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since the Kirkwood case and cheques are becoming obsolete the definition of banks should be
updated. Another reason for cheques becoming obsolete are the more use of credit and debit
cards.
Bank of Jamaica supervises the activities of deposit taking entities (sec 34a Bank of Jamaica
Act). It also provides regulatory oversight for foreign exchange traders and remittance
companies (sec 22b and sec 22g (2) BOJ Act). BOJ supervisory and regulatory authority for
deposit taking institutions has been established through number of primary and secondary
legislative acts of parliament. The banking act, The Financial Institutions act, the financial
building institutions act. These statute provides the legal and policy parameters for licensing and
supervision of financial institutions including the legal basis for enacting secondary legislation,
prescribe credential criteria, minimum solvency standards to be maintained by licences, the
various powers available to the bank of Jamaica and the minister of finance and planning in the
event that bank distress or failure appear imminent of threatens the soundness of the financial
system. (What happened in the 1990s with the financial break down.)
All commercial banks, building societies and licences under the financial institutions acts have
been authorised to acts as authorised foreign exchange dealers (buy sell and deal in foreign
currencies) this includes the taking of deposit and making loans in foreign currency.
Credit unions operate under the co. They were designated to be specified financial institution
under the BOJ Act, allowing the BOJ obtain info on the operation of the credit union. Operating
with the financial system is a mix of non deposit taking financial institutions and these fall
directly under the regulatory over sight of the FSC( Aug 2, 2001 replaces the office of the
superintendent of insurance). The mandate of the FSC is to supervise and regulate the securities,
the insurance and private pension industries.
What is security? It is a essentially a contract that may be assigned a value and is often times
tradable. It include notes, stocks preferred shares, bonds, debentures, warrants.
The FSC is empowered under the FSC and securities act to
1) Grant or refuse licences and in any case or the branch of the securities act and its
regulations suspend or cancels license.
2) Examines the records of licences in such manner as the FSC sees fit
3) Test the integrity competence, and judgement through fit and proper assessments of all
significant holders directors and senior managers of securities firms.
4) Introduce measure to reduce the threat of fraud or money laundering in licensed
institutions.
5) Enforce the rules of a recognised stock exchanged.
6) Hear appeals by members of a recognized stock exchanged in matter relatin to the
operation of that organization.
7) Take action to prevent manipulation of the securities market.
8) Take action in the interest of the public to stop trading a security.
9) Apply penalties for breaches of the securities act
10) Educate the public about the securities industry.
What is POCA?
March 2007, may30 2007
This a wide ranging legislation that targets benefits derived from the commission of any crime
and incorporates the concept of money laundering as introduces the principle of civil procedures,
with the passage of POCA. The drug offences (forfeiture of procedures) dangerous drug act,
money laundering act and the money laundering regulation 1997, have been effectively repealed
and replaced.
Its the Basel Committee on banking supervision has drafted guidelines for the minimum capital
to be held by internationally active banks to serve as a buffer against losses and assist in ensuring
bank safety by calibrating for variation in risk resulting from variation to investment activities.
Similar standards or variation of the standard have been adopted by regulatory agencies in most
countries, including developing countries.
So maintaining a bank account enhances a persons financial standing and credit worthiness.
Until the end of the First World War, banks generally acted only for business men, the profession
and the landing classes. The banks/ customer relationship was a particularly close one, now
today and now in Jamaica, and after FINSAC, persons will maintain one or more bank accounts.
There are legal consequences regarding holding a bank account as ... and other payment
instructions and to obey its customers instructions as regard the collection of cheques and other
effects payable to them. A bank holds certain incidental duties to its customers such as a common
law duty of care, a duty of confidentiality and sometimes fiduciary duties similar to those owed
by a trustee. (Abourahmah v Abacha 2005 EWHC 2662 QR 68)
Who is a customer?
There was a time when it was thought that a person becomes a customer of the bank only when
banking services were habitually performed by him or her by that bank. Merely opening an
account in the customers name was insufficient to confer that status. (Matthews v Williams
Brown and Co. 1894)
However in Ladbrook v Todd 1914, Bailhache J held that the thief had become a customer when
the bank agreed to open the account and that the advice to the thief there had to be clearance
before the proceeds could be withdrawn was irrelevant in this regard. A similar decision was
arrived at in Commissioners of Taxation v English, Scotish and Austaralian Bank Ltd 1920.
Lord Dunedin stated. the word customer signifies a relationship in which duration is not of the
essence a person whose money has been accepted by a bank on the footing that the bank
undertake to hour cheque up to the amount standing to his credit is a customer of the bank
irrespective of whether his connection is of short or long standing. Where the bank performs a
casual service for someone, for example Cashing cheques even on a regular basis, that person
does not become a customer. The HOL held in the case Great Western Railway Company v
London and County Banking Company Ltd 1901, that although the bank cashed cheques
regularly at the request of the rate collector over the years he was not a customer as he did not
maintain an account with the bank. Therefore, a person must operate an account with a particular
bank in order to be designated as a customer (Iskandar v Bank of America National Rrust and
Savings Association (1998). However in Canada, New Zealand and Malaysia there are
suggestion that customer might include person who receive services from a bank without
necessarily having an account. There are times when it is important to determine the precise
moment when the banker stroke customer relationship comes into existence.
Ladbrook v Todd suggest that this occurs when the bank agrees to open the account and this
view is supported by Wood v Martin. The mere opening of an account in anothers name without
their authority does not establish a banker/ customer relationship between the nominal account
holder and the relevant bank. Accordingly the banker customer relationship comes into exists
when the bank agrees to open an account in a persons name. It is consenting to having a regular
business relationship with that person. To honour his or her cheques and executing other types of
payment instruction and collecting cheques or other effects payable to him or her.
The bank agrees to act as the customers agent in banking transactions and to exercise the same
degree of care and skill in this regard as can be expected of a reasonable banker.
A bank acquires certain defences visa vis a vis third parties in situation, where the banks
operations on behalf of its customer such as the honouring and collection of cheques would
otherwise expose the bank to claims for example, Conversion of a cheque.
The Nature of the Relationship between Banker and Customers.
This relationship is a contractual relationship. For example an amount equal to that deposited has
to be repaid by the bank. In respect of a current account the amount is repayable without interest
or with minimal interest against the customers demand and the customer retains the right to draw
on his funds by means of a cheque or other payment instructions. As it regards a fixed deposit or
savings the amount is repaid with interest either at a determined date or at call. The essence of
the banker/customer contract is the banks rights to use deposits for its own purposes and its
undertaking to repay an amount equal to that deposited with or without interest either at call or a
fixed time. The HOL in Foley v Hill held that the banker/customer contract was fundamentally a
contract between debtor/borrower and creditor. Lord Cotteham stated that when the account was
in credit the banks duty was to repay to the principal when demanded a sum equivalent to that
paid into his hands. Atkin LJ in Joachimson v Swiss 1921 b 110 CA stated that the bank
cooperation described the banker/customer contract as including inter alia, a promise to repay
any part of the amount due against a written order of the customer, addressed to the bank at the
branch
The customer on his part undertakes to exercise reasonable care in executing his written orders
so as not to mislead the bank or facilitate forgery. His lordship concludes the bank is not liable
to pay the customer until he demands payment.
Case to note: Lipkin Gourman v Karpnale and Company.
February 2, 2015.
The obligation of the bank to repay the debt only arises when demand is made.
The relationship means that money deposited, the bank can treat it as its own. It simply has to
return the money when requested. The fundamental banker/customer relationship is therefore not
based on agency trust or bailment, though this may be the situation in particular contracts in the
broad relationship. Ladbrook v Todd.
The opening of an account is crucial. There is a duty of care (Wood v Martins Bank)
There is also a fiduciary duty (Marley v MSMB and tC)
Undue influence Hew v Ncb
Advisory Liability (Headley v Byrne)
Confidentiality (Megill v Mayne & Tounier V AG)
Closing account
Mutual agreement in accordance with contract.
Unilateral agreement (NCB v Olint, David Smith, World Wise v RBTT)
In respect of Folly....
1-A customers demands is only necessary in the case of a current account or a savings
account providing for payment at call.
2- The notion that a demand for repayment must be made at a branch where the money is
held does not always operate thus Watkinson Case ( the matter of the demand ...)
The trend in modern banking is for banks to dispense with writing relying on other
devices such as passwords and codes. Morrel v Workers Saving and Loan Banks.
Judicial support was given to the modern practice of acting upon the customers oral
instructions. The fact that a bank impliedly promises to repay any amount against the
written order from the customer addressed to the bank at the branch does not exclude the
possibility of an oral order
3-If a bank is wounded up or the account is closed the customers credit balance becomes
repayable.
4- the limitation period runs from the day on which the customer makes demands and is
refused
5- Whilst the analysis in Folly and what [MISSING PART] concentrates on the banker
customer relationship as reflected in the maintenance of an account. Banks also provide
other services to their customers that cannot be described in debtor creditor terms.
6- Whilst Watkinson tends to suggest that the banker customer and account relationships
are largely regulated by implied contractual terms modern banking practice usually
requires a customer to sign an account mandate that contains details expressed terms
governing accounts operation.
The Confidential Nature of the Contract.
This arises from the fact that the banker customer relationship includes elements of an
agency relationship. The general rule is that an agent holds a duty of loyalty and
confidentiality to its principal (Regal Hastings v Gulivers) however that duty varies
depending on the type of agent involved. For example the confidentiality expected from a
lawyer client relationship is much higher than that expected in other relationships, such as
the director and company. The connection between the banks duty of confidentiality on
one hand and other types of agency relationships involving the provision of highly
personal services on the other hand; Diplock LJ in Carrick Jones v Law Society states
such a duty (of secrecy) exists not only between solicitor and client but for
example between baker and customer, doctor and patient and accountant and client.
Such a duty of confidence is subject to and overridden by the duty of any party to that
contract to comply with the law of the land. It is the duty of such a party to a contract to
disclose in defined circumstances confidential information then he must do so any
expressed contract to the contrary would be illegal and void
From the perspective of the agent the existence of a duty of confidentiality allows him to
retain others in his business confident that such a duty will protect him from unnecessary
external attempts to ascertain knowledge of his affairs or obtain his trade secrets thereby
facilitating his entry into an extremely competitive kind of business which he would not
have otherwise entered. In addition the agent is well aware that there exist professions
that would not be carried on at all or at least not successfully should the person
undertaking the confidential work not be able to reassure. Those instructing him not only
of his own personal discretion but also that he cannot be generally compelled to disclose
confidential information. For example an attorney-at-law cannot represent his clients
interest effectively unless the client is able to discuss his matters openly. This justifies the
duty of confidentiality in the banker customer relationship. However the banks duty of
confidentiality maybe superseded by matter of state which are considered to be of greater
importance.
Termination of the Relationship
Generally the banker customer relationship or a particular banking contract may be
terminated in accordance with his express terms. Therefore it is important to know the
particular terms or nature of the contract a party is seeking to end. Where the contractual
period is fix, for example a fixed deposit, maturity date or the hire of a safety deposit box
for safe keeping, the contract cannot be terminated early unless both parties agrees. This
is for a fixed period.
February 9, 2015
The banks Fiduciary Duty
Its customers agent a, bank has a duty to adhere strictly to its customers mandate.
Similarly, a customer owe his bank a duty, as in any agent principal relationship, to issue
clear and unambiguous instructions, to draw cheques with reasonable care and to inform
the bank of its knowledge relating to fraud on the account. A part from the banks core
duty (what are the core duties of the bank: to take deposit ... etc) to obey its customers
instructions, any executions of its customers payment instructions or any performance of
other incidental banking services for him (the customer) may lead to any imposition of
other duties or form of liability on the bank.
These services may include the following:
1) A bank may become a fiduciary, owing its customers the core fiduciary duties of
loyalty and fidelity. A bank attracts fiduciary duties arising from its proximate
relationship with a given customer whether by actually assuming the role of a
fiduciary or by knowingly dealing with a customer in circumstances that have
induced the customer to regard the bank as having assumed such a role.
2) Validity of mortgages or guarantees granted in non-commercial settings is determined
by asking whether the bank exercised undue influence or committed some other legal
or equitable wrong against the surety or more usually whether the bank had notice of
such wrong doing by a third party vis a vis the surety.
3) A bank owes its customer concurrent common law and contractual duties to exercise
reasonable care when providing services or products. In those rare circumstances,
where a bank becomes a fiduciary, the bank will owe its customers an equitable duty
to take care. {Bristol and west Building society v Matthew} Beyond the duties of
skill and care, banks do not generally owe their customer the fiduciary duties of
loyalty and fidelity. The courts do not impose fiduciary duties on banks towards their
commercial customers and this reluctance has also been extended to personal
customers who might be considered to be more vulnerable when dealing with the
bank.
Undue Influence:
In the UK, in various cases of actual undue influence the claimant had to prove
affirmatively that the wrong doer had exerted undue influence over the complainant to enter into
the transaction. The complainant had only to show a confidential relationship with the wrong
doer, which in turn raised a presumption of undue influence, the burden shifts to the wrong doer
to prove that the complainant entered into the transaction freely. In Bank of credit and comerse
int. SA v Aboody, undue influence was further sub-divided into two categories, certain
relationship were deemed to be confidential such as attorney client, doctor patient, but not
husband wife or banker/customer. The complainant had to show that he or she had reposed trust
in a particular wrongdoer and this classification was adopted in Barklay v Obryant, which
involved the relationship between husband and wife.
Browne Wiliknson LJ concluded that this relationship did not fall within class 2a, a wife could
also prove that in her particular case she left decisions on financial affairs to her husband.
Accordingly reposed confidence and trust in her husband in relation to their financial affairs and
therefore undue influence was to be presumed
In Lloyds Bank Limited v Bundy, Sir Eric Sachas treated confidentiality as the touch stone for
such fiduciary liability that is treating a bank as fiduciary obliged to safe guard the suretys
interest. Sacrman LJ in National Wesminster Bank PLC v Morgan, shifted the focus away
from whether the bank was fiduciary to whether undue influence had been exercised and
accordingly on to whether one party had exercised a dominating influence over the other rather
than on whether there was a relationship of confidentiality.
The Juridical nature of undue influence has engendered considerable debate. One view is that the
equitable doctrine of undue influence looks to the lack of good conscience on the part of one
person exercising the influence and the wrongful exploitation of his counter party. {NCB ltd v
Hew}
Duty of Care in contract and Tort
A customer may try to recover his loses from the bank by pleading the breach of an implied term
in the banker/customer contract to exercise reasonable care and skill. This implication can arise
either at common law or by virtue of the relevant act in Jamaica.
Selangor Rubber ltd v Cradock, Ungoede Thomas J put forward a general principle concerning
a banks duty of care to its customers:
1) A bank has a duty of care under its contract with its customer to exercise reasonable care
and skill in carrying out its part with regards to operation within its contract with its
customers
2) The standard of that reasonable care and skill is an objective standard applicable to
bankers
3) Whether or not the standard has been attained in particular case will be decided on the
relevant facts which can vary greatly.
4) The relevant considerations include the prima-facie assumption that men are honest. The
practice of bankers, the very limited time in which banks have to decide what course to
take with regard to a cheque presented for payment without risking liability for delay and
the extent to which an operation is unusual or out of the ordinary course of business.
5) If reasonable care and skill is brought to the consideration of such an operation there is no
need for any intervention by the bank.
6) Any intervention required, in the exercise of reasonable care and skill depends on the
circumstances
7) Where it is to enquire then failure to do so is not excused by the conviction that enquiry
would be futile or that the answer would be false
The relevant principles in Selangor were restated by the Court of Appeal, Lipkin and
Gorman V Karpale + Co, which like Selangor claim that the bank was negligent. In respect
of the banks alleged breach of its duty of care May LJ said that conceptually the reasonable
banker test propounded in Selangor imposed two stringent duties on banks.
Courts should not be too ready that a bank had acted in breach of its duty of care when it has
honoured without question a cheque within the authority of its customers agent.
Accordingly, a bank will only have acted negligently in paying a cheque if any reasonable
teller would hesitate to pay the cheque without first referring it to superior who in turn would
hesitate to honour their instrument without making further inquiry. For example: If the
cheque appears to be signed by the account holder and there is no reason of the genuineness
of the signature, then there will be nothing on the face of the instrument indicating fraud.
However, a bank was not entitled to ignore clear evidence of fraud being perpetuated or
being perpetrated on a customer. Parker J, held that there are certain unusual cases when a
bank will be put on enquiry and when its failure to investigate circumstances further would
constitute a breach of its Duty of Care. The test applied in Selangor is Whether if a
reasonable and honest banker knew of the relevant facts he would have considered that there
was a serious real possibility albeit not amounting to probability that its customer was being
defrauded
Banks could nether be expected to review individual accounts on a continuing or a periodic
basis or to assume a suspicious attitude towards its customers. Accordingly, their lordships
approach is justifiable both in terms a of protecting bank from potentially endless litigation
given the number of transaction with which they are involved and also requiring customer to
safe guard their own interest rather than relying upon the bank to do so, at least when
undertaking straight forward banking transaction.
The preposition Lipkin Gorman, The bank does not owes it customer any particular duty of
care in respect of ordinary payment transaction carried out by the authorised signatory on the
customers account. However this blanket proposition may now need some modification in
light of the Banks extensive obligations under the anti money laundering legislation. The
courts are reluctant to impose a contractual or common law duty of care on banks not limited
to the provision of ordinary banking services or products. This applies to banking product
that are particularly risky, sophisticated or unusual where its bank provides its customer with
financing that he uses for speculative dealings or to enter risky transactions and the customer
subsequently complaints that its losses results from the banks failure to warn him of a
particular risk or conditions.
obey these, the customer may request payment by cheque or by money transfer order
3 the use of a debit card often at a point of sale terminal in a retail outlet Use of. Debit card to
obtain cash from the ATM
Credit cards
The supplier of the goods or services provides them (credit cards) on the basis of his
reimbursement arrangement (security) with the issuer of the credit card. Payments for the
purchase of goods and services can increasingly be settled by electronic money. The card holder
can utilize a card to obtain goods and services from dealers who have entered into a merchant
agreement with a member of the network and displays the networks insignia.
Debit cards
The card holder uses these cards in designated retail stores to obtain goods and services. The
difference between debit card and credit card is that when the card holder uses a debit card the
amount is remitted to the retailer by an electronic funds transfer involving a debit of the sum
concerned to the cardholders bank account, the transfer is either instantaneous if it is an online
system or occurs in batches sometimes after the transaction, cash can also be obtained using the
debit card. Payment by cards enable the card holder to obtain goods and services or cash thereby
saving the cardholder the inconvenience of carrying cash.
Settling, clearing and netting
Clearing refers to clearing houses which were responsible for the general clearing of cheques and
paper generating ...issues. In the UK most clearing banks offer their customers telephone and
Internet banking services. Some banks operates their own clearing department to which all
cheques payable to the banks customers are sent by the branches charged with their collection.
Such cheques are largely processed at the banks own clearing centre as subsequently delivered to
the clearing house where the bank also picks up any cheques drawn on itself. The process of
exchanging payment orders between participating banks is known as clearing. Clearing may take
place through a series of bilateral exchanges of payment orders between banks , but in the uk it is
common for clearing to take place multilaterally through a centralized bearing house.
Settlement
Can occur on either a bilateral or multilateral basis. Bilateral settling occurs where the bank
sending the payment order and the bank receiving it are correspondents. Ie each holds an account
for the other. Settlement is effected through an adjustment of the accounts. Multilateral
settlement involves the settling of accounts of the sending bank and the receiving bank held at a
third bank. The third bank could be a correspondent of the two banks ie
1 where they both have accounts or more typically the third bank could be a central bank.
Settlement may be either gross or net.
Netting
Net settlement, mutual payment obligations of the parties are set off against each other and only
the net balance is paid. This process occurs periodically with net balances being settled either at
the end of the day where it will be same day funds or the following day in which it will be next
day funds.
In a bilateral net settlement system a participants exposure is measured by reference to its net
position with regard to all other participants in the system as a whole. As a result each participant
will end up As a net debtor or a net creditor in relation to all other participants in the system. The
principal advantage of net settlement is that it reduces the number and value of interbank
settlement operations which in turn leads to reduced transaction cost and improve liquidity. In
addition net settlement ,..exposure to recover risk a bank receiving a payment instruction from
another bank participating in a payment system usually makes funds available to its own
customers before it has been placed in funds on completion of the multilateral net settlement at
the end of the day. Thus the receiving bank carries the risk that it may never be placed in funds.
Payment and banking go in hand in hand. Payments are usually made through the banking
system although for small trans cash, credit card and money are used. Banks make payments on
their own initiative as a result of their own dealings in foreign exchange, securities and
derivatives. When customer driven , however the mandate is central to payment. If a bank acts
within the mandate it may claim reimbursement from the payor that is debating its account if it
has one. If it acts outside the mandate, eg paying on a forged mandate, it has no authority to
claim reimbursement though the payor may ratify what the bank has done or it may be stopped
from denying the banks reimbursement.
Basic elements
Three basic elements of making payment through the banking system are
1. The payment message which is an unconditional instruction to effect payment in favor of a
payee. It may facilitate a credit or debit transfer. Banks effect payment on receipt of a payment
message. This payment message may be divided between the customers mandate to expand and
any instructions which that bank then sends to another bank, for eg the payees bank or a
correspondent. However traditionally, payment messages were paper based, but now apart from
cheques and payment, cards are now conveyed electronically as a part of a anti terrorism method,
banks must include both domestic and international payment messages, information on the
organizations name, address and account number.
2. Movements on accounts. The customers account is debited and the payees account is credited.
Payment through the banking system for eg credit transfer, direct debit, cheques or other means
involves a movement on accounts effected following receipt of a payment message.
3. Settlement. Payment between the banks themselves of their obligations inter Se (between or
among themselves) arising out of a payment. Settlement may follow each payment or is done
periodically, through the netting of a series of payments either between two banks(bilateral
netting) or a number of banks( multilateral netting). Settlement can be effected by a movement
on accounts which both banks have with a third bank, but is typically effected by a movement on
the accounts which banks have with the central bank. Settlement is typically across the books of
the central bank, so payments involving a particular currency, are usually routed through the
country of that currency. This $US payments are usually settled in New York, sterling payments
in London, yen payments in Tokyo. With the euro payment messages are exchanges bilaterally
between the two central banks of the countries of the payor and the payee concern using
reciprocal accounts for debating and crediting.
Payment methods
Instruments, procedures and institutions which enable users to meet payment obligations.
Traditionally, payment methods are classified as credit or debit transfers depending on whether
the payor payment instructions are given direct to its bank (a credit transfer). Or pass via the
payee (debit transfer). Payment methods are either, paper based, electronic or a combination of
both and payment systems may be on a small or large scale. Payment methods are:
1. Cheques. In the uk, use and France cheques are the preferred methods of payments. However
it is obvious that in time cheques will no longer be used as the cost for processing are becoming
prohibited in a cost conscious world. In Germany, credit transfers and direct debits are dominant
while cheque usage is less than 5%. The commercial world is heading towards a paperless credit
transfer and hence cheques will be obsolete.
2. Payment cards. Credit cards, debit cards, cheque guarantee cards are used in conjunction with
a cheque book and guarantees the payment of a cheque up to a specified amount. E-money card
which the customer can use to pay for small value items and can be used independently of a bank
account. Any one card may be multifunctional. Customers may obtain cash and access other
banks services from an ATM through the use of a payment card. While credit cards are subject to
extensive regulations. Most jurisdictions do not have regulations or payment cards other than
credit cards and e-money. However Denmark has special legislation and the USA has electronic
funds transfer since 1978.
3. E-money, the monetary value as represented by a claim on the issuer is stored in an electronic
device and accepted as a means of payment by undertakings other than the issuer. A European
community directive. This includes e-money cards or electronic purses and prepaid software
products for use on the internet ie digital cash. Payment by credit card is excluded and the usage
of e money is minute.
4. Payment method cross-boarder. This is a small proportion of all retail payments and that
amounts to 1.3% in the European community member states. In Luxem Bourg 17 payments per
inhabitant. He bulk of cross border retail payments are faced to face with cash or payment cards.
Cross border payment may also be by foreign draft. For eg a cheque drawn by the payor or a
bank in the beneficiary's country.
5. Travelers cheques, the issuer sells the cheques to the traveler who can either obtain cash or
make payment abroad to a third party prepared to accept them. The advantage of travelers
cheque is that should they be stolen the traveler would be reimbursed by the issuer(the bank).
The express written contract may be especially onerous obliging the traveler to demonstrate as a
precondition of obtaining reimbursement that he or she has safeguarded without negligence, each
travelers cheque against lost or theft.
March 2, 2015
Payment and Banking go hand in hand. Payments are usually made through the banking system,
although for small value transaction cash, credit card and e-money are used. Banks makes
payments on their own initiative as a result of their own dealings in foreign exchange securities
and derivatives. When customer driven, however the mandate is central to payment if a bank acts
within the mandate it may claim reimbursement from the payer, that is debiting the account (of
the payor, if it has one). If it acts outside the mandate, eg paying a forge mandate it has no
authority to claim reembuirsement although the payor may ratify what the bank as done or it may
be estopped from denying the banks right to reimbursement.
Baisc Elements.
3 basic elements of making payment through the banking system are
1) The payment message: an unconditional instruction to effect payment in favour of a
payee. It may facilitate a credit or debit trnafer. Banks effect payment on recipt of a
payment message. This msg may be divided between the customers mandate to its bank
and the any instuructions which that bank then sends to another bank. For eg. The payees
bank or a correspondent. However traditionanlly, payment messages were paper based
but now apart from cheques and payment cards, are now conveyed electronically. as aprt
of an anti terrorism measuere banks must include on both domestic and international
payment messages information on the organizations name address and account number
2) Movements on accounts: the customers account is debited and the payee is credited.
Payment through the banking system credit transfer direct debit cheques or other means
involves a movement on a accounts effected following receipt of a payment message.
3) Settlement: payment between the banks themselves of their obligations inter se (between
or amongst themselves) arising out of a payment. Settlement may follow each payment
or is done periodically through the netting of a series of payments either between two
banks (bilateral netting) or among a number of banks (multilateral netting). Settlement
can be effected by a movement on accounts which both banks have with a third bank. But
is typically effected by a movement on the accounts which banks have with the central
banks. Settlements is typically across the books of the central banks, so payments
involving a particular currency are usually routed through the country of that currency.
Thus US$ payments are usually settled in New York, Sterling payments in London, Yen
payments in Tokyo. With the Euro payment messages are exchanges bilaterally between
the two central banks of the countries of the payer and the payee concerned using recipro
cal accounts for debiting and crediting
Payment methods
Instruments procedures and institutions which enable users to meet payment obligations.
Traditionally payment methods are classified as credit or debit transferd depending on
whether payer payment insructions are given direct to its bank (credit transfer) or pass via the
payee (debit transfer) payment methods are either paper based electronic or a combination of
both and payment systems maybe on a small or large scale.
1) Cheques: in the uk,usa, this is a popular method of payment hwevr it is obvious in time,
cheques will nolonger be used as the cost of processing are becoming prohibiting in a
cost conscious world. In Germany credit transfers and direct debits are dominant while
cheque usage is less than 5%. The commercial world is heading towards a paper less
credit tranfers and hence cheques will obsolete.
2) Payment cards: credit, debit, cheque gurantee cards are used in conjuction with a cheque
book and gurantees the payment of a cheque upto a specified amount. Emoney card
which the customer can use to pay for small value item and can be used independently of
a bank account. Any one card can be multifunctional. Customers may obtain cash and
access other bank services from an ATM through the use of a payment card. While credit
cards are subject to extensive regulation most jurisdictions donnot have regulations for
paymet cards other than credit and emoney however. Denmark special legialtion and the
USA has eclectronic funds transfer since 1978.
3) Emoney: Monetary value as represented by a claim on the issuer is stored in an electronic
device and accepted as a means of payment by undertakings other than the issuer. A
European community direvtive: this include emoney cards or electronic and prepaid
software products for use on the internet: digital cash. Payment by credit card is
exclusage and the use of emoney is minute
4) Payment cross-border: this is a small proportion of all retail payments and this amounts to
1.3% in Euro comm member states. In Lux em Bourg 17 payments per inhabitants.
Buk are face to face with cash or payment cards. Cross-border may also be by forgeign
draft for example a cheque drawn by the payor or a bank in the beneficiers country.
5) Travellers cheques: the issuer (the bank) sends the cheque to the traveller who can ieither
obtain cash or make payment abroad to 3rd party prepared to accept them. The adgvantage
of a travellrs cheques is that should they be stolen. The expess written contract may be
especially onerous obliging the traveller to demonstrate as a precondition of obtaining
reimbursement that he or she has safe guarded without negligence each travellers cheque
against loss of theft.
Tutorial
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March 9, 2015
Monitoring- This enforced through the analysis of statistical information submitted to the
central bank by way of periodic credential return of financial information. Prior to 1997, off sight
monitoring was mainly concerned with broad based issues such as maintaining limited licencing
requirement and assessing capital and liquidity adequacy as determined by the capital ratio and
reserves requirement. Despite the presence of fit and proper rules, there was little focus and
proactive supervision to appraise management quality and aptitude or to engender a culture of
appropriate risk management. Fit and proper refers to an evaluation of the competence integrity
and qualification of management as well the board of Directors. In executing its roles the Bank
of Jamaica shares close working relationship with bankers, the Government and the accounting
Profession.
Between the regulator and the Bank
Sec 26 of the BOJ act the central bank as to the commercial banks. it provides clearing house
facilities for the settlements transaction between banks and in its capacity as lender of last resort
which will provide liquidity to support when necessary in order to discourage borrowing by
banks, BOJ imposes a punitive rate for over draft interest. Banks are required to maintain a
specified minimum percentage of priscribed liabilities in the form of liquid assets and cash
reserves with the BOJ. BOJ uses moral suasion to seek mutual agreement with the banking
community, accordingly regulation emerges through the general authority of the bank of Ja in
giving effect to government policy. The use of moral suasion has traditionally been a powerful
regulatory mechanism although moral suasion is referred to in the banking act of 1997 it is
notenforceable but the banks are expected to respond to it as if it were so.
Administrative Guidance is continually provided to banks via notification to banks or letters as
directives or warnings. Bankers playing a very active and important part in decision making
processes as the participate in extensive discussions prior to the issue of new legislation or an
amendment of a statue. This collaboration is two fold
1) There is clarification and refining of issues prior to enactment which should aid
implementation and support compliance by individual banks.
2) Opportunistic behaviour by powerful private interest is always a key concern in policy
making regulators must reduce such opportunism in the standard setting process as well as
executing the standards and ensuring compliance.
Relationship between regulator and government.
Boj is empowerd by the BOJ act to act as banker to the government, agent, manager of public
debt and registrar government local registered stocks. The central banks acts as advisor on
economic policy formulation and may occasionally make temporary advances to the government.
It may liaised with regional and international organization for exam the Caribbean
Development Bank. The inter development bank, the IMF, and world bank on behalf of the
Government. The central Bank is not an independent bank. In the early years it enjoys little
operation autonomy, this may have resulted to reconcile Financing for the Governments
economic program with the bank of Jamaica control of monetary policies. During those early
years the MOF appointed senior staff OF BOJ determined salary scales and prior to 1997 was
sole authority on some operational decision. Whilst this has change the minister still has the right
to determine the composition of the board of Bank Of Jamaica the Financial secretary holds a
permanent seat on the Board.
Relationship between Regulator and Accounting Profession
An annual audit, of the financial statement of Banks is legally required. Therefore the report
produced by external auditors is a critical document in Bank supervision only person registered
under the public authority act and who are members of the institute of chartered accounts may
express an opinion of financial statements. Current banking legislation recognizes the critical
role of accountants as agents in the regulatory process. This amendment to the legislation
resulted from the banking crisis experience in Jamaica in the 1990s.
(1) In the medium to long term inflation does not contribute to positive economic
performance- Inflation has an adverse effect on economic performance. In a short term
the relationship does hold. Recessions have repeatedly followed tighter monetary policy
and output has been stimulated by Accelerating Monetary Growth. In some countries the
average rate of inflation rate was lower with an independent CB. In Germany
hyperinflation was so entrenched into public consciousness that it led to both the creation
of an independent Bundesbank (CB) and to the almost universal determination, to keep
inflation low. Is the BOJ subject to political direction? Does it lack autonomy in the
formation and implementation of monetary policy?
Ungoed Thomas J
Analyse the above statement with reference to a banks contractual duty of care to its
customers.
2. Banks have moved away from their core activities to become multifunctional
institutions, with this radical change customers now appear to no longer enjoy what
formerly was a special relationship with the bank manager. They have now been
relegated to interacting with machines. Discuss,