Academic journal article Business Law International

Bank Confidentiality – A Dying Duty but Not Dead Yet?

Academic journal article Business Law International

Bank Confidentiality – A Dying Duty but Not Dead Yet?

Article excerpt

The rules around bank confidentiality continue to evolve, in many cases to the detriment of individuals but to the benefit of the public good. Since the global financial crisis, politicians in some jurisdictions have been increasingly keen to reduce levels of bank secrecy.

This article considers the similarities and differences concerning bank confidentiality, or the lack of it, in six jurisdictions, namely England, the United States, Austria, Cyprus, Ireland and Switzerland - the latter four not being major jurisdictions but those attracting deposits and/or financial services. Each jurisdiction, of course, has its own peculiarities.

Broadly, each jurisdictional contribution follows similar headings, outlining the duties or obligations of confidentiality or secrecy that banks owe to their customers and the ways in which banks may be obliged to disclose information in court proceedings or to assist the authorities. Exceptions, particularly in the area of tax, are set out, as are the consequences of violations.

It should be of interest not only to legal practitioners who may have cause to advise a client initially on the benefits and pitfalls of one of the jurisdictions, but also to state officials in formulating proposals for change of law and indeed academics.

The article is contributed by the panellists from the joint session, 'Bank Confidentiality and International Exchange of Information' at the IBA 2015 Annual Conference in Vienna. The session was organised by the IBA Banking Law Committee and the Individual Tax and Private Client Committee.

More information on this subject can be found in the IBA's sponsored book on bank confidentiality,1 which considers 37 countries around the world. Published by Bloomsbury Professional, it was initially edited by former IBA President Francis Neate and is now edited by Gwendoline Godfrey. The fact that this publication is now in its sixth edition is testament to its relevance for IBA members and others.

England (Gwendoline Godfrey)

Is there a duty of bank confidentiality ?

Under English law, a bank owes a duty of confidence to its customer.2 The basic duty arises under common law (see below) and applies to all types of customers. The right to confidence is that of the customer so that where a customer can be compelled to disclose his or her secrets, his or her bank can be compelled to do so as well. There is no precise definition of this basic duty. There are numerous exceptions to it, both under statutory and common law.

Over the years the number of statutory exceptions has increased where public policy has overridden the need to preserve confidence, such as international attempts to prevent the laundering of proceeds of crime, funding of terrorism and tax evasion.

Conversely, banks and most other UK businesses are subject to legislation designed to protect individuals with regard to the processing and transfer of personal data. The first European Union (EU)-wide directive was passed in 1995s and was implemented in England by the Data Protection Act 1998. The increasing use of electronic communications and the transfer of data for processing to other jurisdictions as part of outsourcing arrangements have resulted in significant interest from individuals, regulators and banks in privacy issues. A new General Data Protection Regulation is due to come into force in the EU in 2018.

Where a bank or other financial institution adopts the Lending Code,4 the duty owed to the relevant customers is reinforced by express statements about treating personal information as private and confidential. The Lending Code provides customers with a complaints procedure for breaches with recourse to the Financial Ombudsman Service.

Banks may enter into confidentiality agreements or undertakings with customers under which express contractual obligations arise.5

Regulatory and legal requirements are placing different obligations on banks to request and retain some information and, at the same time, not to keep or misuse information. …

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