Modern Challenges to the Principle of the Banker’s Duty of Confidentiality: A Critical Analysis

Abstract

Banking confidentiality, a tradition and a cardinal principle under banking law is a moral as well as a legal duty. It began as an implied contractual term arising as a result of banker- customer relationship and is thus a fundamental obligation of the banker to observe strict confidentiality about the customer’s banking activities. The duty, though not absolute and subject to certain reasonable exceptions, prohibits the release of client account information and protects the financial privacy of customers to a great extent from unauthorized access by other individuals or the state. In most of the countries, the banking secrecy is governed by statue or common law. In Sri Lanka the law is statute and this is defined in Section 77 of Banking Act No. 30 of 1988 and subsequent amendments. In a modern context, there is a conflict between the need for confidentiality and the need for disclosure of confidential information for the interest of the banks, customers, and the public. Banks have to comply with the duty as well as its exemptions, making it necessary for banks to do a balancing act. The banks need be careful and wise when striking a balance between these two spectrums as any mistake by banks would be costly. During the last few decades bankers have significantly expanded their activities and services offered to the customers, which have greatly challenged the general law regarding banking confidentiality. In addition certain new challenges have arisen that challenge the said law. Such challenges are seen in the form of technological advancements and cross border banking. Even though those technological advancements are convenient to banking customers they simultaneously bring risks and opportunities for fraud. While the massive growth of cross border banking activities gives potential benefits to banks it also poses a key challenge to the said duty, as cross border banking activities have a free flow of data between two or more different geographical areas. Today money laundering and terrorist financing have become major threats to the banking businesses and therefore banks are implementing regulations to overcome these difficulties all over the world. As there is no duty to maintain confidentiality by the banker regarding wrongful activities of the client, the exceptions to the duty of confidentiality are justified on grounds of public interest, economic stability and prevention of crimes and terrorism. However, the resultant erosion of a customer’s privacy cannot be ignored. Since the customer is the key component in banking law, it is vital to change the general principles introduced in the Tournier case to safeguard the customer and his confidentiality in this new era. This study identifies the challenges faced by banks when balancing the duty of confidentiality and the duty of disclosure in various scenarios that would crop up as a result of the changing forms of banking. The paper discusses the two opposing arguments 115

for and against confidentiality, the proponents for each side, and discusses how the law relating to confidentiality as set out in Tournier, is challenged today more than ever before.