THE LAW ANDPRACTICE OF

INTERNATIONALBANKING

CHARLES PROCTOR LLD (B'HAM)

Solicitor of the Supreme CourtEngland and Wales

Partner, Bird & Bird LLP, London

Honorary Professor of Law,University of Birmingham

Visiting Professorial FellowCentre for Commercial Law Studies

Queen Mary College,University of London

OXFORDUNIVERSITY PRESS

CONTENTS—SUMMARY

Table of Cases xxxvTables of Legislation lxviiList of Abbreviations lxxix

A REGULATORY MATTERS

1. The Regulation of Deposit-Taking Business 3

2. EU Banking Law 19

3. The Conduct of Retail Banking and Investment Business 35

4. The Regulation of Lending Business 51

5. The Regulation of Payment Services 75

6. Capital Adequacy, Liquidity, and Large Exposures 117

7. Money Laundering Legislation 143

8. The Market Regulators 173

B MERGER, REORGANIZATION, AND INSOLVENCY OF BANKS

9. UK Bank Mergers and Business Transfers 193

10. Foreign Bank Mergers 209

11. Bank Rescues and Financial Stability in the United Kingdom 219

12. Cross-Border Reorganization and Winding Up of Banks 251

13. Deposit Protection Schemes 265

14. The Liability of the Regulator 281

C THE BANKER-CUSTOMER RELATIONSHIP

15. The Banker-Customer Contract 297

16. Cheques 313

17. Duties of the Paying Bank 321

18. Duties of the Collecting Bank 339

19. Electronic Funds Transfers 349

D THE BANK AS SERVICE PROVIDER

20. The Bank as a Lender 365

21. Syndicated Loans 387

IX

Contents—Summary

22. Trading Loan Assets 411

23. Swaps and Derivatives 425

24. Bank Guarantees, Performance Bonds, and Documentary Credits 435

25. Sources of Bank Liability 471

E GUARANTEES AND SECURITY

26. Guarantees 479

27. Security—Characterization, Formalities, and Registration 511

28. Types of Security 533

29. Charges Over Shares and Other Securities 543

30. Charges Over Receivables 553

31. Charges Over Bank Balances 559

32. Charges Over Real Estate 563

33. Charges Over Aircraft 579

34. Charges Over Ships 585

35. Financial Collateral Arrangements 591

36. Lien and Set-off . 603

37. Vitiating Factors—'Financial Assistance' \ 609

38. Transactions Between Companies and their Directors 623

39. Avoidance of Security in Insolvency 627

F SELECTED CROSS-BORDER ISSUES

40. The Banker-Customer Contract in Private International Law 641

41. Cross-Border Financial Services, Consumer Protection, and

Unfair Contract Terms 657

42. The Banker's Duty of Confidentiality 675

43. Freezing Injunctions and International Banks 711

44. Execution Proceedings and Foreign Deposits 731

45. Liability for Branch Deposits and the Impact of Foreign Law 739

46. Economic Sanctions 757

47. Customer Obligations and Foreign Law 761

Contents—Summary

•G ISLAMIC FINANCE

48. Islamic Finance—Principles and Structures 767

49. Islamic Finance Transactions in the Courts 787

50. Corporate and Regulatory Issues 801

51. Harmonization and the Development of the International IslamicFinancial Markets 813

Index 821

XI

CONTENTS

Table of Cases xxxv

Tables of Legislation lxvii

List of Abbreviations lxxix

A REGULATORY MATTERS

Introduction

1. The Regulation of Deposit-Taking Business

Introduction 1.01

The History of Banking Regulation in the United Kingdom 1.04

Introduction : 1.04

Deposit-Taking as a Regulated Activity 1.09

Introduction 1.09Acceptance of Deposits 1.10Deposits 1.13,Accepting Deposits 1.14Carrying on a Business 1.15In the United Kingdom 1.16Exempt Persons 1.19Consequences of Contravention 1.20

The Authorization Procedure 1.22

Powers of the FSA 1.26

EEA Firms 1.27

2. EU Banking Law .

Introduction 2.01

Background to the EU Banking Directives 2.02

The Deposit-Taking Prohibition 2.09

The Authorization Process ' 2.11

The Treaty Freedoms—General Considerations 2.13

The Right to Establish a Branch 2.16

The Right to Provide Services 2.17

Provision of Services from within the Home State 2.18

Free Movement of Capital and Banking Services 2.22

The Commission Interpretative Communication 2.25

Conclusions 2.29

./ xiii

Contents

3. The Conduct of Retail Banking and Investment Business

Introduction 3.01

Scope of BCOBS 3.04Application 3.04Communications with Customers 3.09Distance Marketing 3.11Information Requirements 3.17Post Sale Requirements 3.22Cancellation 3.23

Investment Services 3.26Introduction 3.26Scope of MiFID 3.28MiFID—Overview 3.30Client's Best Interests 3.34Client Categorization 3.36Information Requirements 3.38Client Agreements 3.39Client Money 3.41Suitability 3.43Appropriateness 3.46Conflicts of Interest 3.47Best Execution 3.50

4. The Regulation of Lending Business

Introduction 4.01

Consumer Credit 4.02

Introduction 4.02Regulated Agreements 4.05Types of Consumer Credit Agreement 4.07Exempt Agreements 4.09The Effect of Regulation 4.13The Licensing Requirement 4.15Advertising 4.23Contents of Agreements and Formalities 4.25Matters arising during the Currency of the Contract 4.30Court's Powers of Intervention 4.38Recent Reforms—The Consumer Credit Directive 4.40

Mortgage Regulation 4.43

Introduction 4.43The Scope of Regulation 4.44The Nature of the Regulation 4.52

The Lending Code 4.55

Contents

5. The Regulation of Payment Services

Introduction 5.01

Implementation of the Payment Services Directive 5.04

Payment Services 5.07

The Definition 5.07Exclusions 5.11Territoriality 5.14

The Authorization Requirement 5.17

Authorized Payment Institutions v _ 5.20

Introduction 5.20Capital Requirements for Payment Institutions 5.24Small Payment Institutions 5.26Ancillary Business 5.28Passporting 5.29

Conduct of Business Requirements 5.34

Segregation Requirements . 5.35Information Requirements 5.40Scope of Requirements 5.42Single Payment Service Contracts 5.46Framework Contracts 5.48Common Provisions 5.53

Rights and Obligations of Providers and Users 5.54

Scope 5.55Charges for Transactions 5.56Authorization of Payment Transactions 5.57Limits and Use of Payment Instruments 5.61Misuse of Payment Instruments 5.65Time Limits 5.67Evidence and Liability for Unauthorized Transactions 5.68Execution of Payment Transactions 5.76Execution Time and Value Date 5.82Liability \ 5.86

Access to Payment Systems 5.87

Powers of the FSA 5.89

The Single Euro Payments Area 5.90

Introduction 5.90The Aims and Objectives of SEPA 5.93The Role of the EPC 5.96The Benefits of SEPA 5.97Progress with SEPA 5.98Charges for Cross-Border Payments 5.100Information on the Payer 5.104

Contents

6. Capital Adequacy, Liquidity, and Large Exposures

Introduction 6.01

Capital Adequacy—The Broad Framework 6.05

The Basel Standards 6.08The Basel Committee on Banking Supervision 6.08

Basel II 6.17

Introduction 6.17

Pillar One—Eligible Capital 6.23

Risk-Weighted Assets " 6.28Introduction 6.28The Standardized Approach 6.29The Internal Ratings-Based Approach 6.33

Credit Risk Mitigation 6.40Introduction 6.40Common Principles 6.42Funded Credit Protection 6.44Unfunded Credit Mitigation 6.47

Market Risk 6.50

Operational Risk 6.52

PillarTwo—Supervisory Review 6.55

Pillar Three—Market Discipline 6.56

Reform of Basel II 6.57

Liquidity 6.60

Large Exposures 6.63

Conclusions 6.69

7. Money Laundering Legislation

Introduction 7.01

International Background 7.06International Law 7.06Community Law 7.08

Overview of the United Kingdom Regime 7.10

Legislation 7.10Role of the Financial Services Authority 7.13Role of Market Associations 7.15

The Money Laundering Regulations 2007 7.17Customer Due Diligence 7.18Record Keeping 7.21Policies and Procedures 7.23Internal Training Procedures 7.25

Contents

Proceeds of Crime Act 2002 •• 7.28

'Criminal Property' and 'Criminal Conduct' 7.30Concealing Criminal Property 7.37Acquisition, Use, and Possession of Criminal Property 7.40Arrangements Relating to Criminal Property 7.42The Regulated Sector Offence 7.47The Disclosure Defence 7.52The 'Reasonable Excuse' Defence 7.59The Foreign Legality Defence 7.62The'De Minimis'Defence 7.65Offences by the MLRO v - - • 7.67Tipping off— Regulated Sector 7.70

Terrorist Financing 7.74

Introduction 7.74'Terrorism' and 'Terrorist Property' 7.76The Offences 7.78

Civil Consequences of Money Laundering Legislation 7.83

Receipt of Funds 7.85Suspicion Arising in Relation to Funds already Held 7.90Dealings with the Customer in Relation to POCA 7.93

8. The Market Regulators

Introduction 8.01

The Financial Services Authority 8.04

History and Functions of the FSA 8.04Rule-making and Other Powers 8.07The FSA Handbook 8.08

The Bank of England 8.12

History and Functions of the Bank 8.12Stability of the Financial System 8.18Monetary Policy 8.24

The Treasury \ 8.29

History and Functions of the Treasury 8.29

Role of the Treasury 8.31

Current Reforms 8.34

The European Framework ' 8.38European Systemic Risk Board 8.40

European System of Financial Supervisors 8.45

The EU Memorandum of Understanding 8.49

International Developments 8.51

Conclusions 8.55

xvn

Contents

B MERGER, REORGANIZATION, AND INSOLVENCY OF BANKS

Introduction

9. UK Bank Mergers and Business Transfers

Introduction 9.01

Effect of Part VII 9.04

Scope of Part VII 9.07

Procedure under Part VII 9.13

Effect of Court Sanction 9.18

'Property'and'Liabilities' 9.21

The Cross-Border Mergers Regulations 2007 9.25

Conclusions 9.29

10. Foreign Bank Mergers

Introduction 10.01

Recognition of the Merger 10.05

The Transferred Assets and Liabilities 10.17

Consequences for the Transferor 10.22

Consequences for Transaction Counterparties 10.24

The Cross-Border Mergers Regulations 10.28

Conclusions 10.30

11. Bank Rescues and Financial Stability in the United Kingdom

Introduction 11.01

Collapse of Northern Rock 11.05

Banking (Special Provisions) Act 2008 11.09The S cheme of the Legislation 11.09

Challenges to the Legislation 11.16

Other Financial Crisis Events 11.20

Banking Act 2009 11.24Introduction 11.24Scope and Content of the Act 11.26General Considerations 11.29

The Stabilization Options 11.37Transfer to a Private Sector Purchaser 11.38Transfer to a Bridge Bank 11.40Temporary Public Ownership 11.43Share Transfer Orders 11.45Property Transfer Instruments 11.49Partial Property Transfers 11.51

xvill

Contents

The 'No Creditor Worse Off' OrderCompensation for TransferorsContinuing Obligations and Other Matters

Bank Insolvency

Bank Administration

Investment Banks

Interbank Payment Systems

Emergency Liquidity AssistanceThe Nature of the Assistance vRecent Use of Emergency Liquidity AssistanceLegal Aspects of Emergency Liquidity Assistance

Other Forms of Assistance to the Financial Markets

Conclusions

12. Cross-Border Reorganization and Winding Up of Banks

Introduction

Scope of the Directive

Impact of the Directive on EEA Credit Institutions

ReorganizationWinding UpCommon ProvisionsRegulatory Issues

Third Country Institutions

Court Assistance for Foreign LiquidatorsCross-Border Insolvency Regulations 2006Section 426 of the Insolvency Act 1986General Powers of the Court

Conclusions

13. Deposit Protection Schemes

Introduction

EU Law and Deposit Protection

The Financial Services Compensation Scheme

Part 4 of the Banking Act 2009

The Landsbanki Freezing Arrangements

The BackgroundThe Legal Issues—Action taken by IcelandThe Legal Issues—Action taken by the United KingdomThe Current PositionThe Wider Issues

Conclusions

11.5811.6411.6711.69

11.7511.79

11.81

11.8511.8511.9111.9311.9511.96

12.01

12.05

12.1012.1112.1612.2312.2612.27

12.3012.3112.3612.3812.40

13.01

13.05

13.09

13.11

13.1313.1313.1613.1913.2213.2313.24

Contents

14. The Liability of the Regulator

Introduction 14.01

Immunity Provisions and Community Law 14.05

Immunity Provisions and the European Convention on Human Rights 14.12

The Effect of an Immunity Provision 14.20

Regulatory Liability 14.24

Conclusions 14.35

C THE BANKER-CUSTOMER RELATIONSHIP

Introduction

15. The Banker-Customer Contract

Introduction 15.01

The Banker and the Customer 15.02

Introduction 15.02'Banker' , 15.03'Customer' 15.05The Nature of the Relationship . 15.09

The Terms of the Banker-Customer Contract 15.17Introduction 15.17The Terms of the Contract 15.20

The Customer's Duties to the Bank 15.23Introduction 15.23The Drawing of Cheques 15.25Duty to Disclose Known Forgery 15.29Other Duties 15.35

Regulation of the Banker-Customer Contract 15.38

Introduction 15.38Unfair Contract Terms Act 1977 15.39Unfair Terms in Consumer Contracts Regulations 1999 15.45FSA Guidance 15.50

16. Cheques

Introduction 16.01

Definitions 16.06

Bills of Exchange 16.06

Cheques 16.09

Impact of the Cheques Act 1992 16.13

Payment by Cheque 16.18Introduction 16.18Acceptance of a Cheque 16.19

Contents

Cheque Guarantee Scheme ' 16.21

Cheque Clearing 16.26

17. Duties of the Paying Bank

Introduction 17.01

The Duty to Pay 17.04

The General Nature of the Obligation 17.04The Bank's Duty in Executing Payment Instructions 17.05Termination of the Bank's Authority to Pay 17.06Failure to Comply with Payment Instructions " 17.11

Nature and Consequences of Unauthorized Payment 17.13

Introduction 17.13Payment beyond the Scope of the Mandate 17.16Forged Signatures 17.20Misappropriation by an Authorized Signatory 17.24The Recovery of Payments Made 17.33

Statutory Protection of the Paying Bank 17.40

Introduction 17.40Payment in Due Course 17.41Material Alteration to the Cheque 17.43Incomplete Cheques 17.44Forged and Unauthorized Indorsements 17.46Section 80 of the Bills of Exchange Act 1882 17.52Section 1 of the Cheques Act 1957 17.55

Liability to Third Parties 17.58

Introduction 17.58Conversion 17.59Negligence 17.62'Dishonest Assistance' 17.64

18. Duties of the Collecting Bank

Introduction * 18.01

Collection of Cheques 18.03

Introduction 18.03Role and Position of the Collecting Bank 18.05The Collection of Cheques ' 18.08Notice of Dishonour 18.10

Statutory Protections Available to the Collecting Bank 18.11

Liability of the Collecting Bank to Third Parties 18.21

Introduction 18.21Conversion 18.22Monies Had and Received 18.25'Knowing Receipt' 18.27Negligence 18.32

Contents

19. Electronic Funds Transfers

Introduction 19.01

Electronic Funds Transfer Systems 19.05

Introduction 19.05BACS 19.08CHAPS 19.10TARGET 19.12Legal Nature of EFT 19.14

Legal Consequences of an EFT Payment 19.20

Agreement of Creditor 19.21Authorization of Payee's Bank 19.22The Nature of the Payment 19.23International Payments 19.24

Liabilities to Third Parties 19.26

D T H E BANK AS SERVICE PROVIDER

Introduction

20. The Bank as a Lender

Introduction 20.01

Overdraft Facilities 20.04

Operation 20.04Cancellation 20.05Demand 20.06Interest 20.08

Term Loans 20.12

Nature and Operation 20.12The Facility/Purpose 20.16Conditions Precedent 20.17Utilization \ 20.18Currencies 20.19Repayment 20.20Prepayment 20.21Interest 20.24Fees/Expenses - 20.28Tax Gross-up 20.29Increased Costs 20.31Indemnities 20.32Representations 20.33Information Undertakings 20.34Financial Undertakings 20.35General Undertakings 20.37

Contents

Events of Default/AccelerationPayment MechanicsSet-offAssignments and TransfersGoverning LawJurisdiction

Conclusions

21. Syndicated Loans

Introduction v.

The Arranger

Duration and Nature of the RoleFunctions of the ArrangerLiability of the Arranger

The Agent

Duration and Nature of the RoleFunctions of the AgentLiability of the Agent—Gross Negligence and Wilful MisconductOther Sources of Liability and Protections

Relationship between Individual Banks and the Borrower

Relationship between the Individual Banks

IntroductionSeveral ObligationsConsents, Instructions, and Waivers; Majority RulePro Rata SharingLiability and Regulatory Aspects

Security Arrangements

The Security Trust StructureParallel Debt Clauses

22. Trading Loan Assets

Introduction

Restrictions on Assignments and Transfers

Assignment

Novation

Participation Arrangements

IntroductionFunded ParticipationsRisk Participations

Credit Default Swaps

20.3820.3920.4120.4320.4420.4620.48

21.01

21.0621.0621.0821.1121.1621.1621.1921.2121.26

21.27

21.2821.2821.2921.3021.3421.4021.4321.4321.48

22.01

22.05

22.09

22.14

22.1722.1722.2022.2422.26

XXlll

Contents

23. Swaps and Derivatives

Introduction

Interest Rate Swaps

Currency Swaps

Default and Termination

Netting of Multiple Contracts

Defences

Conclusions

24. Bank Guarantees, Performance Bonds, and Documentary Credits

Introduction

Bank Guarantees

Performance Bonds

IntroductionNature of a Performance BondTypes of Performance Bond

Documentary Credits

IntroductionDefinitionContracts, the Parties, and their ObligationsTypes of Commercial CreditIssuing Commercial CreditsApplication of Autonomy PrincipleTransfer and Assignment of Credits

Documents Presented under a Commercial Credit

IntroductionStrict ComplianceTransport DocumentsInsurance DocumentsCommercial InvoicesOriginal Documents

Presentation and Examination of Documents

Presentation of DocumentsExamination of Documents

Security under a Commercial Credit

Pledge of GoodsTrust Receipts

Standby Credits

IntroductionNature of the Standby Credit

23.01

23.07

23.13

23.1523.20

23.23

23.29

24.01

24.04

24.0724.0724.0824.11

24.1324.1324.1624.1924.2024.2124.2424.2624.3024.3024.3224.3424.3624.3724.3924.4124.4124.43

24.4924.5124.5524.5624.5624.58

XXIV

Contents

The Fraud Exception 24.61

Damages for Failure to Pay under a Credit 24.69

Private International Law Issues 24.72Introduction 24.72English Buyer—English Issuing Bank 24.74Issuing Bank—Seller 24.78Confirming Bank—Seller 24.82Issuing Bank—Confirming Bank 24.84The Impact of the Applicable Law 24.86

25. Sources of Bank Liability

Introduction 25.01

The Springwell Navigation Case 25.06

Factual Background 25.06Claims in Contract and Tort 25.07Contractual Disclaimers 25.10Misrepresentation 25.12Breach of Fiduciary Duty 25.13Conclusions 25.15

Other Cases 25.16

Advisory and Management Arrangements 25.18

Conclusions 25.21

E GUARANTEES AND SECURITY

Introduction

26. Guarantees

Introduction 26.01

Purpose, Definition, and Characteristics 26.02Purpose * 26.02Definition 26.04Characteristics 26.06

Formalities 26.10

Introduction 26.10Offer and Acceptance 26.12Consideration 26.14Intention to Create Legal Relations 26.16Requirement of Writing 26.19

Guarantees and Indemnities 26.23

Introduction 26.23Distinction between Guarantees and Indemnities 26.24

Contents

Interpretation and Liability

IntroductionInterpretationThe Guaranteed LiabilitiesEssential ValidityNature of the Guarantor's Liability

Unfair Contract Terms

IntroductionUnfair Contract Terms Act 1977Unfair Terms in Consumer Contracts Regulations 1999

Capacity to Guarantee

IntroductionIndividualsCompaniesOther Entities

Duties of the Bank to the Guarantor

IntroductionA Duty to Advise?A Duty of Good Faith?A Duty of Disclosure?A Duty to take Other Security?A Duty of Realization?

Discharge of the Guarantor

IntroductionDischarge by PaymentDischarge of the Guarantor

Vitiating Factors

PreferenceTransactions at an Undervalue

Termination by the Guarantor

Introduction ;

Express and Implied Termination Rights

Rights of the Guarantor following Payment

Rights of the GuarantorObligations of the Bank

Conflict of Law Issues

27. Security—Characterization, Formalities, and Registration

Introduction

Contractual Nature of SecurityWhat is a Security Interest?The Scope and Extent of the SecurityFormalities

26.28

26.2826.2926.3226.3526.37

26.38

26.3826.4126.44

26.45

26.4526.4626.4926.54

26.55

26.5526.5726.5926.60

•- 26.6326.66

26.69

26.6926.7026.72

26.74

26.7626.79

26.81

26.8126.82

26.84

26.84

26.86

26.88

27.01

27.02

27.0427.0827.15

Contents

Part 25 of the Companies Act 2006 27.18Foreign Assets 27.24Foreign Companies 27.33Summary of Registration Requirements—Foreign Companies 27.42

28. Types of Security

Introduction 28.01

Fixed Charges 28.03

Floating Charges 28.06

Definition " " " " 28.06Importance of the Characterization 28.10Crystallization 28.11

Priorities 28.14

Introduction 28.14Categories of Priority Claims 28.15Statutory Priorities 28.16The Prescribed Part 28.20Occupational Pension Schemes 28.22Employees 28.23

Priority as against other Secured Creditors 2 8.24

Priority as against Unsecured Creditors 28.27

Rights of Set-off 28.28Liens 28.30Execution Creditors 28.32Distress for Rent 28.35

29. Charges Over Shares and Other Securities

Introduction 29.01

Legal Charge 29.05

Equitable Charge 29.09

Foreign Shares ' 29.12

Charges over Uncertificated Securities 29.15

Registration Formalities 29.22

Priorities 29.25

30. Charges Over Receivables

Introduction 30.01

Essential Validity 30.02

Foreign Receivables 30.06

Registration Formalities 30.07

Priorities 30.09

XXVll

Contents

31. Charges Over Bank Balances

Introduction 31.01

Features of the Security 31.02

Registration Formalities 31.03

Priorities 31.05

32. Charges Over Real Estate

Introduction 32.01

Nature of the Asset ~ " ' 32.05

Nature of the Security 32.11

Extent of the Security 32.15

Registtation of the Security 32.19

Remedies of the Mortgagee 32.21Power of sale 32.23Appointment of Receiver 32.25Taking Possession 32.28Restrictions on the Exercise of the Mortgagee's Powers 32.30Consolidation 32.32Priorities • 32.37

Grounds of Challenge 32.39

Security Over Foreign Land 32.49

33. Charges Over Aircraft

Introduction 33.01

UKAircraft 33.03

Priorities 33.09

Foreign Aircraft 33.10

International Issues 33.13

34. Charges Over Ships

Introduction 34.01

English Ship Mortgages 34.03

Priorities 34.08

Foreign Ship Mortgages 34.10

Enforcement of Ship Mortgages 34.13

35. Financial Collateral Arrangements

Introduction 35.01

Settlement Finality Directive 3 5.04

XXVlll

Contents

Structure of the Settlement Finality RegulationsPrivate International Law Issues

Financial Collateral Regulations

36. Lien and Set-off

Introduction

Right of Lien

Bank's Right of Set-off

Other Rights of Set-off v .

37. Vitiating Factors—'Financial Assistance'

Introduction

Financial Assistance

Scope of the Prohibition

'Financial Assistance'

'Larger Purpose' Exemption

Other Exemptions

Consequences of Breach

Illustrative Transactions

38. Transactions Between Companies and their Directors

Introduction

Substantial Property Transactions

Transactions involving Directors

39. Avoidance of Security in Insolvency

Introduction

Transactions at an Undervalue

Preferences

Extortionate Credit Transactions

Avoidance of Floating Charges

Transactions Defrauding Creditors

F SELECTED CROSS-BORDER ISSUES

Introduction

40. The Banker-Customer Contract in Private International Law

Introduction

The Governing: Law of the Relationship

35.0635.1535.22

36.01

36.02

36.05

36.06

37.01

37.02

37.0537.12

37.16

37.20

37.21

37.25

38.01

38.03

38.06

39.01

39.04

39.06

39.07

39.09

39.12

40.01

40.06

XXIX

Contents

The Effect of the Applicable Law 40.11

Capacity and Authority 40.15

Foreign Nationals/Individuals Resident Abroad 40.17

Foreign Companies 40.22

Situs of Deposit Obligations 40.26

Conclusions 40.34

41. Cross-Border Financial Services, Consumer Protection, andUnfair Contract Terms

Introduction 41.01

Choice of Law under Rome I 41.06

Provisions Relating to Consumer Contracts 41.09

Financial Instruments 41.14

Multilateral Trading Systems 41.16

Financial Instruments/Rights Issues/Takeover Offers 41.22

Financial Instruments 41.23Terms and Conditions of Public Share Offers 41.26Public Takeover Offers 41.28Collective Investment Schemes . 41.31

Foreign Services 41.32

The Banker-Customer Contract 41.39

The Impact of Domestic Consumer Protection Laws 41 A3

Unfair Contract Terms Act 1977 41.47Unfair Terms in Consumer Contracts Regulations 41.55Consumer Credit Act 1974 41.56

Conclusions 41.64

42. The Bankers Duty of Confidentiality

Introduction > 42.01

The Applicable Law 42.06

Nature and Scope of the Duty of Confidentiality 42.10

Compulsion of Law 42.16

Introductory Remarks 42.16Statutory Obligations of Disclosure 42.18Limitations on the 'Compulsion of Law' Exception 42.19Disclosure Orders made by an English Court in relation to Materials in England 42.22Disclosure Orders made by an English Court in relarion to Materials held Abroad 42.26Disclosure Orders made by a Foreign Court 42.34

Interests of the Bank 42.42

Public Interest 42.47

Consent of Customer 42.56

Contents

Express Consent 42.58Implied Consent 42.60Liability to the Recipient 42.62

Damages for Breach 42.63

Data Protection Act 1998 42.65

The Wider Duty of Confidence 42.68

Duties of Confidentiality to Third Parties 42.73

Other Duties of Confidentiality 42.77

Conclusions ' — 42.81

43. Freezing Injunctions and International Banks

Introduction 43.01

Nature and Effect of a Freezing Injunction 43.05

Action to be taken by the Bank 43-13Necessity for Compliance 43.14Steps to be taken 43.16The Extent of Compliance 43.18

Impact on Banker-Customer Relationship 43.22

Set off 43.27Enforcement of Security 43.29

Relationship between the Bank and the Applicant 43.31Obligations of the Bank 43.32

Obligations of the Applicant 43.36

Relationship between the Bank and Third Parties 43.39

Territorial Issues 43.42Foreign Branches 43.44Assets held Abroad 43.48

Conclusions 43.51\\

AA. Execution Proceedings and Foreign Deposits

Introduction 44.01

Third Party Debt Orders 44.04

Attitude of the English Courts in Extra-Territorial Cases 44.09

The Case Law ' 44.11

Special Cases 44.18

Conclusions 44.19

45. Liability for Branch Deposits and the Impact of Foreign Law

Introduction 45.01

The General Principles 45.04

xxxi

Contents

Closure of a Branch 45.10

Outbreak of War 45.14

Foreign Customers of UK Banks 45.15

UK Customers of Foreign Banks 45.16

Expropriation 45.18

Other Forms of Seizure 45.21

Exchange Controls 45.27

Moratoria 45.28

Blocking Orders ' " ' 45.31

Conclusions 45.38

46. Economic Sanctions

Introduction 46.01

The Sources of Sanctions Legislation 46.06

Effect of Sanctions 46.10

Conclusions 46.13

47. Customer Obligations and Foreign Law

Introduction 47.01

Moratoria 47.06

Exchange Controls 47.10

Conclusions 47.14

G ISLAMIC FINANCE

Introduction

48. Islamic Finance—Principles and Structures

Introduction 48.01

The Foundations of Islamic Finance 48.04Riba 48.08Gharar 48.15Maisir 48.19Unjust Enrichment 48.20

Rules Governing Islamic Finance Transactions 48.22

Product Structures—Customer Funding 48.25Murabaha 48.26Tawarruq 48.32Bai'Salam 48.35Bai' al 'ina 48.36Ijara 48.38

xxxii

Contents

Istisna'a • 48.41Musharaka 48.43Mudaraba 48.46Sukuk 48.49Attitude to Conventional and Ancillary Structures 48.51

Product Structures—Deposits 48.53

Mudaraba 48.55Wakala 48.57Wadi'a 48.58Qard ; 48.59

49. Islamic Finance Transactions in the Courts

Introduction 49.01

English Case Law 49.03Islamic Investment Company of the Gulf (Bahamas) Ltd v Symphony Gems NV 49.04Beximco Pharmaceuticals Ltd v Shamil Bank of Bahrain EC 49.08The Investment DAR Company KSCC v Blom Development Bank SAL 49.15English Case Law—Conclusions 49.19

Malaysian Case Law 49.21

Introduction 49.21Earlier Cases 49.27Later Cases 49.32Malaysian Case Law—Conclusions 49.36

50. Corporate and Regulatory Issues

Introduction 50.01

Constitutional Structure of Islamic Banks 50.03

Overview 50.03Constitutional Issues 50.06The Shariah Supervisory Board 50.08

General Regulatory Issues 50.13

Regulatory Standards and Guidelines 50.16Deposit-taking 50.17Collective Investment Schemes 50.20Islamic Home Finance 50.26Other Regulatory Issues 50.28

Islamic'Windows' 50.30

51. Harmonization and the Development of the International IslamicFinancial Markets

Introduction 51.01

The Imperatives of Standardization 51.03

The Tawarruq and the Sukuk—Illustrations of the Difficulties 51.06

xxxin

Contents

Enforcement Issues • 51.14

What Needs to be Harmonized? 51.17Documentation 51.20Shariah Rulings 51.23The Regulatory Framework 51.26Capital Adequacy 51.30Taxation 51.34

Conclusions 51.37

Index 821

XXXIV