An Analysis of Agent Duties in Banking and Finance

This report provides an in-depth analysis of the duties of an agent towards the principal, with a specific focus on the banking and finance sector. The research begins with an introduction to the concept of agency, defining the agent-principal relationship and highlighting the importance of agen...Read More

CHAPTER 01: INTRODUCTION
01. Research Topic
“An analysis of the Duties of an Agent towards the Principle, with Special Reference to
Banking and Finance Sector.”
02. Research Statement
In general terms, an agency is a relationship between two parties in which one, the agent, acts
as the representative of the principal. The agent has been employed by the principal to
provide service on their behalf.1
In most cases, a contract is formed between the principal and the third party when an agent
acts on behalf of the principal to negotiate a contract, and the principal confirms or it is
reasonable for the third party to assume that the agent has authority to do so. The agent falls
out of the agreement, leaving the other two parties in place. Relationship with principal may
be maintained if commission is reliant on future sales.2
The major obligations of the agent are divided into two categories: fiduciary duties and a set
of basic agency law-imposed duties. However, these broad obligations are not specific to
agency law; they are obligations that every employee owes to his or her employer.
Banks play a critical role in every economy. They finance commercial organizations, give
admission to payment networks, also offer a range of trade finance facilities to the general
public.3
As agents operating in behalf of larger stakeholder interests in the economy as a whole, bank
supervisors and regulators themselves play an important role in maintaining a healthy
banking system. Therefore, financial mechanisms must safeguard that financial institutions
and banks devise resilient control arrangements, particularly in light of the widespread
1 Thomas J. Brock, Carol M Kopp and Pete Rathburn, 'Agency Theory' (Investopedia, 2022)
<https://www.investopedia.com/terms/a/agencytheory.asp> accessed 1 February 2022.
2 Common Law & Agency Disputes' (Saunders Law, 2018) <https://www.saunders.co.uk/news/common-law/>
accessed 1 February 2022.
3 Alexander, K. Corporate governance and banks: The role of regulation in reducing the principal-agent
problem. J Bank Regul 7, 17–40 (2006). Available at; https://doi.org/10.1057/palgrave.jbr.2340003

deviations that have taken place in the description and arrangement if both the industry of
banking and the regulatory framework that controls its operations.4
03. Research Objective
The objective of this research is to understand the concept of agency and principles of agency
in terms of its creation, and to extensively study the duties of an agent towards principal in
the context of the banking and financing sector while understanding the agency theory.
03.01. Reasons for Selecting the Research Topic
The topic of this research: “An analysis of the Duties of an Agent towards the Principle, with
Special Reference to Banking and Finance Sector” was selected for the purpose of my
dissertation is mainly because of the subject area of law pertaining to this topic which is
“Law of Agency”. I, as the author of this research has been able to study law of agency as a
part of the subject, Commercial law. The concept of agency became very interesting for me
personally as I began to see how individuals in commercial world is dealing with agency
principle relationships on a daily basis. I being the author of this dissertation and as an
individual who would like to someday practice as a corporate lawyer this research topic
caught my attention.
On the other hand the topic is related to banking as well, which makes this research unique
and special for the reader. Selecting a unique topic would push myself to carry out my own
research and draw up my own conclusions based on my findings.
O3.02. Reasons to Claim the Research Topic is Important
Even though there are plenty of literature available on the topic of “Law of Agency” I was
able to find out that there is not sufficient literature available on the chosen topic. On the
other hand there are plenty of research addressing banking and finance sector as well.
However, the availability of literature discussing the relationship of an agency in the banking
sector was very difficult to find out. Hence it was very clear that there is a gap in the previous
research and literature in this area of the topic. Therefore, I believe it is important to address
this area and contribute some literature for the purpose of developing and supporting future
research under this area of topic. Additionally, the findings of this topic will be directly
beneficial to those who aims to carry out research in this field, law students and those others
4 Alexander, K. Corporate governance and banks: The role of regulation in reducing the principal-agent
problem. J Bank Regul 7, 17–40 (2006). Available at; https://doi.org/10.1057/palgrave.jbr.2340003

who would want to grasp an idea about the principle – agent relationship in the banking and
finance sector.
03.03 Difficulties Faced by the Author
From the initial stage of finding the right topic that would inspire me (author) to research was
challenging. Therefore, the topic has to be picked with great care and attention to detail.
Choosing a topic that is manageable at all times. It is critical to determine the availability of
resources such as literature and important material that could be accessed easily, as well as
the development of a topic that can be supported by evidence.
Finding existing literature on this very topic was extremely challenging. Understanding
where and what to research for data, is something an author would be learning during the
process. The author mostly had to rely on web-based information. For instance, basic statutes;
case laws; previous research based on the topic; journal articles; books and most of the data
that has been used in this research are web-based data. The main reason for that is the
research is based on the legal system of the United Kingdom and the author is based in Sri
Lanka and does not have access to most of those materials aforesaid in hardcopies. Another
challenge was most of the books and journal articles related to the topic was only available to
purchase online for very much unaffordable price. Therefore, the researcher had to rely on
information/data that is available for free. I would suggest the university system to provide
the students with online library access at least for the period of conducting the research.
When the research is completed, the ultimate job is to determine how to interpret the acquired
data. Study should be empirical. The data should be presented in a way that demonstrates the
extent to which the research contributes to the body of knowledge. After carefully gathering
the data it is challenging to review the data and draw own conclusions.