A Legal Analysis of Bank Duties and Liabilities in Relation to Customer Protection in Uganda

ABSTRACT The thesis “Legal Analysis of Bank Duties Liabilities in Relation to Customer Protection in Uganda” is motivated by the background of the study to pertinently contribute remedies that can securely address the banking sector challenges in meeting duties and obligations to protect customers. It should be noted that while there is a law in place to govern bank duties and obligations to customers, in total this law has not been successfully drawn and implemented. The study examines the efficacy of the legal and institutional frameworks of banks in protecting customers. This is in order to establish why in the presence of good laws and policies the bank-customer relationship remains highly challenged. Reflecting on this setting, efficiency of the banking law in Uganda is examined particularly, in the execution of fiduciary duty in loan management. The purpose of the study is to find out the gaps in the existing legislation in the bankcustomer protection relationship and to suggest possible interventions in meeting equity~ Circumstances leading to breach of fiduciary duties were identified as failure to protect a trust, secret commissions and bribes, misleading advice, undue influences, conflict of duties and interest, lack of trust by bank customers among others and the Thesis provides recommendations. The study concludes that fiduciary issues are determined purposely to bring equity, but courts increasingly recognize bank failure in fiduciary duties owing to conflict of interest hence non performing loans. Legislative measures have to work hand in hand with customer consent.

TABLE OF CONTENTS

DECLARATION

APPROVAL ii

DEDICATION iii

ACKNOWLEDGEMENTS iv

TABLE OF CONTENTS v

LIST OF ACRONYMS ix

STATUTES Xi

GUIDELINES xi

LISTOF CASES xii

ABSTRACT xiv

CHAPTER ONE ..1

GENERAL INTRODUCTION ~ 1

1.1 Introduction 1

1.2 Background of the Study 2

1.2.1 Evolution of the Banking Sector in Uganda 3

1.3 Statement of the Problem 7

1.4 Purpose of the Study 8

1.5 Objectives of the Study 8

1.5.1 General Objective 8

1.5.2 Specific Objective 9

1.6 Research Questions 9

1.7 Scope of the Study 9

1.7.1 Geographical Scope 9

1.7.2 Content Scope 10

1.7.3 Theoretical Scope 10

1.7.4 Time Scope 10

1.8 Significance of the Study 11

1.9 Literature Review 12

1.9.1 Concepts, Ideas and Opinions from Authors and Experts 12

1.9.2 Banks Fiduciary Responsibilities and Duties 15

1.10 Methodology

1.10.1 Study Design 25

1.11 Synopsis of the Chapters 26

1.12 Conclusion 26

CHAPTER TWO 28

LEGAL AND INSTITUTIONAL FRAMEWORK GOVERNING BANKING IN

UGANDA 28

2.1 Introduction 28

2.2 Structure of Uganda’s Financial Structure 28

2.3 Bank reforms in Uganda 30

2.3.1 Interest rate liberalization 31

2.3.2 Reduction in directed credit (lending by the government or central bank

dire~ztly or indirectly) 31

2.3.3 Privatization of financial institutions 31

2.4 Legal and Regulatory reforms 31

2.5 Other Reforms 32

2.6 The Over View of the Regulatory framework 33

2.6.1 The Constitution of the Republic of Uganda 1995 33

2.6.2 The Bank of Uganda Act 2000 34

2.6.3 Financial Consumer Protection Guidelines 35

2.6.4 Credit Reference Bureau in Uganda 35

2.6.5 Foreign Exchange Act of 2004 38

2.6.6 The Financial Institutions Act and the Micro Finance Deposit Taking Institution

(2003) 38

2.6.7 The Penal Code Act Cap 120 39

2.7 Control of Banking in Uganda 39

2.8 Legal nature of the duty of fiduciary duty 40

2.9 The Law Governing Bank Obligations of Fiduciary 43

2.9.1 The Financial Institution Act 2004 .43

2.9.2 The Leadership Code Act 2002 44

2.9.3 The Penal Code Act, Cap 120,....... 44

2.9.4 The Micro Finance Deposit Taking Institutions Act (2003) 45

2.10 Conclusion 46

CHAPTER THREE 47

EFFECTIVENESS OF THE LAW GOVERNING FIDUCIARY DUTIES AND

OBLIGATIONS IN BANKS 47

3.1 Introduction V

3.2 Effectiveness of the Laws 47

3.2.1 Bank of Uganda Financial Consumer Protection Guidelines .47

3.2.2 Credit Reference Bureau in Uganda 52

3.3 A Critique of the Law Governing Bank Duty of Fiduciary 54

3.4 Circumstances that give Rise to Breach of Relationship 60

3.4.1 Introduction 60

3.5 The Effect of Breach of Fiduciary Duties 77

3.5.1 Conclusion 80

CHAPTER FOUR 81

POLICY CHALLENGES FACING THE FINANCIAL SECTOR WHILE

ENSURING THEIR FIDUCIARY DUTY TOWARDS CUSTOMERS ~81

4,1 Introduction 81

4.2 Policy Challenges 82

4.3 Conclusion 86

CHAPTER FIVE 87

SUMMARY OF THE FINDINGS CONCLUSIONS AND RECOMMENDATIONS87

5.1 Introduction 87

Summary of the Research Findings 87

5.2.1 Fiduciary Obligations 87

5.2.2 Policy Arrangements 87

5.3 Conclusions 87

5.4 RecommendatiOns~89

5.4.1 Reforms in the law;~89

5.4.2 Observing responsibilities;~89

5.4.3 Improving accountability; 90

5.4.4 Financial Litigations; 90

5.4.5 Promoting estoppels; 91

5.4.7 Strengthen monitoring 92

5.4.8 Review of Standard terms 93

5.4.9 Out Sourcing Policies 93

5.4.10 Borrowing Ability 93

5.4.11 Independent Legal Advice 94

BIBLIOGRAHY 96