Analysis of the Bank Client Information Disclosure Exceptions - Research Paper Example

Banking Name: Course: Institution: Date: Table of Contents Table of Contents 2 Introduction 3 The bank is compelled by law 3 Public duty to disclose the information 4 Banks Own Interest 5 Customer Agreement 6 Conclusion 7 References 9 Introduction The banking and by extension the financial industry is a key pillar in the global economic development. In this case, as Klein and Barth (2005) noted, the banks ensure a smooth and seamless flow of payment and funding activities in the industry. However, in doing this, the banks acquire crucial clients’ information whose disclosure could either damage their reputation or offer competitors an advantage. Thus, a majority of the banking organisations operates under the non disclosure clause. Nevertheless, this obligation is at times violated. This essay evaluates the four justifications for the obligation violation, namely legal compulsion, public duty, banks interest and customer agreement respectively. Moreover, the essay evaluates the applicability and relevance of each in the modern banking world, considering the implication of IT systems in the banking industry. The bank is compelled by law The banking institutions can disclose a client’s information based on the legal push and requirements on such information. In this regard, the banks have a legal obligation to provide the entire required client’s information as and when required by the law. In this case, such a legal compulsion is based on a court of law order that offer a specific limit and extent to which a client’s information should be provided. In the case of 1924 case of Tournier vs National Provincial and Union Bank of England, the court, although recognizing the role of information confidentiality, established that the banks were under the legal obligation to supply law enforcement and investigative arms of the government with required data and information on their clients (Financial Ombudsman Service, 2005). However, the court asserted that such a disclosure was based on the existing legal frameworks and thus the approval of such information disclosure is provided on a case by case basis by the courts of law. Among the areas that such a disclosure required is in the investigation of taxation fraud or as part of evidence of money laundering or financial funding of criminal activities by the respective clients (Financial Ombudsman Service, 2005). An evaluation of the 2008 global financial crisis evidences the rationale for the regulation and breach of confidentiality exception retention. In this case, industry and government reports indicated that aware of the imminent financial crisis, the major EU and US banks CEO moved and liquidated their shares through an inside information source. This is a criminal offense as the respective CEOs continued to misrepresent their financial statements while aware of the impending financial crisis. In this regard, the disclosure option allowed for the prosecution of the responsible stakeholders, especially in the UK housing industry that is accredited as the bubble burst leading to the 2008 global financial crisis. An examples of the banks compusltion by law is the case of the USA oreign Accounts Tax Compliance Act that required banks to disclose the clients information. As such, the government persuaded the Canadian banks to disclose all information for their American clients as a means of reducing tax evasion in the nation (Morris, 2014). Public duty to disclose the information A second exception to clients’ information disclosure to banks is in the interest of the public. In this case, the banks are mandated and obliged to disclose any information they perceive as relevant in the interests of the public. In the case, the exception is especially applicable in the cases of war and on issues touching on the client’s business and transactions legality. Therefore, if a bank establishes that a client transactions are linked to unauthorized trading individuals and institutions such as enemies in war and the current terrorist groups, such a bank has a duty and obligation to disclose he information to the government for further investigation and scrutiny (Ozannes, 2009). Under this disclosure method, the bank is at liberty to disclose such information without a prior notice to the client. In addition, if a bank is privy to such public interest information on a client and fails to disclose it and as a result damage occurs, such a bank is held liable for the actions, with the actions considered as a criminal action by the managements. This is demonstrated in the case of the HSBC Bank that was reported to have sheltered money laundering accounts with the account holders linked to tax evasion and illegal arm dealings. Consequently, the US government placed the bank under a probation program to monitor its reforem process for enhanced public safety in the future (Ryle, Cabra, Hamilton, & Stites, 2015). Nevertheless, in order to regulate the disclosure of such information for malicious gains, the regulations state that such information is only disclosed for security and public interest and as such is only released to the security and other responsible government agencies. Therefore, such information cannot be used on any other platforms other than ensuring public safety and well being (Ozannes, 2009). The adoption of this disclosure allows for money laundering whistle blowing, a vice that has heightened in the last decade through IT application and electronic money transfer alternatives. As such, the approach and exception supplement the existing global government efforts to curb money laundering as well as illegal business transactions. Banks Own Interest An additional rationale for the disclosure, confidentiality breach is based on the banks’ own interests. In this regard, the legal framework categorise a bank into two categories, namely a depositor and a lender. Therefore, the law recognizes the actions of the banking institutions based on the two separate responsibilities as cited in the Graney Development Corp. v. Taksen-1978 case on bank’s disclosure of client information as a lender where court withheld that there are no legal frameworks for regulating such disclosure as a lender (Chardbourne, 2002). As a depositor, a bank is obliged to offer client information to other lending institutions wishing to offer credit facilities to the client. In this case, such information disclosure is limited to the account holding and financial levels by the respective clients. On the other hand, bank as lenders have a responsibility to disclose client’s credit worthiness as a means of rating the clients in the market as illustrated in the credit worthiness 2010 analysis below. This is the main basis on which financial lending institutions blacklisting process occurs. Under this approach, although the Lending code 2012 allows banks to disclose such credit negative information, they are obliged to notify the client 28 days of the disclosure (Chardbourne, 2002). The application of this disclosure exception is relevant in the current world. In this case, the process of credit rating allows for good financial ethics and practices, demonstrating regular credit defaulters as a means of increasing financial planning and credit management efficiency in the banking industry. Customer Agreement A final disclosure exception of client’s information is when such client authorizes and allows the bank to do so. In this case, this exception is based on two pillars, namely the implicit and the explicit aspects. On one hand, the explicit aspect is when a client offers the bank the right to disclose its information to a specific individual or institution. In this case, this is often the case in instances where clients make the banks their referees in credit and other business transaction processes (Gaskell, 2014). In this case, as a referee, the bank is legally bound to provide accurate and sufficient information on the client financial status to the referred entity or individual. On the other hand, an implicit consent is based on the implied agreement by consumers freely offering their information. However, as cited in the case of Primary Group v Royal Bank of Scotland, where the court evaluated the extent of banks’ obligation to clients’ information confidentiality in the UK, banks should provide due diligence on the nature of implicit approval (Gaskell, 2014). In this case, such approval is applied for information readily available in the public domain on the client. Based on the current changing world systems, information confidentiality, especially online is minimal. This isllustrated in the cahart below on cyber related financial crimes Therefore, as a means of ensuring the institutions’ credibility, the consumers should be liable to implicit approval for the information they provide on unsecure mediums. An example of an unauthoresd client information release without their explicit or implicit agreement is in the case of the Bank of Bahamas in 2014 where the organisation leaked information to the media on one of the clients confidential data. Consequently the CBA organization initiated a legal proceeding to prosecute the involved bank officers for the breach of the consumer privacy rights (The Guardian, 2014). Conclusion In summary, this essay offers an analysis of the client information disclosure exceptions, namely legal compulsion, public interest, banks’ interest and client consent respectively. As such although accepting the exceptions are relevant in the current banking world, this essay argues that for the implicit client approval and the public interests frameworks should be specifically outlined to reduce the open ended misuse aspects experienced currently. References Chardbourne, (2002). Banker Confidentiality Obligations. Retrieved from http://www.chadbourne.com/Banker_Confidentiality_Obligations_12-2002_Projectfinance/ Financial Ombudsman Service, (2005). The Bankers Duty of Confidentiality to the Customer. Retrieved from http://www.financial-ombudsman.org.uk/publications/ombudsman-news/45/45_bankers_duty.htm Gaskell, K., (2014). How much is a bank’s duty of confidentiality worth to its customer? Retrieved From http://blogs.lexisnexis.co.uk/loanranger/how-much-is-a-banks-duty-of-confidentiality-worth-to-its-customer/ Klein, E., & Barth, J. R. (2005). Global banking issues. New York: Nova Science Publishers. Morris, J., (2014) Canadian banks to be compelled to share clients' info with U.S. Retrieved from http://www.cbc.ca/news/politics/canadian-banks-to-be-compelled-to-share-clients-info-with-u-s-1.2437975 Ozannes, M. (2009). The duty of confidentiality: The rule and four exceptions. London: Cuersy Jersey Ryle, G., Cabra, M., Hamilton, M. & Stites, T., (2015). Banking Giant HSBC Sheltered Murky Cash Linked to Dictators and Arms Dealers. Retrieved From http://www.icij.org/project/swiss-leaks/banking-giant-hsbc-sheltered-murky-cash-linked-dictators-and-arms-dealers The Guardian, (2014). Clearing Bank Association condems release of Confidential Information. Retrived from http://www.thenassauguardian.com/bahamas-business/40-bahamas-business/45480-clearing-banks-association-condemns-release-of-confidential-information Read More