Liability Issues in Internet Banking In Malaysia

Liability Issues in Internet Banking In Malaysia -...

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Unformatted text preview: Liability Issues in Internet Banking In Malaysia Communications of the IBIMA Volume 7, 2009 ISSN:1943-7765 1 Liability Issues in Internet Banking In Malaysia Gita Radhakrishna Multimedia University, Melaka Campus, Faculty Of Business And Law, Jalan Ayer Keroh Lama, 75450 Melaka, Malaysia Email:- gita@mmu.edu.my ABSTRACT:- Electronic banking, particularly internet banking has revolutionized the banking industry making transactions faster and more convenient. But security issues present a pressing concern. Even with the best supervisory and security devices losses may occur. This paper examines the regulatory framework in Malaysia as set out by the Central bank, Bank Negara Malaysia and compares it to the United Kingdom and Australia. The focus is on civil liability issues in this area and in this context a landmark case in the United States of America with potential global impact is discussed. LIABILITY ISSUES IN INTERNET BANKING 1. INTRODUCTION Internet banking was first introduced in the United States of America (USA) in the early 1990s and it has since extended globally gradually. Internet banking is a product of e-commerce in the field of banking and financial services. It offers different online services like balance enquiry, requests for cheque books, recording stop-payment instructions, balance transfer instructions, account opening, settlement of online credit card transactions resulting from online shopping and other forms of traditional banking services. Mostly, these are traditional services offered through internet as a new delivery channel. But, in the process it has thrown open issues which have ramifications beyond what a new delivery channel would normally envisage and, hence, has compelled regulators world over to take note of this emerging channel. 2. LITERATURE REVIEW The Reserve Bank of Indias Report on Internet Banking (2001) outlines some of its distinctive features: (i) It removes the traditional geographical barriers as it could reach out to customers of different countries / legal jurisdictions. This has raised the question of jurisdiction of law and / or supervisory system to which such transactions should be subject, (ii). It has added a new dimension to different kinds of risks traditionally associated with banking, heightening some of them and throwing new risk control challenges, (iii) Security of banking transactions, validity of electronic contract, customers privacy, etc., which have been traditional banking concerns have assumed different dimensions given that internet is a public domain, not subject to control by any single authority or group of users, (iv). It poses a strategic risk of loss of business to those banks who do not respond in time, to this new technology, being the efficient and cost effective delivery mechanism of banking services, (v). A new form of competition has emerged both from the existing players and new players in the market who are not strictly banks as several policy decisions have also...
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