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Banking Law and Practice


A solid understanding of how banks operate is crucial to grasp the functioning of modern society. Banks are an intrinsic part of business, finance, and everyday life. Modern banking is regulated by a sophisticated set of laws and regulations that are constantly evolving. Banking Law and Practice from the Hong Kong Institute of Bankers outlines and explains these laws and regulations clearly and in detail.

This regulatory framework has a deep impact on banks, bankers, and anyone that deals with them, which is the overwhelming majority of society. This high level of impact makes Banking Law and Practice an important book as well as a necessary and authoritative reference for industry professionals, students, and the public at large.

Banking Law and Practice discusses a range of topics that have a direct bearing on the day-to-day operations of banks, from contracts to how to ensure safe and secure lending. It examines the development and current state of banking legislation and regulation and facilitates bankers and their institutions to shape their practice to meet all the necessary legal and regulatory requirements.

Students, industry professionals, and the public at large will welcome the thorough and clear explanations of the legal and regulatory framework in which banks operate. This book is essential reading for candidates studying for the HKIB Associateship Examination and anyone else seeking expert knowledge of the legal and regulatory structure affecting banks in Hong Kong.

Topics covered in this book include:

  • Contractual Relationships
  • Code of Banking Practice
  • Money Laundering
  • Negotiable Instruments
  • Law Related to Securities
  • Bankruptcy and Insolvency

China Construction Bank (Asia) Corporation Limited ["CCB (Asia)"] is honored to sponsor the publishing of Banking Law and Practice by the HKIB. CCB (Asia) is a wholly owned subsidiary of China Construction Bank Corporation ["CCB"], the world's second largest listed bank by market capitalization as of December 31, 2011. CCB (Asia) offers consumer, retail, commercial, and private banking with an extensive range of professional services for customers.

Preface ix


1 Contractual Relationships in Law and Practice 3

Learning Objectives 3

Introduction 4

Definition of ‘Customer’ 4

Nature of the Banker-Customer Relationship 5

Laws and Practice 7

Mandates 9

Power of Attorney 11

Limitation of Actions 14

Appropriation of Payments 15

Set-off 17

Banker’s Lien 20

Banker’s Duty of Secrecy 21

Personal Data and Consumer Credit Data 28

Statement of Account or Passbook 33

Wrongful Dishonour of Cheques 34

Exemption Clauses 36

Summary 37

Key Terms 38

Study Guide 39

Further Reading 39

2 Opening and Conduct of Accounts 41

Learning Objectives 41

Introduction 42

Opening of an Account 42

Conduct of Account 44

Closing of Account 51

Opening and Conduct of Accounts for Various Customers 52

Defi nition of Different Types of Authorities 82

Anti-Money Laundering and Counter-Terrorist Financing 85

Summary 98

Key Terms 99

Study Guide 100

Further Reading 100


3 Bills of Exchange and Promissory Notes 103

Learning Objectives 103

Introduction 104

Negotiable Instruments 104

Bills of Exchange 107

Promissory Notes 124

Summary 127

Key Terms 128

Study Guide 128

Further Reading 129

4 Other Banking Operations 131

Learning Objectives 131

Introduction 132

Credit Cards 132

Direct Debiting 138

Automated Teller Machines 141

Electronic Funds Transfer at the Point of Sale 143

Investment Advice 144

Safe Custody 146

Other Banking Services 150

Internet and Phone Banking 152

Summary 154

Key Terms 156

Study Guide 156

Further Reading 157


5 Guarantee 161

Learning Objectives 161

Introduction 162

What is a Guarantee? 162

Undue Infl uence 165

Guarantees by Minors 166

Guarantees by Partnerships 167

Corporate Guarantees 168

Joint and Several Guarantees 168

Liability of Guarantors 170

Guarantor’s Rights as Against the Creditor 172

Guarantor’s Rights as Against the Debtor 173

Rights of Co-Guarantors 174

Duties of the Creditor Bank 175

Discharge of the Guarantor 176

Summary 180

Key Terms 181

Study Guide 182

Further Reading 182

6 Mortgage of Land 183

Learning Objectives 183

Introduction 184

Land in Hong Kong 184

Mortgages 187

Priorities 192

Rights of Mortgagee/Chargee 195

Rights of Mortgagors/Chargors 201

Discharge 205

Summary 205

Key Terms 206

Study Guide 207

Further Reading 207

7 Other Security Interests 209

Learning Objectives 209

Introduction 210

Company Charge 210

Pledge 218

Hypothecation 222

Company Shares 224

Insurance Policies 229

Bankers’ Lien 235

Summary 236

Key Terms 237

Study Guide 237

Further Reading 238


8 Bankruptcy 241

Learning Objectives 241

Introduction 242

Bankruptcy 242

Bankruptcy Order 244

Discharge From Bankruptcy 248

Voluntary Arrangements 248

Legal Issues for the Banker 250

Summary 254

Key Terms 256

Study Guide 256

Further Reading 256

9 Winding Up 257

Learning Objectives 257

Introduction 258

Winding Up 258

Compulsory Winding Up 259

Voluntary Winding Up 262

Petition for Winding Up 265

The Liquidator 265

Unregistered Companies 271

Assets Available for Distribution 271

Ranking of Claims 274

Antecedent Transactions 276

Legal Issues for the Banker 278

Summary 282

Key Terms 283

Study Guide 283

Further Reading 284

Index 285