Internet banking legal requirements - Bahrain

[FaGal]

Internet banking legal requirements - Bahrain
www.menafn.com - Bahrain Tribune - March 5, 2005


Dr Abdelgadir Warsama - Legal Consultant:

Electronic transactionsí including Internet banking and e-commerce is growing worldwide and, we could easily notice that, it is happening everywhere everyday. Banks and other business institutions, are offering many electronic transactions.

Needless to say that the Internet banking , the e-transactions and the e-government services depend to a large extent on the output of electronic software and other media that requires proper utilization and implementation of the internet and itís related fields.

However, the potential of electronic services requires certain infrastructure that should be put in place in order to give the necessary impetus to such services.

One of the main infrastructures needed, is the legal platform and the legal framework that should be cemented carefully, with due diligence and professionalism, taking into account the experience of other advanced jurisdictions in this respect.

The Internet and related software, as we know, is a sort of computer programme primarily aimed at linking certain points electronically. Within this context, it is important to highlight some legal problems or issues that could affect the Internet banking process unless certain legislations are maintained with the intention of developing such processes.

The e-banking will enhance the expansion of e-commerce with other business entities in all parts of the world. However, we have to admit that Internet banking and e-commerce transactions are still facing some legal, commercial and logistical problems such as:

The payments system worldwide is still facing some practical difficulties.

Additional cost for freight, customs duties, insurance charges and postage.

Some companies may be out of competition because they don't have a Web site, or even if they have, are unable to display their products in an attractive or informative way.

Many commercial entities or individuals are still facing computer literacy.

Some of the main software companies, in the world, inventing or preparing the required new Internet programmes are facing certain legal litigation among themselves or with their governments. Such litigation or legal problems may affect the future of such programmes.

As a matter of fact, we could easily notice that licensed banks operating banking business in Bahrain are far ahead their business peers and they rank as leading pioneers in electronising most of their banking transactions with the aim of giving modern, easy and fast services to their customers and the community.

However, we have to say that there are certain legal issues or, if we could say, legal problems that could affect the natural process of the Internet banking and its normal development.

Electronic cheques, for example, are normally required as part and parcel of the process that is needed for Internet banking transactions. The problem that arises here is the non-availability of the required manual signature on the electronic cheque that has been replaced by an electronic code number inserted in the electronic cheque.

This electronic code number steps into the shoes and replaces the traditional manual signature, in such a way that enables the beneficiary to use the cheque through an electronic process. However, the current banking laws and regulations in the country, as in many other places, require and mandate certain manual hand signatures on the face (or at the back) of the cheque.

A valid legal question arises here; can the competent courts accept or authorize such transactions that take place in the absence of valid legal recognition to the e-signature or ìcode signatureî principle?

Another good example for very useful electronic banking transactions is the usage of Automatic Teller Machines (ATM), or any other designated name, because banks are using different names for this banking facility offered through the clock to customers.

In fact ATMs obey or follow the instructions of the user, this happens automatically, when a special card has been installed inside the machine. After installing the card the customer clicks a "secret number". The machine (computer) is programmed to verify the secret number instantaneously so as to make sure that the secret number is correct and therefore acceptable.

After acceptance the customer enters or clicks his necessary instructions, or in other words, he explains what service he wants from the bank. The required service could be withdrawal of money from his account, transfer of money to another account, deposit of money, balance enquiry, statement request, etc.

Also a customer, instead of going to the ATM or the bank offices, could ask for certain services from the bank by using the Internet from his home, office or from any part in the world. Another customer could opt to contact his bank through the telephone or the fax, etc.

This process indicates that the customers and their banks are undertaking their transactions electronically, in addition to the daily routine operations, there are electronic payments and collections, consultancy services, certain brokerage activities, financial advice, general e-commerce transactions and other banking and advisory activities that give more role for internet banking at present and in the near future to come.

In all these transactions there is no manual hand signature and the password of the user is the code or electronic signature that replaces the manual signature and accordingly it allows or opens the business for the required transaction.

We have to admit that Internet banking, as part of the electronic transactions, is taking shape in this country very rapidly even before enacting the required codification and this highlights the point that the legislation is lacking the necessary speed to be in line with the new developments happening in all fields particularly the internet and information technology.

The electronic evolution in the information technology necessitates an urgent evolution and revolution in all related legislations and laws so as to fill the gaps between the two areas and, at the same time, to legalise the new electronic transactions.

The new electronic laws, if we could say this, should recognise and endorse the electronic signature done by the customer. The electronic signature shall take place at the time of entering the password or the code number by the customer. The courts, in this respect, should give the electronic signature the same creditability and authority that is given to the hand manual signature.

The rules of evidence should be amended to allow the acceptance of electronic generated receipts and to treat them as original documents. This is very important because the courts will deal with all documents related to Internet banking as copies, not original documents, and therefore not acceptable according to the current basic rules of evidence.

There are many other points that could take place while we are enjoying the new electronic services and the courts should be ready to meet the new legal difficulties, if any. To pass this era we need to rewrite the current valid laws with the aim of putting them in line with what is happening in real life and emerging developments, otherwise the banks and other business corporations or entities will be out of history.