Code of Banking Practice - Case Study Example

Client Advice Banking law is a distinct area of jurisdiction that illustrates the collections of legal doctrines influencing banking dealings or the banker-customer association. Evidently, various banks have distinct levels of privacy within which they render services to their esteemed clients. Nonetheless, this notwithstanding, it is the duty of all banks to observe utmost confidentiality and privacy to each and every client who operates an account with them.1 Notably, banks and banking transactions are an essential pillar of the financial world. The idea of maintaining confidence and trustworthiness in banks is imperative for the maintenance and protection of customers’ secrets. Specifically, confidentiality is groups of promises or rules that either limit access or impose restrictions on certain categories of information. It is thus a foundation stone of the bank-customer relations. The bank's duty of confidence demands that all the banks have an obligation of protecting the confidentiality of their customers including former clients. Indeed, this is provided for in the Code of Banking Practice. In the case of Penelope’s financial situation, knowledge of bank-customer confidentiality provisions and the banking law will enable her have a defense mechanism in case the bank breaches of the right to privacy2. Confidentiality is never just about account transactions, but extends to all the information that the bank has concerning the customer. The UK has a long history of banking regulation that began with the enactment of The Banking Act 1979 prior to which there was no regulation at all. This Act introduced the requirement for institutions to be certified in order to allow deposits from the public. However, it made no effort to classify a bank or banking business with its provisions only being applicable to deposit taking institutions. It is during this time that the attempts to describe what would constitute a bank arose. The best example is found in the Case Law of the United Kingdom which involved United Dominions Trust v Kirkwood at the Court of Appeal level. In this case, Kirkwood argued that the United Dominions Trust could not guarantee a debt since they were not a bank. Therefore, being unregistered moneylenders, they were incapable of recovering due to the necessities of the Moneylenders Act 19903. As a result, United Dominions Trust sought to demonstrate that it was a bank. The Appellant Court made distinct three elements that clarified whether or not one was a banker including the nature of banking services offered, importance of the services relating to a business and the reputation of the institution. Consequently, the bank acknowledged that characteristics that are existent in the banking business included accepting money from and collecting cheques for clients; honoring orders or cheques drawn on bankers by the clients when presented for payments, debiting customers’ accounts and keeping operational accounts for customers4. Since United Dominions Trust did not do the above, it was found not to be a bank while also found exempt from the Moneylenders Act 1990. As much as banks are compelled by various legislations to maintain the secrecy to its clients, sometimes mistakes occur, and they end up releasing details that would otherwise have been kept secret. For instance, in the famous 1924 case pitting Tournier v National Provincial and Union Bank of England, four reasons for which a bank can legally reveal information concerning its customers was set out. For instance, where a bank is obliged by law to release the information; if the bank has a public responsibility to unveil the information; if the banks’ interest need the disclosure, and where the client has agreed that information about him be released. Therefore, if a bank reveals information about a customer in any conditions apart from those stated above; then it is deemed to have acted erroneously and should be held accountable for the practically anticipated consequences of its action. In another case, pitting Primary Group v Royal Bank of Scotland, the High Court made consideration to the banks’ confidentiality duty in a case that also needed to explain the measure of compensation for breach of such when a client hasn’t suffered a direct loss5. The high court after making consideration to the arguments presented to it, ruled in favor of the Primary Group maintaining that Royal Bank of Scotland had breached its contractual commitment of confidence. Refering to these rulings, it is imperative that terms of agreement between a banker and the bank have to be kept confidential at all times. The principles that dictate the exception to this were confirmed in the Court of Appeal cases involving Turner v Royal Bank of Scotland plc of 1999 case and the Christofi v Barclays Bank plc of 20006. In both the cases, the court found grounds for which a breach of confidentiality would occur, and information was let out. Despite the fact that the Tournier principles draw wide recognition and use, their limits are not very clear with reference to decided cases. Notably, most businesses in the UK including banks are subject to legislation intended to protect persons and transfer of their personal data. The UK implemented this through the enactment of the Data Protection Act 1998. The primary duty of a bank is to keep its clients’ affairs confidential and is mostly encrypted in the terms of contract between the two parties. Additionally, banks may enter into privacy agreements with customers in which express contractual obligations may arise. Such was considered in the case pitting Court of Appeal in United Pan-Europe Communications v Deutsche Bank AG. In this case, the bank gave the claimant company secrecy undertakings in relation to the preparation of information memoranda for syndicated loan services7. A competition occurred between the bank and the claimant in acquiring a target company. The Appellant Court held that the bank breached its obligation of confidence resulting in it receiving an injunction preventing it from selling the shares it had acquired until a subsequent trial is carried out. Penelope, therefore, doesn’t need to panic since her bank is clearly obligated by law to provide her with confidentiality and keep her information secret unless it seeks consent from her. In particular cases, disclosure may be made if it is in the interest of a bank. For instance, in the case of Sunderland v Barclays Bank Limited, the bank violated the cheque that was on betting by the plaintiff that prompted the plaintiff to lodge a complaint against the bank. Her husband interrupted their call to take up the case8. For this reason, the interest of the bank needed disclosure because it was being forced by the husband. The bank therefore had the client’s implied consent to disclose the bank details to him. In another recent interpretation of this exception, two cases come in handy in XAG v A Bank in the High Court of London and FDC & Co. Ltd v Chase Manhattan Bank NA in the Hong Kong Court of Appeal9. Even though the second case was not handled in the UK courts, it presents a real situation from which Penelope can draw knowledge concerning bank confidentiality issues and provides a clear argument similar to the first case. In both cases, clients obtained interlocutory injunctions to deter their banks from revealing information in order to conform to subpoenas of the courts in the US. The banks reasoned that it was in their best interest to make known the issues since concealing them would be in contempt of court. The arguments were cast off on the basis that the banks’ interest in exposé was of a different character for that contemplated in the Tournier case of the United Kingdom. In a case where revelation is made under this exception, it must be one limited to details necessary to protect the banks’ interest strictly. This will only be necessary and permitted under this exception if there is legal action against the bank and its customer or if the bank itself necessitates an action against a guarantor10. Notably, the Tournier case presented two major areas of concern related to this exception. First, while a bank may deem it relevant to release secret information about its customers without their consent to other individuals, business partners or companies, the English courts hold a different view of this. For instance, in the case of Bank of Tokyo Limited v Karoon, it was maintained that for assurance purposes. Each cooperate unit within the banking group or association must be viewed as separate and be well aware of any actions that might be taken relating to disclosure of information11. Penelope can adopt this and be confident that within this provision the bank can not disclose her financial status to her partner without her knowledge. There is a lot of protection originating from the set out legislations that protect her from embarrassment that may result from disclosure of her financial difficulty situation12. Second, a board called the “Jack Committee” suggested that enabling a banking group to run in an efficient way, requires that the law allow confidential information to be exchanged between a holding company (a bank) and its banking subsidiaries not necessarily requiring client consent. The United Kingdom government took the view that disclosure ought to be allowed only when the purpose of the disclosure is to guard against loss. In case a bank is involved in civil court proceedings in England, it should be stated explicitly that Part 31 of the Civil Procedure Rules, contains the disclosure rules that should act as the primary guidelines to such decisions13. However, there are other instances, which dictate that a bank may be required to give revelation of information it holds, to given people or institutions. In the case of Norwich Pharmacal Co v Customs & Excise Corms, the House of Lords found the principle that: “if, by no fault of his own, an individual gets mixed up in the tortious deeds of others in order to facilitate their illegal behavior, he may not incur any personal liability, instead, he bears the duty to help out the person who has been aggrieved by offering full information and revealing the full identity of the wrongdoers.” The applicability of this occurs especially in the case where one has engaged in wrongful behavior, which infringes another’s legal rights. However, in cases where the proof can be sought in due course under witness summons, an order pursuant to this prerogative will not be made. Such an order can only be approved as a subject of last resort and is only sought in instances where there is no other feasible source of information. In the case of Koo Golden East Mongolia v Bank of Nova Scotia and others enjoined in the case, the appellant court restated the significance of the principle of confidence involving a bank and its client by allowing the defendants’ appeal against the directives for disclosure made against them14. It was clearly stated that the court should be very hesitant to make a Norwich Pharmacal order, involving a breach of confidence between a bank and its customer. Further, it was affirmed that in each case, it would be essential to consider all of the conditions in the light of the fact that such particular order is a flexible, optional remedy. The above cases provide Penelope with an adequate argument material and thus should face the issue in the legal systems of the United Kingdom without fearing for her status15. The UK government has carried out various reforms to the banking system following three years of consultation on the future of the country’s financial sector16. The government acted to transform the banking industry through four key areas namely: supervision, structure, culture and competition. Penelope, therefore, should feel more secure due to the inception of such reforms and the obligation of the banks to guarantee customers confidentiality. Any bank that enters a contractual agreement with a client on the operation of a bank account must also agree to stick to these terms. The bank has to notify its client about any reference prior to its transmission to a third party. Moreover, it is obliged to attain the clients’ written permission before any action is taken concerning the text in question. Therefore, for banks to guarantee highly complicated encryption systems to stop hackers from gaining access to its customers’ details, they need to exercise a reasonable level of care and responsibility. It is worth noting that the aspect of privacy is also enshrined in the European Convention on Human Rights of 1950 article 8. This article stipulates the respect required for an individual’s personal life and its protection. Its aim is to defend the individual’s personal life and prevent any violation to it except when there is a legal provision allowing such violation. This is a clear indication that a person needs complete rights protection and is recognized in a wider scope beyond just the United Kingdom. In exceptional circumstances though, where breach of confidentiality occurs, an award of can be granted for such cases17. Generally, banks in England face a very challenging task in harmonizing and reconciling their duties and policies regarding information on their customers and their confidentiality18. In as much as customers have a high expectations from banks concerning their confidentiality, banks find themselves facing a number of challenges especially due to the legal erosions to the duty of confidence. Therefore in future cases involving confidentiality issues, the courts should take the chance to consider the Tournier principles in a broader framework than has occurred before. The banks should also strive to shape the law of the banker’s secrecy so as to conform to the general law of assurance and developments. This can be achieved through advancement of claims for misuse of private customer information19. Moreover, the significance of the above provisions to disclosure of a client’s private information by a bank is self-evident. In summary, where exemptions do not apply, the bank is obliged to comply with the provisions which partly replicate the law of misuse of individual information which in part provide specific supplementary protections for data subject. When it comes to whether or not and to what extent it is deemed legitimate for a bank to disclose Penelopes’ information it will be necessary for such bank to adopt the right approach that does not infringe her rights. This will involve the application of a test of proportionality, dealings with matters not in terms of generalities but on concrete facts on the particular causal factor necessitating disclosure. Notably, this will only happen for the purpose of legal proceedings and resulting from the acquisition of her consent. In the above case, therefore, Penelope should consider the extent to which cases have been applied before on the same matter as described above. Generally this essay offers her appropriate advice on the issues facing her. It equips her with the knowledge and acquits her with the appreciation of the right to privacy that is enshrined in the European Commission and general law. She, therefore, stands at a level of high expectation for the banks to offer her right to confidentiality by not exposing her financial status to the other partner. References Abdulwahed Mo. Khalfan & Abdulridha Alshawaf. ‘Contractual and tortious liability in EFT transactions in the United Kingdom’ (1992) 1(3), Journal of Global Information Technology Management., 291-309 Bernardo Bátiz-Lazo. ‘Strategic alliances and competitive edge: insights from Spanish and UK banking histories’ (2004) 46 (1) Business History. 23-56 Christofi v Barclays Bank plc [2000] 1 WLR 937, CA Hood, Parker. Principles of Lender Liability. (Oxford: Oxford University Press, 2007) John R. Boatright. ‘Swearing to be Virtuous: The Prospects of a Banker's Oath.' (2013)71 (2), June Review of Social Economy. 140-165 Martin Gill & Peter Jordan. ‘UK Conference Report: Confidentiality and Collaboration—The Ethics of Information Sharing in Health and Social Care’ (2012) 6 (1), March Ethics and Social Welfare, 74-78 O'Donovan, James. Lender Liability. (London: Sweet & Maxwell, 2005) Robert Stokes. ‘The Genesis of Banking Confidentiality.' (2011)32 (3). The Journal of Legal History. 279-294 Tournier v National Provincial and Union Bank of England [1924] 1 KB 461 United Dominions Trust Ltd v Kirkwood [1966] 2 QB 431 (CA) Ellinger, E. Hare A. Lomnicka, & E. Ellimger's. Modern Banking Law (Oxford University Press, 5th Ed. 2011) Read More