chapter 25.docx - Business and banking Traditionally...

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Business and banking Traditionally, Canadian financial service industries had four distinct sectors: banks, trust companies, stock brokerages, and insurance companies - To avoid conflict of interest and stability, each was separately regulated, and institutions in one sector prohibited from conducting business in another o However, Canadian legislation has allowed banks to participate in other sectors in their branches through subsidiary firms o These were further blurred Key remaining limit is prohibition against selling or promoting insurance products in branches (thus, banks have opened separate insurance branches) Banks are regulated by federal jurisdiction through federal bank act - Main purpose is to ensure stability and liquidity, and identify and regulate types of business they are permitted to conduct o Relationship between bank/customers is not primary concern of act o Instead, this relationship (eg. Terms + conditions) are influenced by banking practice and common law - Overall, Canadian banks have strong structure because they are regulated federally Bank-Customer Relationship For a customer’s money on deposit with bank, bank is debtor and customer is creditor - Relationship is now more comprehensive due to regulation changes o Eg. Bank is not obligated to give advice or look out for best interest of customer, unless bank gives financial advice, which are outside normal scope of traditional banking services In these exceptions, fiduciary relationship exist, so bank has onerous duties to Provide advice with care and skill Disclose any actual or potential conflicts of interest Consider interest of the customer ahead of those of the bank Duties of the bank and customer Common law and banking practice implies legal duties on both parties in banking relationship, such as - The bank must o Honor payment instructions and repay deposits o Collect payments for customer o Provide account info to customer on regular basis o Maintain secrecy of customer’s affairs (qualified by legislation) This is subject to the law concerning money laundering , or false reporting of income obtained through criminal activity as income gained through legitimate business enterprises Banks have been urged to verify identity of individual and corporate customers and validity of business activiites, and determine source of transfers > 10000 Legislation was passed where banks, trust companies, insurance companies, and professionals must reported to a new independent body (Financial Transactions and Reports Analysis Centre) suspicious financial transactions and large cross- border currency transfers Suspicious activity defined by FINTRAC, and they must then manage information and decide which transactions to refer to law enforcement agencies for investigations
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- Customers must o Take reasonable steps to provide documentation as to who Is authorized to give instructions to bank, to prevent fraud and forgery o Keep authorizations current o Notify bank of any suspected problems o
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