Banking Law – Critically Discuss Statement, Coursework Example

Maintaining client confidentiality is a core value in several professions, like law and banking. The notion behind secrecy is that sensitive information must be safeguarded and kept secret to uphold trust and prevent harm.[1] It can be confirmed that the requirement of confidentiality holds a legally binding clause in contracts. The fact that this obligation is conditional rather than absolute means that there are some situations in which it may be disregarded.

Contractual Basis of the Duty of Confidentiality

The responsibility of confidentiality originates in contract law, as the commitment to upholding privacy often appears in an explicit or implied agreement between parties. The obligation of privacy as a contractual basis has been broadly recognized and supported by numerous industries.[2] It creates a rock-solid legal framework to guard sensitive data.

In the employment context, for instance, an employer may require employees to sign a confidentiality agreement as a condition of employment.[3] This agreement establishes the conditions of absolute confidentiality. This includes information that must be kept confidential and the consequences of a breach of that duty.[4] This express contract helps to ensure that personal information remains protected and that employees are aware of their obligations in this regard.

Additionally, in the medical sector, patient-doctor secrecy is based on an unspoken agreement between the doctor and their patient. This relationship is built on trust. The doctor is responsible for preserving the privacy of their patient’s data, except in few cases when disclosure is necessary to preserve the wellbeing or security of either the individual or other people.[5] The implied contract provides a legal basis for protecting the patient’s confidential information and ensures that the doctor is held accountable for any breach of that duty.

The landmark decision in the Tournier v. National Provincial and Union Bank of England [1924] 1 KB 473 case established the contractual duty of maintaining secrecy in the banking sector. In this instance, the bank was punished for giving a third party access to private information on a customer. The court also established that the bank had a legal obligation to safeguard the confidentiality of the information. This case partly established the legal foundation for the banking industry’s obligation of confidentiality. This field of law’s evolution has had a long-lasting effect.

It is made sure that parties are aware of their duties to maintain confidentiality through express and implicit contracts.[6] Additionally, they ensure that parties will be held liable for any obligation violations. The precedent-setting judgment of Tournier v. National Provincial and Union Bank of England [1924] 1 KB 473 emphasizes the importance of a contractual basis for confidentiality obligations. Additionally, it emphasizes how well-recognized and accepted it is throughout several industries.

The Development of the Legal Duty in Tournier v National Provincial and Union Bank of England.

In an unexpected move, banks not only viewed protecting their clients’ privacy as a crucial element of their relationship with customers but also felt it was their moral duty to do so rather than having any legal repercussions. After much anticipation, the Court of Appeal of England and Wales finally got to proclaim that the obligation had a legal basis.[7]

Mr. Tournier was the target of the case after incurring a ten-pound overdraft. Then, he pledged to pay back in equal monthly increments. A six-pound balance was due after Mr. Tournier’s first dedication to his duties. The bank employee observed that Mr. Tournier had received a check from his job, which he had deposited into a different account rather than the overdrawn account.[8] After further investigation, the bank representative uncovered that the third account was owned by a bookmaker. Frustrated by the discovery, the bank employees requested that Mr. Tournier’s employer, a bank client, pay the overdraft.[9] To their dismay, the employer of Mr. Tournier declined to extend his provincial employment contract that could have led to a long-term role out of worry that he may be untrustworthy and addicted to gambling. Taking action against the injustice, Mr. Tournier filed a lawsuit against the bank.

After careful consideration, the appellate court determined that it was both legally and morally mandatory for the bank to keep confidential all of the plaintiff’s business and banking information. Lord Bankes’ statement here is especially worth noting.[10] The bank was not to reveal any information about it to anyone. The plaintiff and the bank had an implicit agreement that mandated this obligation.[11] The Tournier v National Provincial and Union Bank of England case has gained international recognition for highlighting the importance of preserving confidentiality in banking systems. This responsibility’s range has been described as extensive and continual. Even when the client-bank relationship has ended, or the client has passed away, it still holds.[12] Despite some contention regarding the extent of their obligation, most Lord Judges opted for a broad interpretation. This requirement, according to Lord Bankes, “extends to any information gathered while acting as a banker,” including undesirable information like dormant accounts.[13] The commitment is required to facilitate the bank’s service delivery and to encourage clients to trust the bank with their financial information.

Can Confidentiality Stay Immune in the Wake of Increasing Duty Exceptions?

The fundamental idea guiding banking rules is the need for confidentiality, as established in the significant Tournier v. National Provincial and Union Bank of England decision. Moreover, it is commonly considered required by law in many different jurisdictions. Yet, despite its historical significance, the obligation of secrecy is increasingly being tested by exceptions, and the number of exceptions has been growing.[14] This begs the question of whether privacy can survive in the face of these difficulties.

However, the duty of secrecy has occasionally been exempted for reasons including the necessity to adhere to legal obligations or stop financial crime. These exclusions are frequently justified by the public interest or the necessity to maintain security and stability in the financial system. It seems doubtful that the obligation of secrecy will be eliminated, notwithstanding these exceptions.[15] The obligation of secrecy will instead likely be kept to the maximum extent feasible while the exceptions will likely continue to be improved and narrowed.

Therefore, even though exceptions make the duty of secrecy more difficult to uphold, it nevertheless plays a crucial role in banking law. It is also unlikely to be completely dismantled. Consequently, banks and customers must depend on the legal obligation of confidentiality to safeguard their financial transactions as well as maintain privacy.[16] They will also depend on it to promote trust and stability in the financial system.

Modern Banking Practice in Obtaining Consent Disturbs the Duty’s Foundations

The banking industry is being challenged to rethink their commitment to customer confidentiality as the practice of obtaining consent from customers escalates. Recently, banks have increasingly relied on obtaining clients’ written permission to mitigate their legal obligations and reduce the risk of legal action.[17] As a result, using consent forms has become an increasingly common practice in the banking industry.[18] Customers are asked to sign a document outlining the terms of the relationship, including the bank’s commitment to maintaining confidentiality.

However, some specialists contend that the growing dependence on consent agreements to alleviate the responsibility of confidentiality weakens the very essence of the obligation itself. The responsibility of confidentiality grants customers a feeling of security and faith in their financial transactions with the bank.[19] By asking customers to sign a consent form, banks are effectively shifting the responsibility for maintaining confidentiality onto the customer rather than taking it upon themselves.[20] Additionally, employing consent forms calls into doubt the initial legitimacy and enforcement of the obligation of confidentiality. As a result, confidentiality is inadvertently undermined, and its underpinnings are shattered if banks may lessen their legal responsibilities by seeking written approval from consumers.

The Relevance of Tournier is Unaffected by the Assumed Nature of the Duty’s Cloud

In the landmark case of Tournier v. National Provincial and Union Bank of England, it was unequivocally established that banks are obligated to safeguard their customers’ confidentiality without exception or ambiguity. This obligation covers any data gathered while acting in “role of banker.”[21].

Moreover, as elucidated by Lord Bankes and Lord Atkin, the extended breadth of this obligation includes transaction histories, source of payments, ensuing account activity, and personal details.[22] In addition, it also accounts for negative markers such as dormant account statuses. Hence, the duty provides a key rationale for entering into a contractual relationship with a bank. As a result, customers can be confident that their financial dealings will remain confidential, which facilitates the bank’s ability to provide its services.

However, the increasing exceptions, such as acquiring customer consent, have led to some uncertainty surrounding the foundations of the duty.[23] With the ever-evolving banking system, it is uncertain how confidentiality will keep up with new practices. It is still unclear if the responsibility of confidentiality will remain a core belief in banking collaborations.

Confidentiality in International Banking

Confidentiality in international banking refers to the obligation of banks to maintain the confidentiality of their client’s financial information and personal data, especially regarding cross-border transactions.[24] This duty is recognized and enforced by international banking laws and regulations that protect customers’ privacy and prevent unauthorized access to their sensitive information. Hence, the duty of confidentiality in international banking is based on the principles of trust and security.

These principles are essential for maintaining the stability and integrity of the global financial system.[25] Banks are responsible for ensuring confidential customer data is protected and secure, including deploying robust security protocols like encryption technology and firewalls. They must also abide by the rules and laws that control how sensitive data is used, stored, and transferred. Two of the most highly regarded regulatory jurisdictions are GDPR, issued by the European Union’s General Data Protection Regulation and The Basel Committee on Banking Supervision’s Principles for Risk Management.[26]

The difficulty of upholding secrecy in international banking is brought on by the financial industry’s growing globalization and the quick development of digital technologies. As financial institutions expand their operations globally, they must navigate different privacy laws and regulations in each jurisdiction, which can create a complex legal landscape.[27] Furthermore, the prevalence of cybercrime and data breaches has made safeguarding confidentiality in foreign banking increasingly difficult.

In order to guarantee secrecy in international banking, international organizations like the Financial Action Task Force (FATF) have established standards, finally resolving these problems. To safeguard client information and prevent money laundering, fraud, and other financial crimes, financial institutions can follow a rigorous framework outlined in the FATF’s Recommendations for Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT).[28] The duty of confidentiality in international banking is a critical component of the global financial system and essential for protecting customer privacy and preventing financial crimes. Consequently, financial firms must guard the utmost levels of confidentiality in spite of the challenges brought about by globalization and digital technology to ensure that the global financial system remains secure and stable.

The Duty of Confidentiality in the Digital Age

In view of the rapid development of technology and digital banking, it is important to reevaluate our obligation towards confidentiality. The rise of digital banking has made it easier for banks to store and process vast amounts of sensitive customer data, from personal information and financial records to transaction history and account activity.[29] This data is a valuable commodity, and many banks have been criticized for how they handle it, with data breaches and privacy violations becoming a growing concern.[30] In this context, confidentiality becomes even more critical, as customers expect their financial information to be kept secure.

However, confidentiality in the digital age is not without its challenges. A significant challenge from our fast-moving technological world is the law’s incapability to keep up. This can be observed in rising exemptions to legal obligations. The obligation of secrecy, for instance, could no longer be applicable if a customer’s account is thought to be connected to illicit activities.[31] The duty may also be inapplicable where the bank is compelled to share information with regulators or law enforcement agencies.[32]

Another challenge is the increasing use of customer consent to obtain information for banking purposes.[33] Banks often seek permission from their customers to collect and use their data for various purposes, from improving the customer experience to more targeted marketing.[34] However, acquiring consent has been criticized as confusing and poorly understood, with many customers not fully aware of what they are consenting toward.[35] Despite these obstacles, the ramifications of this case will remain in flux as banking and technology continue to advance. The courts will ultimately decide how the obligation of confidentiality should be applied in this modern era.

The Future of the Duty of Confidentiality in Banking

As numerous advancements take place, the role of confidentiality in banking is sure to be reshaped for years to come. With the increasing use of digital platforms for banking and financial services, there is expected to be greater scrutiny of how customer data is handled and protected.[36] In addition, worries about privacy, cyber security, and the possibility of financial crime might result in new legislation or rules strengthening the obligation of secrecy in the banking business.

The growing trend toward open banking and the exchange of financial data is another element that might influence the future of the obligation of secrecy in banking.[37] This trend, driven by the need for greater financial transparency and customer choice, could pressure banks to reconsider their traditional stance on confidentiality.[38] However, it will also be essential to ensure that any new models of data sharing are secure and do not compromise customer privacy or confidentiality.

The future of banking confidentiality may depend on the evolution of technologies, such as blockchain and artificial intelligence. These technologies can potentially increase efficiency, transparency, and security in financial services. In addition, they may help mitigate some of the risks associated with sharing sensitive financial data.[39] Therefore, the confidentiality duty in banking will likely evolve and adapt to the changing technological and regulatory landscape in the years to come. While it will remain a fundamental principle in the banking industry, it must continue to balance this duty against the need for greater financial transparency, customer choice, and innovation.

Conclusion

As a contractual requirement currently, secrecy may be asserted with confidence. The principle of contractual duty has been widely accepted and embraced in various realms, particularly the banking sector – this was confirmed by the landmark ruling of Tournier v. National Provincial and Union Bank of England [1924] 1 KB 473. Nevertheless, secrecy should not be maintained without exception; it can sometimes be outweighed by other considerations. Despite the sharp criticism of contractual agreements concerning the obligation of privacy, their limitations further emphasize that we must comprehensively explore other legal structures.

Bibliography

Baity, William. “Banking on Secrecy—The Price for Unfettered Secrecy and Confidentiality in the Face of International Organised and Economic Crime.” Journal of Financial Crime 8, no. 1 (2000): 83-86.

Ballaschk, David, and Jan Paulick. “The public, the private and the secret: Thoughts on privacy in central bank digital currencies.” Journal of Payments Strategy & Systems 15, no. 3 (2021): 277-286.

Bamberger, Kenneth A. “Technologies of compliance: Risk and regulation in a digital age.” Tex. L. Rev. 88 (2009): 669.

Bast, Carol M. “At what price silence: are confidentiality agreements enforceable.” Wm. Mitchell L. Rev. 25 (1999): 627.

Berger, A. N., Molyneux, P., & Wilson, J. O. (Eds.). (2014). The Oxford handbook of banking. OUP Oxford.

Blightman, K., S. E. Griffiths, and C. Danbury. “Patient confidentiality: when can a breach be justified?.” Continuing Education in Anaesthesia, Critical Care & Pain 14, no. 2 (2014): 52-56.

Buys, Cindy Galway. “The tensions between confidentiality and transparency in international arbitration.” American Review of International Arbitration 14, no. 121 (2003).

Cannataci, Joseph A., Bo Zhao, Gemma Torres Vives, Shara Monteleone, Jeanne Mifsud Bonnici, and Evgeni Moyakine. Privacy, free expression and transparency: redefining their new boundaries in the digital age. Unesco Publishing, 2016.

Casu, Barbara, Claudia Girardone, and Philip Molyneux. Introduction to banking. Vol. 10. Pearson education, 2006.

Cetorelli, Nicola, and Linda S. Goldberg. “Global banks and international shock transmission: Evidence from the crisis.” IMF Economic review 59, no. 1 (2011): 41-76.

Christensen, Leah M. “A Comparison of the Duty of Confidentiality and the Attorney-Client Privilege in the US and China: Developing a Rule of Law.” T. Jefferson L. Rev. 34 (2011): 171.

Cranston, Ross, Emilios Avgouleas, Kristin Van Zwieten, Christopher Hare, and Theodor Van Sante. Principles of banking law. Oxford University Press, 2018.

Donaghy, Matthew. “Monetary privacy in the information economy: Bank confidentiality in Monaco.” International sociology 17, no. 1 (2002): 113-133.

Ellinger, E. P. “Disclosure of Customer Information to a Bank’s Own Branches and to Affiliates.” Banking & Finance Law Review 20, no. 3 (2004): 137.

England, N. H. S. “Confidentiality policy.” NHS England, London (2013).

Goetz, Charles J., and Robert E. Scott. “The limits of expanded choice: an analysis of the interactions between express and implied contract terms.” Calif. L. Rev. 73 (1985): 261.

Graham, Toby. “Confidentiality and Trust information: The Guernsey Court of Appeal Re B; B v T.” Trusts & Trustees 19, no. 1 (2013): 59-67.

Modestou A, ‘The Duty of Confidentiality in Banking: Is Tournier Long Gone?’ (2020).

Müller, János, and Ádám Kerényi. “The Need for Trust and Ethics in the Digital Age–Sunshine and Shadows in the FinTech World.” Financial and Economic Review 18, no. 4 (2019): 5-34.

Peters, Gareth W., and Efstathios Panayi. Understanding modern banking ledgers through blockchain technologies: Future of transaction processing and smart contracts on the internet of money. Springer International Publishing, 2016.

Romansky, Radi. “A Survey of Informatization and Privacy in the Digital Age and Basic Principles of the New Regulation.” International Journal on Information Technologies and Security 1, no. 11 (2019): 95-106.

Schulze, Heinrich. “Confidentiality and Secrecy in the Bank-client Relationship.” Juta’s Business Law 15, no. 3 (2007): 122-126.

Stokes, Robert. “The genesis of banking confidentiality.” The Journal of Legal History 32, no. 3 (2011): 279-294.

Tan, Margaret, and Thompson SH Teo. “Factors influencing the adoption of Internet banking.” Journal of the Association for information Systems 1, no. 1 (2000): 5.

Tournier v. National Provincial and Union Bank of England [1924] 1 KB 461 CA, 471.

Young, Mary Alice. “The exploitation of offshore financial centres: Banking confidentiality and money laundering.” Journal of Money Laundering Control 16, no. 3 (2013): 198-208.

[1] Christensen, Leah M. “A Comparison of the Duty of Confidentiality and the Attorney-Client Privilege in the US and China: Developing a Rule of Law.” T. Jefferson L. Rev. 34 (2011): 171.

[2] England, N. H. S. “Confidentiality policy.” NHS England, London (2013).

[3] Bast, Carol M. “At what price silence: are confidentiality agreements enforceable.” Wm. Mitchell L. Rev. 25 (1999): 627.

[4] Bast (n 3) 627

[5] Blightman, K., S. E. Griffiths, and C. Danbury. “Patient confidentiality: when can a breach be justified?.” Continuing Education in Anaesthesia, Critical Care & Pain 14, no. 2 (2014): 52-56.

[6] Goetz, Charles J., and Robert E. Scott. “The limits of expanded choice: an analysis of the interactions between express and implied contract terms.” Calif. L. Rev. 73 (1985): 261.

[7] Anna Modestou, ‘The Duty of Confidentiality in Banking: Is Tournier Long Gone?’ (2020).

[8] Anna (n 8).

[9] [1924] 1 KB 461 (CA).

[10] ibid [473] (Lord Bankes).

[11] Tournier (n 10).

[12] Anna (n 8).

[13] Tournier (n 12).

[14] Graham, Toby. “Confidentiality and Trust information: The Guernsey Court of Appeal Re B; B v T.” Trusts & Trustees 19, no. 1 (2013): 59-67.

[15] Graham (n 16) 59.

[16] Ibid 60.

[17] Cranston, Ross, Emilios Avgouleas, Kristin Van Zwieten, Christopher Hare, and Theodor Van Sante. Principles of banking law. Oxford University Press, 2018.

[18] Berger, A. N., Molyneux, P., & Wilson, J. O. (Eds.). (2014). The Oxford handbook of banking. OUP Oxford.

[19] Casu, Barbara, Claudia Girardone, and Philip Molyneux. Introduction to banking. Vol. 10. Pearson education, 2006.

[20] Macey, Jonathan R., Geoffrey P. Miller, and Richard Scott Carnell. Banking law and regulation. Aspen Publishers, 2001.

[21] Stokes, Robert. “The genesis of banking confidentiality.” The Journal of Legal History 32, no. 3 (2011): 279-294.

[22] Ellinger, E. P. “Disclosure of Customer Information to a Bank’s Own Branches and to Affiliates.” Banking & Finance Law Review 20, no. 3 (2004): 137.

[23] Schulze, Heinrich. “Confidentiality and Secrecy in the Bank-client Relationship.” Juta’s Business Law 15, no. 3 (2007): 122-126.

[24] Young, Mary Alice. “The exploitation of offshore financial centres: Banking confidentiality and money laundering.” Journal of Money Laundering Control 16, no. 3 (2013): 198-208.

[25] Cetorelli, Nicola, and Linda S. Goldberg. “Global banks and international shock transmission: Evidence from the crisis.” IMF Economic review 59, no. 1 (2011): 41-76.

[26] Buys, Cindy Galway. “The tensions between confidentiality and transparency in international arbitration.” American Review of International Arbitration 14, no. 121 (2003).

[27] Donaghy, Matthew. “Monetary privacy in the information economy: Bank confidentiality in Monaco.” International sociology 17, no. 1 (2002): 113-133.

[28] Baity, William. “Banking on Secrecy—The Price for Unfettered Secrecy and Confidentiality in the Face of International Organised and Economic Crime.” Journal of Financial Crime 8, no. 1 (2000): 83-86.

[29] Müller, János, and Ádám Kerényi. “The Need for Trust and Ethics in the Digital Age–Sunshine and Shadows in the FinTech World.” Financial and Economic Review 18, no. 4 (2019): 5-34.

[30] Bamberger, Kenneth A. “Technologies of compliance: Risk and regulation in a digital age.” Tex. L. Rev. 88 (2009): 669.

[31] Tan, Margaret, and Thompson SH Teo. “Factors influencing the adoption of Internet banking.” Journal of the Association for information Systems 1, no. 1 (2000): 5.

[32] Romansky, Radi. “A Survey of Informatization and Privacy in the Digital Age and Basic Principles of the New Regulation.” International Journal on Information Technologies and Security 1, no. 11 (2019): 95-106.

[33] Romansky (n 34) 96.

[34] Cannataci, Joseph A., Bo Zhao, Gemma Torres Vives, Shara Monteleone, Jeanne Mifsud Bonnici, and Evgeni Moyakine. Privacy, free expression and transparency: redefining their new boundaries in the digital age. Unesco Publishing, 2016.

[35] Ballaschk, David, and Jan Paulick. “The public, the private and the secret: Thoughts on privacy in central bank digital currencies.” Journal of Payments Strategy & Systems 15, no. 3 (2021): 277-286.

[36] Peters, Gareth W., and Efstathios Panayi. Understanding modern banking ledgers through blockchain technologies: Future of transaction processing and smart contracts on the internet of money. Springer International Publishing, 2016.

[37] Peters (n 38) 87.

[38] Ibid 90.

[39] Ibid 92.