LAWS RELATING TO FINANCIAL SERVICES

Objective:

The objective of this course is to acquaint the candidates, who sit this examination, with the legal and regulatory framework of banking and non-banking financial institutions, and help them acquire functional knowledge and understanding of the prevalent laws, traditions and practices in this sector.

Candidates are expected not only to know as to how a particular job is done but as to why that job is processed in that particular manner. Precisely, this course offers answers to the 'hows' and 'whys' so as to develop the unimaginative routine functionaries into knowledgeable innovative professionals.

Course Outline:

I. Banker – Customer Relationship: Who is a banker? What constitutes a customer? Banker's obligations towards customer --- to receive customer's money and cheques and other instruments for collection; to repay the customer's money on demand; to observe secrecy concerning the customer's affairs; to give reasonable notice before closing an account. Customer's obligation to banker  --- to make demand to make debt legally payable; to pay interest / mark-up on overdrawn accounts and other charges for the services rendered by the bank; to draw cheques with reasonable care so as not to facilitate fraud or forgery. Nature of relationship --- debtor and creditor; bailor and bailee; principal and agent; mortgagor and mortgagee; pledger and pledgee. Other aspects of relationship   --- statutes of limitation as applicable to deposits; appropriation of payments; banker's right of set off; banker's general lien.

II. Opening and Handling Of Bank Accounts: Bank accounts classified by nature of deposits --- current accounts; profit and loss sharing savings accounts; term deposit accounts; dormant and inoperative accounts; unclaimed deposits. Bank accounts classified by nature of depositors --- accounts of individuals; joint accounts; accounts of agents; partnership accounts; accounts of private limited companies, companies with liability limited by guarantee, joint stock companies, trusts, executors, administrators, and liquidators; private non-resident rupee accounts; accounts of non-trading organizations -- local bodies, clubs, societies etc. Opening of accounts --- Know Your Customer (KYC); anti money laundering measures and other requirements of Prudential Regulations. Credit reference search and introduction; documents to be obtained from various categories of customers / account holders;

III. Ancillary Banking Operations: Inland remittances and bills for collection  ---Issue and payment of pay order and demand drafts, T.Ts. and M.Ts Cancellation and issue of duplicate pay orders and draft; inward and outward clean and documentary bills for collection; clean and documentary bills purchased; processing and reconciliation of inter-branch transactions Subsidiary services rendered by modern banks --- safe custody; common courtesy / status opinions; standing instructions; purchase and sale of stocks and shares; other agency services; travellers' cheques; credit cards; ATMs or cash dispensers; electronic funds transfer system; banker as executor, administrator, attorney, and trustee; bank guarantees and indemnities; miscellaneous and general utility services.

IV. Negotiation: Negotiation defined; negotiation distinguished from assignment. Negotiable instruments: promissory note, bill of exchange, cheque; distinction between cheque and bill of exchange; how negotiation takes effect; negotiation of bearer and order instruments - delivery and indorsement and delivery;  indorsement -- kinds and inscriptions; holder; holder in due course; holder for value; crossing; liability of drawer; liability of drawee of cheque; liability of maker of note and acceptor of bill; liability of indorser; liability of prior parties to holder in due course; noting; protest; calculating maturity of bill or note; presumption as to consideration regarding negotiable instruments. Quasi & non-negotiable instruments handled by bankers.

V. Payment and Collection of Cheoues: Payment of cheques --- banker's obligation to pay his customer's cheques; conditions precedent to payment of cheques; payment of open cheques; determination of banker's authority to pay cheques; statutory protection to paying banker -- payment in due course; mutilated cheques; material alteration; money paid by mistake - conditions of recovery; crossings, indorsements and discharge. Payment made to the bank under mistake; validity of statement of account - over-debiting, over-crediting; wrongful dishonour; answers on dishonoured cheques; notice of dishonour; forgeries; other instruments analogous to cheques -bank draft, payment order, dividend warrant. Collection of cheques --- banker's obligation to collect cheques; statutory protection to the collecting bank; collecting bank as holder for value; duties of collecting bank; collecting bank and negligence; conversion.

IV. Technology in Banks: Approaches to Bank Mechanization – Core Banking & Stand alone Computer System. Introduction to Bank net, Internet & E-Mail etc. Minimizing the security risks.

V. Non Banking Financial Institution: Legal framework, guidelines and rules for leasing, development financial institutions, modarabas, micro finance institutions.  

Core Readings:

1. Pakistan, Institute of Bankers                            Laws Relating to Financial Services

2. Pakistan, Institute of Bankers                            Lesson Notes on Banking Law and Practice (2 volumes)

3. Pakistan, Institute of Bankers                            Anti Money Laundering Measures

4. Pakistan, Institute of Bankers                            Practice and Law of Banking

Supplementary Readings:

1. Dr. Asrar H. Siddiqi                                          Practice and Law of Banking in Pakistan (Royal Book Co., Karachi).

2. Government of Pakistan                                     i)    Negotiable Instruments Act 1881

ii)   Banking Companies Ordinance,

      1962.

iii)  Financial Institutions (Recovery of

       Finances) Ordinance, 2001

3. State Bank of Pakistan                                      Prudential Regulations for Corporate / Commercial Banking

4. Pakistan, Institute of Bankers                             Legal Notes on Banking Transactions

5. Pakistan, Institute of Bankers                             Legal Decision Affecting Banks

6.         Instructions notified / circularized by SBP and banks' head offices from time to time.

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