LXEB 3310: BANKING & NEGOTIABLE INSTRUMENTS

ACADEMIC SESSION 2014/2015

ASSIGNMENT

PREPARED BY
Name

: Faridzul Bin Abd Rahim

Matrix no. : LEB 120029

I/C no.

: 930226-01-6867

Lecturer

: Dr. Kalavathy A/p Maruthavanar

CONTENTS
NO.
1.
2.

3.

4.
5.

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.

The acceptance of money from and collection of cheques on behalf of

2.
3.

customers and placing them to the credit of the customer.

Honouring cheques presented or orders drawn on them by their customers.
They must keep current accounts or something of that nature in their books
in which the credits and debits are entered.
In this case, although UDT did not possess the normal characteristics of a

UDT could be regarded as a bank because of its reputation as a bank. According to

Lord Denning, from the aspect of reputation, UDT succeeded being regarded as a
bank because four other leading banks in London regarded UDT as a bank. The
banks granted UDT all the privileges of a banker. The Inland Revenue Department
regarded UDT as a banker and accredited accountants also regarded UDT as a
banker.
Therefore the approach taken by the common law is not only regards to the
characteristic of the institution but also with the factual circumstances for example,
the reputation.
2.2 Statutory Defintion of Bank in Malaysia

The definition of banking business prescribed under section 2 4 of the

Financial Services Act 2013 5 (FSA) is similar to the definition prescribed by common
law particularly in the case of United Dominions Trust Ltd v Kirkwood6. However,
there is an addition element to the definition which is part (iii) that is, to provide for
finance.
Another matter to be considered is the necessity of obtaining a licence under
Part III of FSA particularly in sections 8-13. According to these provisions, the
granting of licence is on the hands of the Finance Minister and Bank Negaras
recommendation. Therefore, in some way, through the enactment of the FSA, a
bank is defined as a public company licensed by the Finance Minister to conduct
banking business. Besides that, as current banking activities use electronic
mechanism, the FSA also regulates the payment system.

2.3 Conclusion on the definition of a Bank in Common Law and FSA

As we can see through some of the points given above, the FSA adapted the
definition of a Bank from common law but, there is some addition to the definition
that needs to be added in order to enhance and cover the banking business as a
whole that suits the modern banking system especially in Malaysia.

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.

3.1 Common Law Position

The important case regarding to the duty of secrecy in common law have
generally been discussed in the case of Tournier v National Provincial and Union
Bank of England Ltd8, the Court of Appeal held that a banker owes his customer a
legal duty of confidentiality not to disclose information to third parties, and any
breach of this duty could give rise to liability in damages if loss results. This duty
arises between a banker and customer upon the opening of an account and
continues beyond the time when the account is closed. It covers all transactions
concerning the account and information obtained by virtue of the relationship
between the banker and its customer.
7 Lacey, B., & Speck, J. (2009). The duty of confidentiality: The rule and four exceptions.
Mourant Ozannes.

8 [1924] 1 KB 401

According to the case of Robertson v Canadian Imperial Bank of

Commerce9, the bank can be ordered by the court to disclose information regarding
the customers account in a legal proceeding. Based on the case of Sunderland v
Barclays Bank Ltd10, the consent of a customer for disclosure can be granted
impliedly or expressly.

3.2 The application of the Duty of Secrecy in Malaysia

Based on the discussion above, a bank can legally disclose information about
its customer in a situation where:
1.
2.
3.
4.

Where the bank is compelled by law to disclose the information

If the bank has a public duty to disclose the information
If the banks own interests require disclosure; and
Where the customer has agreed to the information being disclosed.

In Malaysia, we can see that section 97 of the Banking and Financial

Institutions Act 198911 (BAFIA) codified the common law practices of the duty of
secrecy and also give a wider approach in this matter. This section maintains the
confidentiality on information relating to customers account & matters relating to
account.

9 [1995] 1 All ER 824

10 (1983) 5 LDAB 163.
11 Act 372

3.3 Changes made by the FSA

Section 133 of the Financial Services Act 2013 encompass the principle of the
duty of secrecy by the common law and also provided by BAFIA. However, there are
some changes made under this section and by the act entirely.
Firstly, according to section 133(1) 12 of the FSA, it includes the financial
institution in having the duty of secrecy which is not covered by BAFIA and the
common law. Note that in common law and the case of Tournier v National
Provincial and Union Bank of England Ltd 13, the issue arises on the case of a
bank. Previously, BAFIA which governs the banking and financial institutions does
not includes the word in the provision particularly in section 97 on the duty of
secrecy. With this addition to the FSA, we can see that the interpretation on the
institutions that holds the duty of secrecy becomes wider as it now includes the
financial institutions.
Secondly the interpretations of the person who shall not being disclosed with
the documents have become wider as refer to section 133(3) 14 of the FSA by looking
at the word any other person.

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.