Law of Financial Institutions and Securities: BLO3405

Law of Financial Institutions and
Securities: BLO3405

Table of Contents
Introduction.................................................................................................................................................2
Duties of ABG.........................................................................................................................................2
Claims that can be made by Raj...............................................................................................................4
Characteristics of different accounts........................................................................................................5
Legal correctness of the statements.........................................................................................................6
Conclusion...................................................................................................................................................7
References...................................................................................................................................................8
1 | P a g e

Introduction
Banking law cannot be considered to be a discrete area of law as compared to torts or law
(Cranston, 2017). It may be considered as the collection of legal principles that results in
impacting transactions of bank along with impacting customer-banker relationship (Fos, 2018).
On the basis of the above discussed aspects it may be stated banking activity is the aspect in
which varied range of legal principles gets integrated that can be referred as banking law. The
legal principles have been integrated from a varied range of sources that includes common law,
industry codes, legislation i.e. the laws formulated by the government.
On the basis of the above made discussion the present discussion would focus on analyzing the
provided scenario of Raj and Australia Banking Group Ltd (ABG) in regards to banking law. In
the process of this discussion, various aspects associated with banking law like role of Financial
Service Ombudsman, respecting the privacy of the client, application of banking industry codes
and relevance of common law in regards to banking law will be discussed.
Duties of ABG
ABG, as the bank associated with the financial transaction and providing with financial advice
and planning to Raj, has certain duties towards Raj. One of this mentionable duty towards Raj,
on the part of ABG arises on the basis of the concept of privacy of provided information. Under
Privacy Act 1986, principle 4 and 5 ABG have the liability of ascertaining security of the
information provided by Raj as their customer (Legislation, 2018). This makes it essential on the
part of ABG to focus on storage and security of personal information provided by Raj along with
effectively dealing with information which are kept on the part of ABG as the record keeper of
the provided information.
Under common law, ABG has the duty of care towards Raj. To get in depth of the matter, as Raj
seek for assistance from ABG regarding the business aspects in which he may make investment,
reflects the fact that it needed inquiry regarding these aspects on the part of ABG and particularly
Erica as well, which makes Raj the inquirer in this care (Ligertwood & Edmond, 2010). On the
basis of these facts, it may be stated that ABG as well as Erica owned duty of care to Raj, for
the purpose of making needed and in depth inquiry in the aspects regarding which he was asking
2 | P a g e

for assistance on the basis of which they were needed to provide Raj with the assistance and
advise about the sector in which he should be making investments. It is worth mentioning here
that no contract is needed to be existing, in these cases between bank that provides with the
reference and inquirer. As a result of this on the part of the inquirer there is no requirement for
making any kind of payment to the bank for referencing (Stewart & Stuhmcke, 2009). The fact
that Erica on behalf of ABG provided Raj with careless investment decision of making
investment in Australian Managed Investment Scheme which was a high risk pharmaceutical and
research and providing with misleading statements of making the investment would provide him
with 65% gain on his investment establishes the fact the breach of duty of care on the part of
ABG as Erica was its representative, had occurred which constitutes negligence i.e. negligent
misstatement.
Section12DA of Australian Securities and Investment Commission Act 2001 also makes
ABG liable to Raj. Under this section of the act it has been stated that on the part of an individual
it is legally acceptable to get associated with conduct in regards to financial services in trade or
commerce that are deceptive or misleading in nature or conduct which may be deceive or
misleading in nature. In this context person indicated entities like bank (Boros, 2009). On the
basis of this fact if the conduct of Erica on behalf of ABG is analysed it may be observed that she
provided with the advice of making investment on Australian Managed Investment Scheme
which she provided with the prediction that, would provide Raj with 25% of yearly gain on his
investment. Six months later it was observed that the provided advice was careless investment
decision which resulted in his loss of 65% (Legg et al., 2011). On the basis of this fact it may be
stated that Section12DA of Australian Securities and Investment Commission Act 2001 has
been breached by Erica as the representative of ABG.
ABG is also liable to Raj under Corporations Act 2001. Chapter 7.10 Division 2 1041A
aspects associated with market manipulation has been stated. Under this section of the act it has
been prohibited on the part of any individual to get involved directly or indirectly in any kind of
transaction which may have or have impact of creating an artificial price associated with trading
financial products on a financial market operated in the present jurisdiction or maintenance of a
level which is artificial a price trading in regards to financial market or financial products which
is being operated within the jurisdiction (Wipo, 2018). 1041B of the act further specifies
3 | P a g e

regarding false trading or market rigging under which creating a false or misleading appearance
of active trading is prohibited. This section of the act mentioned about the fact that under the
legislation an individual is prohibited from getting involved in an act that may result or effect of
causing a misleading or false appearance A(to 2018). In addition to the above made discussion
under 1041E of the act, aspects associated with false or misleading statements have been
specified according to which an individual is prohibited from disseminating information or
making statement if the statement is false or misleading in nature (Ato, 2018). Under section
1041F the focus has been given on inducing individuals to deal wherein it has been stated that an
individual under the present jurisdiction is prohibited from inducing another individual in regards
to dealing in financial products with the help of publishing statement or by making statement,
promise or forecast in case the individual is aware of the fact that the made statement is false,
misleading or deceptive or is reckless regarding this fact (Ato, 2018). On the basis of the above
made discussion it may be stated that the statement made by Erica on behalf of ABG that the
investment which Raj was willing to made should be done on Australian Managed Investment
Scheme which would fetch Raj with an yearly gain of 25% on his investment. The fact that later,
it was discovered, the advice was a piece of careless investment decision. Other than that, the
statement that, with the help of the investment Raj would have a profit of 65% yearly on the
basis of his investment also establishes misleading and deceptive statement. It is on the basis of
this fact it may be stated that Corporations Act 2001. Chapter 7.10 Division 2 1041A, 1041B,
1041E, 1041F has been breached on the part of ABG and Erica (Ato, 2018).
On the basis of the above made discussion it may be stated that in regards to the case of Raj vs.
ABG there was breach of Corporations Act 2001. Chapter 7.10 Division 2 1041A, 1041B,
1041E, 1041F, Section12DA of Australian Securities and Investment Commission Act 2001
and duty of care had been breached in this case.
Claims that can be made by Raj
Due to the breach of duty of care, Raj may take action under common law, under which he may
make claims for compensation of the damages i.e. the loss of 65% of his investment. On the
basis of this action which Raj may take against CBG he may be awarded for the financial loss
which has been experienced on his part as the inquirer. In this regard Hedley Byrne & Co. Ltd v
4 | P a g e

Heller & Partners Ltd [1964] AC 465 is mentionable here wherein on the part of the court it
was stated that the inquirer owns duty of care (Edelman, 2013).
Due to the breach of S12DA of the ASIC Act 2001 on the part of Raj actions may be taken on
the part of Raj under S12GF due to the loss which has been experienced on the part of Raj
because of the misleading statements which have been made on the part of Erica (Cgw, 2018). If
established it would result in claiming compensation for the damages which would be awarded to
Raj as the inquirer in this case for the misleading conduct which he had to experience that
resulted in his loss.
Similarly for the breach of the Chapter 7.10 Division 2 1041A and 1041B of Australian
Securities and Investment Commission Act 2001 Raj may take actions under Part 9.4 Division
1A 1308A which deals with Application of Criminal Code. This would result in dealing with the
breach under offence of strict liability associated with Criminal Code (Chung et al., 2010). For
the breach of Chapter 7.10 Division 2 1041E, 1041F, Section12DA of Australian Securities
and Investment Commission Act 2001 Raj can take actions under 1041 I which focuses on loss
or damage for contravention of sections 1041E-1041H. Under this section, for the loss suffered
on the part of Raj due to the conduct of Erica would result in recovering the damage which he
had faced due to the conduct (Aph, 2018).
Characteristics of different accounts
In this regards it becomes essential to discuss the different accounts which have been mentioned
in this case. On referring to the case of Raj it may be observed that he had approached ABG for
savings account. One of the mentionable features, of savings account is it provides the user with
no risk for the purpose of saving. It allows for third-party payments with the help of nominated
third parties or bpay (ausbanking, 2018). It is also noticeable that he had also approached for
credit card account facilities. This account provides the user with continuing credit like
Mastercard. In a general norm, credit cards are not supposed to be send to the customers unless
the individual requests for it. In case of Raj it may observed that he had requested for credit card
facilities. The money that Raj inherited from his deceased uncle can be seen to be present in a
trust account. In this type of account, a trustee holds the money in trust of the beneficiary. In this
regard the trustee has legal title to the property which is held on behalf or in trust of the
beneficiary or for his benefit. In these cases, the trustee has special fiduciary duties like
5 | P a g e

obligations of duty of care, good faith. Raj was provided with information regarding market
value of his investment with the help of statements for investment account (ausbanking, 2018). It
is a monetary account that can be used on the part of the user for postponing taxation of income,
financial assets.
Legal correctness of the statements
The statements made by ABG- ‘We acknowledge you may wish to refer your complaint about
Erica’s behaviour to the Financial Services Ombudsman’ can be considered to be legally
incorrect. It is due to the fact that under the rules of Financial Conduct Authority’s handbook-
Dispute resolution: complaints it has been stated that such organizations as ABG needs to have
effective and clear process for handling complaints promptly and fairly (Pearson, 2009). The
business is also needed to publish a summary of its in-house complaints handling process. Thus
it is the duty to the organization to inform the customer regarding the availability of the summary
of complaint handling rather and provide the information in writing rather than acknowledging
that the customer wishes to complaint to Financial Services Ombudsman.
Similarly, the statement ‘There was nothing wrong with Erica’s conduct in her dealings with you
can be considered to be legally incorrect. It is due to the fact that, it was the conduct of Erica i.e.
misleading conduct and uncalculated conduct which resulted in financial loss of Raj by 65% of
his investment which resulted in breach of Australian Securities and Investment Commission
Act 2001 (Aph, 2018). Thus it is due to this fact, the statement cannot be considered to be
accurate.
The statement made by ABG in the subsequent letter to Raj ‘ In order to respect your privacy, we
decided we were not required to report your deposit of $120,000 to the relevant government
regulator ’ can also be considered to be legally incorrect. It is due to the fact that though the
information which has been provided to the bank which is collected by AUSTRAC is protected
under Privacy Act 1988, such information is needed to be shared with various government
authorities that includes Australian Tax Office, Australian Security Intelligence Organization and
Federal Police (Austrac, 2018). On the part of ABG it is compelled by CTF/AML Act to operate
as the data collection agent of the government which makes it essential to pass on some
confidential, private information regarding the banking transaction of customer to AUSTRAC
(Austrac, 2018). On the basis of this statement can be seen to be legally incorrect.
6 | P a g e

The statement ‘None of the banking industry codes apply to you’ is completely wrong. It is due
to the fact that under Code of Banking Practice it is the duty of the bank to provide with support
in case the dealing with resolving conflict and issues associated with guarantee (Ausbanking,
2018). In this regards, as a conflict had occurred due to the misleading statement made by Erica,
ABG’s employee, Code of Banking Practice is applicable in resolving the conflict and the
guarantee that has been made to him.
Conclusion
On the basis of the above made discussion it may be stated that there are various aspects
associate with banking law which has been breached in this case. It is due to this fact, Raj is
entitled to make claims under common law and Australian Securities and Investment
Commission Act 2001.
7 | P a g e

References
Aph. (2018). The performance of the Australian Securities and Investments Commission
Submission 91 - Supplementary Submission. [online] Available at:
https://www.aph.gov.au/DocumentStore.ashx?id=37cf64d5-8700-4867-b30a-
f8a916087e54&subId=31055. [Accessed 11 May 2018].
Ato. (2018). Legal Database: CORPORATIONS ACT 2001. [online] Available at:
https://www.ato.gov.au/law/view/document?docid=PAC/20010050/ATOTOC [Accessed 11 May
2018].
Ato. (2018). Legal Database: CORPORATIONS ACT 2001: FALSE OR MISLEADING
STATEMENTS. [online] Available at:
https://www.ato.gov.au/law/view/document?docid=PAC/20010050/1041E [Accessed 11 May
2018].
Ato. (2018). Legal Database: CORPORATIONS ACT 2001: INDUCING PERSONS TO DEAL.
[online] Available at: https://www.ato.gov.au/law/view/document?docid=PAC/20010050/1041F
[Accessed 11 May 2018].
ausbanking. (2018). Bank account basics. [online] Available at:
https://www.ausbanking.org.au/images/uploads/ArticleDocuments/192/ABA-111063-v1-
Fact_Sheet___Bank_Account_Basics.pdf. [Accessed 11 May 2018].
Ausbanking. (2018). Code of Banking Practice | Australian Banking Association. [online]
Available at: https://www.ausbanking.org.au/Industry-Standards/ABAs-Code-of-Banking-
Practice [Accessed 11 May 2018].
Austrac. (2018). AML/CTF Act | Australian Transaction Reports and Analysis Centre
(AUSTRAC). [online] Available at: http://www.austrac.gov.au/businesses/legislation/amlctf-act
[Accessed 11 May 2018].
Austrac. (2018). AUSTRAC Policy Dissemination of bulk AUSTRAC information to the
Australian Taxation Office and designated agencies. [online] Available at:
http://www.austrac.gov.au/sites/default/files/documents/bulk_data_policy.pdf [Accessed 11 May
2018].
Boros, E. (2009). Public and private enforcement of disclosure breaches in Australia. Journal of
Corporate Law Studies, 9(2), 409-438.
8 | P a g e

Cgw. (2018). Misleading or deceptive conduct - a warning in difficult times - Cooper Grace
Ward. [online] Available at: https://www.cgw.com.au/publication/misleading-or-deceptive-
conduct-a-warning-in-difficult-times/ [Accessed 11 May 2018].
Chung, J., Farrar, J., Puri, P., & Thorne, L. (2010). Auditor liability to third parties after
Sarbanes-Oxley: An international comparison of regulatory and legal reforms. Journal of
International Accounting, Auditing and Taxation, 19(1), 66-78.
Cranston, R. (2017). Principles of banking law. Oxford University Press.
Edelman, J. (2013). The importance of the fiduciary undertaking. Journal of Equity, 7, 128.
Fos. (2018). Essential Banking Law and Practice. [online] Available at:
https://www.fos.org.au/public/download.jsp?id=2793 [Accessed 11 May 2018].
Legg, M., Park, E., Turner, N., & Travers, L. (2011). The rise and regulation of litigation funding
in Australia. N. Ky. L. Rev., 38, 625.
Legislation.nsw.gov.au. (2018). NSW Legislation. [online] Available at:
https://www.legislation.nsw.gov.au/#/view/act/1998/133/full [Accessed 11 May 2018].
Pearson, G. (2009). Financial Services Law and Compliance in Australia. Cambridge University
Press.
Wipo. (2018). Corporations Act 2001. [online] Available at:
http://www.wipo.int/edocs/lexdocs/laws/en/au/au196en.pdf [Accessed 11 May 2018].
9 | P a g e