The Office of Fair Trading (OFT) is preparing to launch a study into behavioural advertising that could have significant implications for broadband platform Webwise.
Phorm's controversial system works by monitoring users' web activity in order to provide them with more targeted advertising, however it has struggled to receive backing among internet service providers.
According to ISPreview.co.uk, the news of the OFT study has come as a further blow to the company, causing shares to fall significantly before they later mounted a recovery.
The report will look at how various advertising models affect consumer rights and whether or not they are in breach of privacy laws, with particular emphasis on internet-based systems.
"The way that businesses advertise and price goods and services constantly evolves and we need to keep up to date on how consumers view these adverts and the types of advertising and prices which may mislead," said Heather Clayton, senior director of the OFT's consumer market group.
Earlier this month, internet campaign group NoDPI reported that requests for data about Phorm under the Freedom of Information Act will no longer be processed by the government if similar applications have been received in the preceding 60 days.