Duties A Banker Must Face To Comply With Banking Law Essay

In Malaysia, according to the Malaysian Banking Law, employees of banks are described as “bankers”. Under the Malaysian Banking Law, the term “Bank” or “Banker” is defined in the Banking Act of 1973 as “any person who carries on banking business”. In Malaysia, there are private bankers and private persons who keep banks and engage in the business of banking by receiving money on deposit with or without interest, by buying and selling bills of exchange, promissory notes, bonds or stock, or other securities, and by lending money without being incorporated. However, if the status of a banker is to be taken solely in the extent of receiving money on current or deposit account, paying and collecting cheques drawn by or paid in by customers and making advances to customers and includes such other business as the Central Bank with the approval of the Minister, then those persons or organizations who undertake directly or indirectly, wholly or partially some of these activities should qualify as a banker.

On the other hand, there is no any specified definition of the term “customer” in any of the key legislations governing banking business in Malaysia. However, there is one of the local case which deals with the question of whether a person could be treated as a customer for the bank. In the case of “Oriental Bank of Malaya v. Rubber Industry (Replanting) Board”, it was held that at the moment a person has his money accepted by a bank on the understanding that he may draw cheques up to the amount standing in his account with the banker, that person is regarded as the latter’s customer.

Duties of banker

One of the duties of banker in Banking Malaysia is duty of secrecy. According to common law, there is a contractual duty on the banker, which is they are not allow to disclose customer’s information to any third parties. In Malaysia, bank cannot make any unauthorized disclosure under statutory obligation. In the case of “Tournier v National Provincial and Union Bank of England [1924] 1 KB 461”, Court of Appeal unanimously concurred that the duty of secrecy is contractual in nature and is to be implied from the banker-customer relationship.

According to Banking and Financial Institution Act 1989 (BAFIA), S97 (1), it states the main pillar and bone of the duty of secrecy. Generally, it imposes a strict duty on the directors or officers of the bank, any external bureau or agent of a bank and ‘any other persons’ such as accountant, lawyer or polices who have access to the customer’s information to maintain confidentiality. The directors, officers, external bureau and agents of a bank are restricted from making any unauthorized disclosure during and even after their tenure of employment; whilst for those having access to that information must preserve the secrecy perpetually. The person would be held liable if the confidentiality of the bank’s customer is divulged to third party.

Furthermore, duty of confidentiality is also safeguarded in other banking statutes. For example, Section 16 of the Central Bank of Malaysia 1958, it prohibits all its officers from disclosing any information relating to the affairs of bank and its customers to third party.

There are some exemptions of the duty of secrecy:

Dilution: Exceptions under Banking and Financial Institutions Act 1989 (BAFIA)

Customer’s Consent

According to section 99(1)(a) of BAFIA, disclosure is allowed when customer or his representative has given permission in writing.

Bankruptcy and Liquidation

According to section 99(1)(b), disclosure is allowed when the customer is declared bankrupt or a corporation is being or has been wound up and liquidation.

Banker’s References

According to section 99(1)(c), it allows disclosure where the information is required by a bona fide or prospective bona fide commercial company to assess the creditworthiness of the customer relating to a transaction.

Litigation between Bank & Customer or Third Party Claimants

Pursuant to section 99(1) (d) (i), the bank can disclose the customer’s information when it is involved in the proceedings with its customers or guarantors relating to the customer’s transaction with the bank. Section 99(1) (d) (ii), banker may be involved in litigation between the customer and a third party since the property in dispute might be kept by the bank.

Garnishee Proceedings

According to S99 (1) (e), disclosure is allowed where the bank has been served with a garnishee order attaching monies in a customer’s account.

Disclosure by Federal Law to Police Officer

Pursuant to section 99(1) (h), there is no secrecy in cases where disclosure is made compulsion under the relevant Federal Legislations. The bank can, bypassing the consent of customer, disclose the information to a police officer investigating an offence specified in those laws.

In addition, the banker must consult their customer by their professionalism and all of their knowledge in order to assist the client to a better financial position. Since they will not only be dealing with customers but individuals from other financial entities and organizations as well. Therefore, it is important that the banker has a great deal of professionalism. Bankers are given the primary duty of providing financial advice to their clients. Bankers need to communicate regularly with clients either through calling or finding answer for customers. Besides, bankers must review the financial status of their clients and inform them how the way they can achieve their desired financial status. It is through this guidance that bankers display their financial expertise and clients establish their dependence on this advice. Bankers need to disclose all the information and data that they know and found to their customers. In the case of Barclays Bank plc v Quincecare Ltd [1992] 4 All E.R, if a bank executes an order knowing it to be dishonestly given, or shuts its eyes to an obvious fact of dishonesty, or acted recklessly in failing to disclose any information to his or her client, the bank can be sued. There is a contract between the bank and the customer that the bank will observe reasonable professional skill in and about executing customer’s mandate.

Furthermore, banker also responsibility collect cheque as collecting banker. Banker helps his customer collect cheques and present to paying banker. After that, banker will credit the money to customer’s account. In the other hand, banker also as the paying banker follows customer’s order. Banker will pay the amount acquired to the customer’s creditor during the banking hours.

Duties of Customer

Under Malaysian Banking Law, customers have their own vital duties that need to follows. Firstly, as the customers of the bank, they should follow the policies that have been set by the bank. According to the sequence of becoming the customer of bank, there have terms and conditions that needed to be agreed by both of the parties before they enter into the legal relationships. Therefore, every customer and banker has a contractual obligation which is not allowed to breach.

Beside this, the customers of bank also need to carry out their duty of care towards the bank. The duty of care including protect the bank property or bank check book. Furthermore, customer also bears the duty to report fraud, forgery or any malpractice in relation to his account. This should be done expediently and without delay. He should also take due care while drafting cheques to avoid the perpetration of fraud. If the customers fail to accomplish their duty of care, any claim for loss is not allowed. In the case of “Greenwood v Martins Bank Ltd.”, it was held that the customer was breaching their duty of care to the bank if they remained silent about a forgery and thus, allowed the forgery to escape. In such a situation, the customer cannot claim from the bank the money paid by the bank in the forged cheques.

A customer also need to present cheques for payment and collection during bank hours. He should draw the cheques very carefully in such a way that there is not allowed for any fraudulent practice. He should keep his cheque under lock and key and present the cheques for payment before they become outdated. If he finds any forgery in the amounts of the cheque issued by him, it is his duty to warn the banker of the fact at the earliest opportunity.

On the other hand, a customer has right to draw cheques agaist his credit balance. He has right to receive pass book from the bank. Customer can apply specific performance against the bank if the bank has not maintained the secrecy of his account. If the customer leak out the highly confidential information of the bank, the bank can sue the customer anyway.

There are two basic forms for customer in terms of financial institution which are borrower and depositors. For the depositors, their duties as mentioned above which are to follow the rules and regulation maintain by the banks. However, for the customer in terms of borrowers, they must pay every fees and other charges in time along with the repayment of principle amount besides following the rules and regulations. Other than this, they should also provide their income statements when demanded by the bank on time as well as other valid documentation. They should not deceive the bank in anyway.

In the case of “United Asian Bank Bhd v Tai Soon Heng Construction Sdn Bhd”, it also mentioned about the duty of customer. This is an appeal by United Asian Bank Bhd against the decision of Zakaria Yatim J, given at Kuala Lumpur on 4 June. Wong Chow Seng (‘Wong’) was the respondent’s accounts clerk, cleverly forged several cheques of the respondent drawn on the appellant bank. All these cheques were honoured by the appellant and the respondent’s account with it was debited in consequence. Wong was not an authorized signatory to negotiable instruments, including cheques, drawn by the respondent on the appellant. In its defense, the appellant specifically denied that the signatures on the impugned cheques had been forged.

Banker and customer relationship

The relationship is contractual in nature once the customer has open account in the bank but there is no formal agreement. The most important part is when customer signing of a specific of a specimen signature card when they open account. The relationship between banker and customer is important to entitle that each party has their right and obligation.

The relationship between banker and customer can be divided into two, which are general relationship and special relationship. The relationship between banker and customer from the view of general relationship is debtor and creditor. When customer deposit money in bank or borrow money from bank, they play their role. From the view of special relationship, customer play principle role when he deposits cheque, drafts, dividends for collection with the bank, while bank perform agency services.

Reference for Question Four

Duties of banker

http://www.elawyer.com.my/blog/wp-content/uploads/amended-banking-law.doc

Duties of customer

http://www.blurtit.com/q885148.html

Definition of the terms of “customer” and “banker”

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Case of “United Asian Bank Bhd v Tai Soon Heng Construction Sdn Bhd”

http://www.ipsofactoj.com/archive/1992/Part05/arc1992(05)-006.htm