. Pitofsky told legislators that if the industry's self-enforcement plans aren't widely adopted by the end of the year, it might be time to pass some new online privacy laws.

Varney, however, said the privacy alliance would work hard in the coming months to bring other companies on board and to inform consumers to look for the privacy seals of approval, especially for children's sites.

"What we're ... saying is that if you're targeting kids, these are the rules of the road. You will not get a privacy seal if you cannot prove that you are adhering to these standards," she warns. "I'm a parent: I have an 8-year-old and an 11-year-old. There's no way I would let them near a site that is not adhering to these standards."

Privacy advocates are skeptical about the efficacy of the enforcement framework announced. The Center for Democracy and Technology, for example, on Tuesday called for Congress to give the Federal Trade Commission new authority to police online privacy. The CDT also wants lawmakers to amend the Electronic Communications Privacy Act to clearly cover Web sites.