Lloyd's Maritime and Commercial Law Quarterly
REFORMING THE BANKING LAWS — STAGE ONE
D. M. Morgan
Lecturer in Law, University of East Anglia.
“ ‘INSIDE BUSINESS’ was asked to check the status of a so-called bank with an address in New York. It had been given as the bankers to a U.K. company in London, which wanted to deal in commodities. For a start, the bank was incorporated in St. Vincent and had the normal status associated with that neck of the Caribbean. It is registered with the New York Banking Commission, its president informed me, but as a ‘representative office’ not trading in the Big Apple.
This New York bank doesn’t trade from the office he was at in London either, which is the U.K. branch of a firm of ‘market bankers’. It has had financial dealings with the director of the London company that wanted to deal in commodities ‘but not of a banking nature’. This director has been associated with two such offshore ‘banks’ operating in London, both now kaput. He has been charged with fraud and may appear at the Old Bailey some time next year.
Until then, thanks to the sub judice law, I cannot name any of the parties involved in this curious entanglement. It is, of course, quite absurd that the Government’s procrastination over U.K. bank law reform allows such entrepreneurs to operate freely in an atmosphere of profitable offshore confusion”.
Richard Milner,
“Inside Business”,
“The Sunday Times”, May 28, 1978.
This short note above, with the sting in the tail, provides a timely opportunity to assess this dark (and dismal) area of banking, and the obligations which the United Kingdom incurs under the first Council Directive on the “Co-ordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions”, issued by the European Economic Community on Dec. 17, 1977.1 The charge of procrastination, however, may not be altogether justified, because the U.K. Treasury has been awaiting the publication of the Directive before taking steps to implement its own proposals, initially contained in the White Paper “The Licensing and Supervision of Deposit-Taking Institutions”,2 now augmented by the publication of the “Banking and Credit Union Bills” paper3 which as it turned out, contained proposals which would go much further than those indicated by the Council Directive.4 It was consequent upon the Directive that the Government had planned to issue a further White Paper which set out proposed clauses for forthcoming legislation, and Parliament was assured by a Minister of State at the Treasury of the Government’s plans to implement this as soon as the Parliamentary timetable permits.
The aim of this article, however, will be two-fold:
1. To consider the effect of the Government’s original White Paper, as supplemented by the Draft Banking Bill.
1 See O.J. No. L. 322 Dec. 17, 1977, p. 30 for text. For further discussions of the document within the Community see; O.J. No. C. 128, June 9, 1975, p. 25 (European Parliament); O.J. No. C. 263, Nov. 17, 1975, p. 25 (Economic & Social Committee); and for the background and basis to the Directive see EEC Docs. 66/75 and 435/74 (Reports of the Committee on Economic & Monetary Affairs, the opinion of the Legal Affairs Committee and the Committee on Budgets). An earlier version, the “proposed Directive”, is set out in O.J. No. C. 12, Jan. 17, 1975, p. 7.
2 Cmnd. 6584 (1976).
3 Cmnd. 7303 (1978).
4 Consideration is given to this point (below).
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