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CONTENTS
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CONTENTS
Question
Introduction
2.1 Definition of Bank in Common Law
2.2 Statutory Definition of Bank in Malaysia
2.3 Conclusion on the definition of a Bank in Common Law and FSA
Duty of Secrecy
3.1 Common Law Position
3.2 The application of the Duty of Secrecy in Malaysia
3.3 Changes made by the FSA
Conclusion
Bibliography
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1. QUESTION
The Financial Services Act 2013 and the Islamic Financial Services Act 2013
have revised the statutory banking laws in the country. With reference to relevant
sections in either one of the aforesaid statutes (choose one), discuss whether the
Act has incorporated, revised or improved on the common law principles in banking.
2. INTRODUCTION
In order to answer the above question, there are several concepts needed to
be understood first so that the question can be approached as a whole. The first
concept regards to the definition of a Bank. As we have understood the definition of a
bank, we can see what are the major changes brought by the FSA in answering
whether the act has incorporated, revised or improved on the common law principles
in banking.
2.1 Definition of Bank in Common Law
According to the case of Re Shields Estate1, the court decided that a
company that solely issued deposit receipts payable by notice was a bank. The
receipt of monetary deposit from the customer and its reinvestment is the crucial
matter back then. Fitz Gibbon LJ stated that the business of banking, from the
bankers point of view, is to traffic with the money of others for the purpose of making
profit.2
However, when cheque usage was introduced, the traditional opinion was that
nobody could be defined as a banker unless it paid cheques issued upon it. The
case of United Dominions Trust Ltd v Kirkwood 3 shows a turning point taken by
1 (1901) Ir. R. 173
2 Per Fitz Gibbon LJ in Re Shields Estate (1901) Ir. R. 173.
3 (1966) 2 QB 431
the courts in defining a bank. The important issue discussed in this case was the
characteristics of a bank.
Lord Denning stated that an institution conducting the business of banking
during that period, had the following characteristics:
1.
2.
3.
4 Section 2 of the FSA: banking business can be defined as the business of (i) accepting
deposits on current account, deposit account, saving account or other some similar
account; (ii) paying or collecting cheques drawn by or paid in by customer; and (iii)
provision of finance.
5 Act 758
6 (1966) 2 QB 431
3. DUTY OF SECRECY
The duty of secrecy is an implied term of the contract between customers and
their banks and building societies that these firms will keep their customers
information confidential. This confidentiality is not just confined to account
transactions, but it also extends to all the information that the bank has about the
customer. However, if this duty of is breached, then the customer could receive
damages.7 One of the major improvements brought by the FSA can be seen in the
aspect of the duty of secrecy. Firstly, we need to understand the concept of duty of
secrecy in both common law and improvements brought by the FSA.
8 [1924] 1 KB 401
12 (1) No person who has access to any document or information relating to the affairs
or account of any customer of a financial institution, including(a) the financial
institution; or
(b) any person who is or has been a director, officer or agent of the financial institution,
shall disclose to another person any document or information relating to the affairs or
account of any customer of the financial institution.
13 [1924] 1 KB 401
14 (3) No person who has any document or information which to his knowledge has been
disclosed in contravention of subsection (1) shall disclose the same to any other person.
Besides the fine as provided under section 133(4) 15 of the same act is heavier
with the penal provision with Section 134 (1) (b) stated that the proceedings to be
held in camera. The provisions show a different approach taken by this legislation in
dealing with those who breach the duty by penalising them.
There are some other changes brought by the FSA in terms of the principle of
the duty of secrecy. In addition to section 132(2) and section 133(2) of the FSA,
Schedule 11 of the act provides the provisions relating to permitted disclosure.
Besides, extensive power is now given to the Bank Negara. According to Schedule
11 paragraph 18, a financial institution has reason to suspect that an offence under
any written law has been, is being or may be committed which shows a greater
power given to the institution. Last but not least, section 256 FSA give additional
protection in relation to disclosures made to BNM.
4. CONCLUSION
Based on the discussion stated earlier, we can see that, indeed, the Financial
Services Act 2013 have brought quite a major number of changes in the principles of
the common law banking. One of the enhancements that is needed to be mentioned
here is regarding the definition of a banking business itself. As we are moving
towards a modern economy-based country, it is essential to have a law that could
cover all aspects and by the section provided by the FSA, the banking business
would be covered by the said act in terms of traditional-bank or even the modernbanking system.
15 (4) Any person who contravenes subsection (1) or (3) commits an offence and shall,
on conviction, be liable to imprisonment for a term not exceeding five years or to a fine
not exceeding ten million ringgit or to both.
Secondly, we can also see the major changes being made with the principle
of the duty of secrecy. Based on the common law principles and the case of Tourner,
the traditional approach taken by the court would only cover certain elements and
requirements. FSA did not change the principle entirely but it did revised the principle
and enhance it with some new element for example with the addition to the financial
institution in the burden of the duty, wider interpretation of the persons and also by
implying a heavier fine.
All these improvements made might still be argued in terms of the applications
and its relevance but all in all FSA can be seen as an act that incorporate the
principle of the common law banking, revised it and improvised with the elements
that suit the circumstances of a modern-banking system in Malaysia.
5. Bibliography
5.1 Statute
Bankers Book Evidence Act 1949 (rev. 1971)
Banking and Financial Institutions Act 1989 Act 372
Bills of Exchange Act 1949 Act 204
Financial Services Act 2013 Act 758
5.2 Cases
Re Shields Estate (1901) Ir. R. 173
Robertson v Canadian Imperial Bank of Commerce [1995] 1 All ER 824
Sunderland v Barclays Bank Ltd (1983) 5 LDAB 163.
Tournier v National Provincial and Union Bank of England Ltd [1924] 1 KB 401
United Dominions Trust Ltd v Kirkwood (1966) 2 QB 431
5.3 Book & Article
Ellinger, E., Lomnicka, E., & Hare, C. (2011). Ellinger's Modern Banking Law (5th
ed.). Oxford: Oxford University Press.
Lacey, B., & Speck, J. (2009). The duty of confidentiality: The rule and four
exceptions. Mourant Ozannes.
Michmerhuizen, S. (2007). Confidentiality, Privilege: A Basic Value in Two Different
Applications. Centre for Professional Responsibility.