Banking Law I

• Banker's Rights

  Right to commission and service charge<|>Right to interest<|>Right to set off
• Right to commission and service charge

  Bank can charge a customer commission and service charge for keeping the account or clearing cheque
• MEPS service charge

  • RM 1.00
• Right to interest


  Bank has right to charge interest based on the service provided by the bank to their customer
• Overdraft


  • Given by the bank where interest would be imposed based on the landing rate (6%.7) + interest bank (1%)
• Right to set off


  Bank can exercise this right when the customer has two accounts with the same bank where one is in credit and the other has debt
• Set off process


  1. Certain condition that the sum owed is certain, due, no agreement to the contrary

  2. Bank may reduce its liability to repay when the customer setting the amount owed with the account in credit

  3. Can be extended to third party account with consent
• Rahimat Bte Abdullah v Bank Bumiputera Malaysia Berhad (BBMB)


  • Plaintiff deposited RM 300,000 on fixed deposit with BIMB partially to secure an overdraft facility granted to Malrich Holding. Upon default by Malrich, BBMB exercised its right under the letter to set off and uplift the fixed deposit
• Banker's Duty


  Duty of secrecy
• Duty of secrecy under statute

  Financial institution and staff must not disclose customer information<|>Penalty for breach is imprisonment up to 5 years and/or fine up to RM10 million
• Duty of secrecy under common law

  Bank must keep customer affairs confidential<|>Duty is not absolute and can be excused in certain circumstances
• Tournier v National Provincial and Union Bank of England


  • Bank disclosed customer information to his employer, court ruled this was a breach of duty of confidentiality
• Exceptions to duty of secrecy

  Compelled by law<|>Duty of disclosure to the public<|>Required in the interests of the bank<|>Customer gives consent
• Robertson v CIMC


  • Bank disclosed customer information under court subpoena, court ruled this was a valid disclosure
• Exceptions to duty of secrecy under statute

  Disclosure for exercising bank powers/functions<|>Disclosure in summary form<|>Information already publicly available
• AMLA reporting obligation


  • Bank has duty to report under AMLA which provides legal protection for disclosure
• Duty of secrecy is customer's privilege, any unauthorized disclosure is a contravention of the law
• Duty to receive money and cheques

  Bank must use reasonable care and diligence in presenting and securing payment of cheques, and give prompt notice of dishonour
• Duty to honour cheque

  Bank must honour cheque if it is drawn properly, customer has sufficient credit, no legal reason to dishonour, and presented during banking hours
• Rolin Steward v Steward


  • If customer is a trader, substantial damages can be claimed for wrongful dishonour without proving actual loss
• Gibbons v Westminster


  • If customer is not a trader, actual loss must be proven to claim damages for wrongful dishonour
• Customer's duty to examine bank statements

  Customer has a duty to examine bank statements and disclose any forgeries to the bank
• Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank


  • Court held customer has a duty to disclose forgeries to the bank after examining statements
• Termination of banker-customer relationship

  By mutual agreement<|>By unilateral agreement with reasonable notice<|>By operation of law (e.g. death, bankruptcy, mental incapacity)
• Ng Cheng Kiat v Overseas Union Bank


  • Bank closed customer's account without giving notice, court ruled this was a breach of duty
• Banker


  An individual partnership or corporation, whose sole or predominating business is banking, that is the receipt of money on current and deposit account and the payment of cheques drawn by and collection of cheque paid in by a customer
• Characteristics of a banker

  • Takes current accounts
  • Pays cheques drawn on himself
  • Collects cheques for his customer
• A finance institution that does not receive or provide any of those cheque transactions is not a bank
• Customer


  A person whose money has been accepted by the bank on the footing that they undertake to honour cheques up to the amount standing in his credit, irrespective whether his connection is long or short standing
• If a person does not possess or has any account to that bank, they are not the customer as the bank only performs a casual service for him
• Nature of banker-customer relationship

  Banking can be regarded as a transaction that is based on the law of contract<|>Implied terms are embedded in opening an account<|>Express terms are stated in the agreement between the bank and the customer for a loan
• Debtor-creditor relationship

  If money is deposited to the bank, the customer is the creditor and the bank is the debtor<|>If the bank grants a loan or any advances, the bank is the creditor and the customer is the debtor
• Agent-principal relationship

  The customer gives a mandate to the bank to act on their behalf using the funds in the bank account<|>The bank has a duty to act as the agent of the customer according to the instructions/mandate given
• Fiduciary relationship

  The bank must avoid conflicts of interest when acting as a trustee over the trust fund of the customer
• Constructive trustee


  If the customer holds money in trust, the bank cannot use the money inconsistently with the trust<|>The bank is subject to a constructive trust when it knows or should have known the money deposited was held on trust
• Banker-customer relationship

  Principal-agent relationship in which opening an account results in the bank taking a mandate from the customer
• Mandate given to bank

  1. Instruction to the bank to act on behalf of the customer (e.g. paying loans)

  2. Relevant customer details acquired (signature, address, occupation)
• Duty of bank before opening an account

  • Ensure the person is who they claim to be
  • Ensure the person is a proper person to open an account
• Conducting due diligence

  1. Acquire customer identification card for natural person

  2. Verify company registration record for company

  3. Verify identity through biometric means (thumbprint)

  4. Conduct search at CCM to verify company registration

  5. Require introducer for current account
• If bank fails to conduct due diligence

  Customer may open account to clear stolen cheque