Trusting our Institutions

The State Bank should cease and desist from finding itself exposed for not having lived up to the normal expectation of trust placed in it by its clients

The British bequeathed to us a strong sense of discipline. It began at school. It was then taken to the workplace. Rules were strict. Any wilful violation of rules was firmly dealt with. So, people did not have a lot of incentives to misbehave.

Most of those who held high office cultivated and carried with them a sterling character for which they were renowned in society. They would not be swayed by private pursuits to indulge in the dereliction of duties. In some cases, we were strengthened in this approach by our own parallel cultural norms.

Those of my generation will recall not only the utter deprivation faced by King Harishchandra and Queen Taramatee, for example, when tested against the harshest adversities of life. They will recall even more the moral lesson taught by the story and this is what it was really all about – in the face of the greatest adversity, be stoic and do not depart from your strict line of duty; whatever be the personal cost, discard emotional ties which usually blind us to close ones in the performance of our duties. Tough, but a moral precept which said that the higher your responsibility in society, e.g., king, the stricter you should be with yourself in the observance of codes such as self-discipline, putting up with hardship without drifting into unethical conduct while always keeping to a stoic sense of loyalty in duty.

The leakage of information about the Minister of Finance’s loan transaction with the State Bank of Mauritius (SBM) through the press last week was a pointer to the extent to which even some among those who are explicitly enjoined by the laws of the country to observe confidentiality about customers’ transactions – let alone their instinctive sense of duty — actually betray a lack of moral principles and basic professionalism.

Given this situation, anybody with a little amount of insight could make out that a political drama was playing out and that the leakage of private information may have been part of it. It looks as if some insider(s) having knowledge of the “embarrassing transaction” were devaluing the institution unashamedly.

Given that the Minister had entered into the loan transaction in September last year, why did confidential banking information pertaining to his bank dealings come out in public only this week through part of the press, as a preamble to his departure from the Ministry of Finance? Was it intended to expose his vulnerability so that others could have their way? Was the confidential information fished out from the bank to bring down rather a political ally now turned “adversary”, who might not have been bringing concrete enough short-term results?

It is possible that certain individuals may be taking vicarious pleasure at being shown the details of the transactions the Minister would have conducted for himself with the SBM. But we must go beyond. One is not discussing the merits or otherwise of the bank engaging in this particular transaction with him or the bank opting not to have the security provided by him against the loan inscribed at the Registrar’s Office. It is these aspects that have become the greater part of public conversation.

As regards inscription of a security with the Registrar, a lender’s objective in inscribing it is to protect mainly its rank on that security (date of inscription establishes order of precedence of creditors). It is officialised. Those who register later or fail to register on the same property cannot claim to have a priority on earlier lenders who have duly registered their charges. In this case, by not registering the charge, SBM is taking the risk that someone else to whom the property is also given as security subsequently by the same borrower can gain a prior ranking in the realisation proceeds if the borrower defaults on the loan and the property is seized and sold away to meet diverse lenders’ claims against the borrower.

Normally, a bank’s Board would take its Management to task if, by omitting to inscribe (i.e., register) its charge on the security, wilfully or otherwise, it has allowed another claimant on the property to gain precedence. We are not aware of the reasons as to why the security in relation to the loan extended to the ex-Minister of Finance was allegedly not registered. Now that the information has gone public, the SBM owes it to its shareholders and to the public in general to come out and explain the circumstances in which it decides to go for registration of securities or not, and whether that kind of facility is available to one and sundry.

However, there is a much more important issue in the matter. It is about a malpractice – the undermining of institutions as it suits private convenience. It seems as if, when it suits such convenience, privileged and confidential information will be dug out – by whichever means available – and made public to bring to shame those being targeted. If so, there are grave consequences.

Even the smallest client of a bank goes to his bank firmly assuming that under no circumstances, except if sought for under due legal process, will his dealings with his/her bank be made public. They may not involve taking a loan from the bank for speculating and/or making a quick gain on the ups and downs of the price of gold on international markets.

The bank’s smallest client will not even want his mother-in-law to know which sum of money he withdraws from his bank account every month. It may have serious private implications for him. It’s because he trusts that his bank dealings will not be made public that he engages with the bank or financial institution.

The Banking Act 2004 gives the assurance that “no person shall, during or after his relationship with the financial institution, disclose directly or indirectly to any person any information relating to the affairs of any of its customers including any deposits, borrowings or transactions or other personal, financial or business affairs, without the prior written consent of the customer or his personal representative”.

The banking law also provides explicitly that “the Director-General under the Prevention of Corruption Act 2002, the Chief Executive of the Financial Services Commission established under the Financial Services Act 2007, the Commissioner of Police, the Director-General of the Mauritius Revenue Authority established under the Mauritius Revenue Authority Act, the Enforcement Authority under the Asset Recovery Act 2011, or any other competent authority in Mauritius or outside Mauritius who requires any information from a financial institution relating to the transactions and accounts of any person, may apply to a Judge in Chambers for an order of disclosure of such transactions and accounts or such part thereof as may be necessary”.

A prior application to a Judge in Chambers is necessary and SBM would have been unable to convince any Judge worth his salt that disclosure of the private information was necessary for some weird reason it might bring up.

Section 64(10) of the Banking Act 2004 imposes a duty of restraint upon the Judge himself before granting access to any such information. Even if such public bodies (as indicated in the above-mentioned provision of the Banking Act) are concerned in the work entrusted upon them by law, the Judge will authorize disclosure of private banking information only if the applicant is (i) acting strictly in the discharge of his or its duties, (ii) the information requested is material to any civil or criminal proceedings, and (iii) the “disclosure is otherwise necessary, in all the circumstances”. He has to be convinced that there are solid grounds to authorize the disclosure sought.

It is on the assurances of this sort given to establish our credentials as a law-abiding jurisdiction that we have instilled over years the necessary confidence in those who deal with our financial institutions to the effect that due processes will be followed. Their names or information about their financial transactions will not be bandied about.

Based on this element of trust, our institutions’ ethical approach to protect the confidentiality of their customers’ dealings with them has gained us an increasing number of clients from Mauritius and abroad. This is continuing. We depend very much on this factor of trust to forge ahead.

No matter how many newer lines of financial business we develop in future, at the heart of them all is this basic element of mutual trust between the financial institution and its client – that information will by all means be kept private between financial institution and client.

I do not care about the politics behind all this. However, I might suggest that the State Bank should cease and desist from finding itself exposed for not having lived up to the normal expectation of trust placed in it by its clients. The public, especially outsiders, should not generalize this incident and get the false impression that their information is not protected by law in our financial system. It is.

Otherwise, we run the risk that a false interpretation may be given to the effect that our financial institutions are exposed to this kind of unlawful fundamental failure which no self-respecting country will take an undue reputational risk upon.

*  Published in print edition on 18 March 2016

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