Community blogBanking code of conduct vs. legal compliance |
Clients take documents to a bank for safe-keeping - if this system of trust doesn't exist then the banking system will surely fail?
Document handling and custody transfer in the financial industry has been thrust into the spot-light this week as FNB were called to account for their failure to handle cheques within their system.
Front line bank tellers and bank representatives have responded by quoting the following extract from the Banking Association of South Africa's Code of Conduct:
"All banks (locally and internationally) work on the principle that if you hand a cheque to them for collection, they act as your agent to collect the funds from the cheque issuer's bank. As such, and given the complexities of a cheque clearing system, they cannot accept responsibility for the loss or theft of the cheque in the system. Consequently, if a cheque or other payment instrument you deposit for collection is lost or damaged, you will have to approach the issuer of the cheque or instrument to stop payment (if it has not already been paid out) and to issue a replacement cheque or instrument. If you provide us with the relevant details of the drawer of the ‘lost' cheque, and you mandate us in writing to act on your behalf, we will take reasonable steps to get a replacement cheque. We may require an indemnity from you in case the original cheque has already been paid to you."
http://www.banking.org.za/consumer_info/code_of_banking/code_of_banking.aspx
However by the Banking Associations' own acknowledgement, their Code of Conduct is not legally binding in a court of South African law and simply serves as a guide-line for the Banking industry.
This raises an interesting issue in terms of legal compliance and custody transfer of documents. The above guideline basically absolves the bank of any responsibility when it comes to the handling of cheques in its own possession. The flip side of that is that a cheque is a document used in the handling of day to day business transactions and would therefore have to be retained in terms of legislative compliance with the Companies Act and for Auditing requirements.
A Financial Services Provider, governed by the Financial Services Board in terms of the handling of Investments, Insurance and Deposits is required by law to appoint a Compliance Officer / Officers to be able to adhere to certain basic principles when rendering services in respect of financial products. These include:
- Proper safekeeping, separation and protection of your funds and transaction documents
- Adequate and appropriate record keeping
Without taking a too flippant approach to the situation, what would happen if the Banking Association were to extend the above clause to all documents in their possession? Taking current banking news - what would happen if the documentation pertaining to the recent sale of an equity stake in Standard Bank were to simply get lost? Would the transaction simply no longer exist? When it came to presenting their case in court - would they simply point to the Banking Associations code of conduct and declare that they were not responsible if documentation was lost? That's unlikely to carry much legal weight.
The banks respond by pointing out that the client has been adequately informed of their "responsibilities" by imprinting this clause on the back of their deposit slip.
However The Banking Association of South Africa has the responsibility to remind its members that they serve as an Industry Body, not legislators. The Banks need to then communicate with their staff that they are not exempt from legislation pertaining to record keeping, document handling and custody transfer - clients take documents to a bank for safe-keeping - if this system of trust doesn't exist then the banking system will surely fail?
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