Legal Responsibilities and Duties of the Banker - Literature review Example

Legal Responsibilities and Duties of the Banker Name: Institution: Course Title: Instructor: Date: Introduction Banker’s position comes with numerous legal and moral responsibilities and duties. The responsibilities of a banker are contextualised within the banker-customer relationship. Such context gives birth to different forms of relationships such as debtor-creditor, agent and principal and guarantor and guarantee relationship. It is these relationships that are used to frame the responsibilities of a banker. In relation to the responsibilities, numerous duties emerge that a banker has to adhere to. These include a duty to ensure secrecy/ confidentiality as stipulated in the law, duty to be honest, being careful in offering financial advice and duty to question legal mandate. The aim of this is to describe the most important legal responsibilities of the banker in maintaining the customer’s current account and to briefly describe the most generally cited legal duties of the banker. In this regard, for the first question the paper will focus on debtor-creditor relationship, agent-principal relationship & fiduciary relationship and for the second question it would focus on secrecy/ confidentiality. Most Important Legal Responsibilities of the Banker The important legal responsibilities of the banker in maintaining the customer’s current account stem from the banker-customer relationship frame. The rationale for such argument is anchored on the fact that it is how these relationships frame are conceptualised that gives rise to responsibilities that a banker should undertake. A banker would not operate outside the relationship frame as outlined in the contractual agreement. In a nutshell, it is the relationship that gives rise to various responsibilities for each party. Pond (2007, p.75) observes that the banker—customer relationship is a contractual relationship under the context of debtor-creditor frame where the two roles can be reversed depending on the scenario present. Apart from this main framing concept, other relationship contexts that are used to contextualise the responsibilities of banker in the banker-customer relationship include agent and principal relationship, trustee and beneficiary relationship, bailee and bailor relationship, pawnee and pawner relationship, mortgage and mortgagor relationship, lessee and lessor relationship, guarantor and guarantee relationship and finally fiduciary relationship (Pond, 2007). It is within these frames that the paper will examine and describe the most important legal responsibilities of the banker in maintaining the customer’s current account. In Foley v Hill (1848) 2 HLC 28; 9 ER 1002, Sir John Paget remarks, “the relation of a banker and a customer is primarily that of debtor and creditor, the respective positions being determined by the existing state of account.” In this regard either party can be debtor or creditor depending on the status of the account. In the normal incidents of the banker-customer relationship and if the customer is the creditor, the banker has a responsibility of processing payments back when required as per the terms and conditions of running that current account. This is anchored on the duty that a debtor has to repay his creditors. Thus, the banker should process payments for the customer so long the request has been done in writing during normal working hours and where the account is maintained (Pond, 2007, p.75). Closely related within this context is deposit taking role since before one becomes a creditor top a bank, he or she must have done depositing (Bollen, 2006, p.223). While in generic term, the frame of debtor-creditor is applicable, Muraleedharan (2009, p.258) indicates that banker customer relationship should not be taken in face value as outlined in normal debtor-creditor since there are numerous factors at play such demand for payment, withdrawal slip and terms of contract. Specifically, he notes that there should be demand for payment, this demand should be done at the branch of the bank where the account is operated and finally, within the allowed working hours. The other perspective in relation to responsibilities is on agent and principal relationship. In relation to this perspective, Muraleedharan (2009, p.257) indicates that “the banker-customer relationship is a relationship of principal and agent coexisting with it for the purpose of customer’s instructions to his banker to carry out particular transactions on his account”. In a nutshell, for such arrangement, the banker acts as a representative of the customer while dealing with third parties. Therefore, in regard to the agent and principal relationship, the banker is obliged to take cash deposit directly done third parties and processing of other financial services such as collection of outstanding bills on behalf of the customer and honouring of cheques on behalf of the customer. Additionally, within this context the banker can buy and sell securities for the client; pay bills such as insurance premiums and utility bills; act as a trustee and execute instructions of client and processing of promissory notes. While in the earlier years as entrenched in the case of Foley v Hill, the fiduciary role of a banker was relegated to periphery. However, according to Glover (1995, p.51), this has gradually changed owing to the fact that banking practice have significantly expanded their scope beyond deposit taking. In Deist v Wachholz 678 P 2d 188, 193 (1983), it noted that “modern banking practices involve a highly complicated structure of credit and other complexities which often thrust a bank into a role of an advisor thereby creating a relationship of trust and confidence which may result in a fiduciary duty thrust upon the bank”. Indeed, it evident that banker-customer relationship is not majorly anchored on fiduciary relationship where they ought to advice customers that an action is not in their interest, under special circumstances the same can be invoked. Under fiduciary relationship, the banker has a responsibility of not dispensing the money in a manner that is inconsistent with the customer’s fiduciary character. It is general knowledge that any relation of trust and confidence constitutes fiduciary relations and thus, a banker is obliged to ensure the same. Within this context, it is known that customers rely on bankers and thus, in one-sided relations places trust on banker and hence if the trust is broken the customer can claim that the banker has broken fiduciary relationship (Glover, 1995, p.52). As a banker, one is not expect to exert undue influence that is likely to mislead the customer (Glover, 1995, p.53). The Most Generally Cited Legal Duties Owing to their unique position, bankers have access to financial information about a client and thus, they are mandated to observe certain standards in relation to these pieces of information. One of the legal duties that banker is obliged to guarantee is secrecy/ confidentiality. Chaikin (2011, p.225) observes that the common law contractual duty of confidentiality/ secrecy emerged in 1924 with the ground breaking ruling in Tournier’s Case. This implied ruling directed that Bank banks have the obligation of ensuring customer’s financial secrecy. Within the context of principal-agent relationship, Chaikin (2011, p.228) notes that an agent has the obligation to keep the secrets of his principal this is because of the trust bestowed to them by the customers. According to Latimer (1996, p.551), “At common law, a bank is under a strict duty to maintain secrecy and confidentiality about its customer's account”. This legally premised on the fact that the secrecy is owned by the customer. For instance, the rationale is based on the grounds that bankers access financial information about customers and if mishandled say for business individuals their competitors would take advantage. Nevertheless, while secrecy is guaranteed, there are exceptional situations that the same is not applicable. Such include scenarios where the disclosure is forced by a law; where the customer through express or implied terms gave consent on the same; when the disclosure is for public interest especially in the wake of terrorism & money laundering and lastly, where the interest of the bank requires disclosure. Conclusion The aim of this discourse was to assess and outlines the most critical legal responsibilities of the banker in maintaining the customer’s current account and to establish and outline the most generally cited legal duties of the banker. In regard to the first question, the paper found out that the responsibilities of a banker stems of the relationship that a banker and customer have. These framing concepts include debtor-creditor relationship, agent and principal relationship, trustee and beneficiary relationship, bailee and bailor relationship, pawnee and pawner relationship, mortgage and mortgagor relationship, lessee and lessor relationship, guarantor and guarantee relationship and finally fiduciary relationship (Pond, 2007). The paper assessed the first two and the last one. In regard debtor-creditor relationship, especially with customer being a creditor, the banker has the responsibility of accepting deposit and processing payments so long as the request has been done in working hours. For agent and principal relationship, the banker has to act on behalf of the client and lastly for fiduciary, the banker has to ensure trust and act in good faith. In regard to duties that a banker owes a customer, the paper established that it includes secrecy/ confidentiality, duty to be honest, being careful in offering financial advice and duty to question legal mandate. The paper focused on secrecy/ confidentiality. In regard to confidentiality, the paper established that a banker has a duty to keep customers information confidential and can only release it under four special conditions. References Bollen, R. (2006). What is a Deposit (and Why Does It Matter). eLaw J., 13, 202-224. Chaikin, D. (2011). Adapting the qualifications to the banker's common law duty of confidentiality to fight transnational crime. Sydney L. Rev., 33, 265-295. Glover, J. (1995). Banks and Fiduciary Relationships. Bond Law Review, 7(1), 5. Latimer, P. (1996). Bank Secrecy and Confidentiality Law in Practice in Australia and Their Impact of the Control of Economic Crime. Dick. J. Int'l L., 14, 551. Muraleedharan, D. (2009). Modern banking: theory and practice. New Delhi: PHI Learning Private. Pond, K. (2007). Retail Banking. London: Global Professional. Read More