business law

[11/04/2018]

Running head: DIGITAL BANKING: LEGAL ISSUES 1

Digital Banking: Legal Issues

Digital banking, with the internet being the medium, has revolutionized the world of banking. Strozniak (2017) mentions that the working of the digital system is well only when the default options set in the system are designed to help the buyer of the (any) product. Digital banking service provides the basic information (stored in the cloud database of the bank) related to account specifically the balances and the statements. In digital banking service, customers in the present time are using this service for the transfer of funds between accounts in an interbank transfer or even in the intra-bank transfer systems. With the development of internet banking, digital banking is not available on the smartphones of every individual. However, like every other technology, this technology holds both pros and cons for users. Digital banking after its utilization came up with some legal issues. These legal issues were identified when people had to face the consequences of digital banking. Some of the common legal issues associated with digital banking along with the real-life examples and their remedies will be discussed.

Digital Bank Transactions and Example of Swift Financial Network

Banks are legally liable for the digital bank transactions that are carried out within the banking system. The digital banking system can go wrong due to a number of reasons. Hacking and cyber theft are some of the common issues encountered. Everyone has known the hacking of credit and debit cards since the development of internet. With the increase in the use of digital banking, a more authorized system is required that keeps a check and balance on the entire working of every customer account since in case of loss of networking data by any of the bank it is the customers that suffers the most.. Hence these charging for e-banking and gathering the information of the users are some things which make the banks liable for all such hacking conditions. Here the basic question arises if the customers will be getting their lost money due to any kind of hacking done on the networking system of the bank.

In the article The "Foundation" of Risk: Does a Banking Client Get Its Money Back after Cyber Theft? By Klees (Klees, 2016) the writer has mentioned the incidence encountered in the Swift banking system. A cyber-theft was reported of more than $1 billion. However, it was the luck of the company that the government organization did not lose so much of the amount as one of the observant workers noticed some changes in the network and stopped the network at that time.

The story of the hack observed in the Swift banking system came front of everyone. Thieves entered the Swift banking system and hacked the networking system resulting in the loss of both the bank and their corporate clients. No evidence of fraud was present in this case. Despite this entire situation encountered in the Swift bank case, this cannot be denied that hacking attacks is one of the biggest realities in the world of digitalization. For the process of recovery of the corporate clients who have been trusting the banks from the beginning, a law exists which has been summarized by the article given by the Kleen (2016). This area of law as mentioned by Kleen is relatively new and has evolved with the progressed of technology. In this banking case, a mutual security system can be divided by the consent between the bank and the client so that both parties hold equal responsibility for the loss encountered.

Article 4A of the Uniform Commercial Code (Adopted first in1989) mention related to the balance between the rights and obligations that exists between the banks and their corporate clients (law refers to them as customers) due to ‘payment orders' whether oral, electronic transfer, or written (Deahl, 2018). According to Article 4A initially, all the liability of the loss was on the bank unless the security of the bank was commercially acceptable and the bank accepted payment orders with complete security procedure (Deahl, 2018).

Digital banking payments and the fraud in them:

A customer buys from an online shop and proceeds with the payment processes by using the facility of E-wallet. An email has been received connected with the E-wallet that the transaction has been successfully made but the online retailer mentions that no payment has been received. This sounds to be the moment of astonishing for the person. The money just vanished somewhere in cyberspace and the consumer is left with no option virtually.

Introducing fraud schemes is becoming common. One of the cases that have been encountered related to fraud scheme is mentioned by Spencer (2017).

In the eye doctor case, Spencer (2017) mentions that the eye doctor from Florida had been imprisoned because of being involved in a $100 million Medicare fraud. What has been traumatizing here is the use of such a noble profession to earn money in an illegal way. Patients gave a mixed opinion about the doctor as the doctor was found to make some patients recover while some patients were left blind forever. The number of fraud done by the doctor, in this case, was nearly 67 including all the healthcare issues caused to the patients and the wrong record keeping of payment and patients in their concerned files.

In this case, after going through the process of the trial the doctor has been convicted as a result of the proven fraud done by the doctor with the number of clients. Similarly in case of the digital banking frauds section 43 of the Information technology (Spencer, 2017) act (This covers the data protection) related to all such frauds and the remedies associated with it. Once the flaw is found in the banking transaction cyberspace, the bank holds liable in case of the data being unprotected due to the banking system. State Supreme courts mention the contractual agreement between the customers and the bank once they agree to the utilization of the online banking system. However, in this scenario, the digital banking systems associated with certain banks need to come up with higher security remedies for keeping the trust of their clients.

Challenge of Global technology implementation and the use of Artificial intelligence:

Some of the banks currently are lacking the level of infrastructure that is required for the process of digital banking. Keeping the level of digital banking adequate is one of the basic issues that lead the security risks among the customers. The customers in return stop trusting the banks. In case some issue is found the banks suffer legally along with the monetary loss. Strozniak (2017) in his article, ‘Fraud Case Unsolved 3 Yrs. Later. Credit Union Times’ mentions about the issue of frauds and the legal correspondence to this issue has been mentioned. The article highlights that ‘Data Breaches’ are bad for the companies and the overall working of the banks since other than losing their customers they undergo through the process of monetary loss as well.

After the issue of data, breaching was found by the retailers and the credit unions, both the parties agreed to the fact that data breaching is turning into a nightmare and that Congress needs to come up with some legislation for this. The government, along with the assistance of FBI, started to figure out the reason behind the data breaching. While assessing the case of Parsons Pittsburg case mentioned in the article, the government at first came up with the fact that there are insufficient resources in the case, which has led to the possibility of this case. However, insufficient resources by the banking institutes or the financial holders have been researchers by the technological researchers and one recommendation has been found.

Conclusion

Digital banking is the technology of the present time. Digital banking system empowered the entire process of transaction, however, like all technologies this technology has its dark side, which has gone through some legal procedures. Three main legal issues in digital banking include the data breaching idea, transaction issues, and global technology implementation. Laws have been generated against all these issues, however, digital banking system needs to fight the idea of data breaching and fraud schemes initially to maintain the reputation of a bank overall.

References

Deahl, R. (2018). Reverberations continue in Donadio embezzlement scandal. Publishers Weekly, 265(33), 4–5. Retrieved from http://search.ebscohost.com.proxyhv.lib.montana.edu/login.aspx?direct=true&db=bth&AN=131194574&site=ehost-live

Klees, E. H. (2016). The “fandation” of risk: Does a banking client get its money back after cyber theft? Business Law Today, 1–6. Retrieved from http://search.ebscohost.com.proxyhv.lib.montana.edu/login.aspx?direct=true&db=bth&AN=117411628&site=ehost-live

Spencer, T. (2017). Eye doctor tied to Bob Menendez case Convicted in $100 million fraud scheme. Time.Com, 1. Retrieved from http://search.ebscohost.com.proxyhv.lib.montana.edu/login.aspx?direct=true&db=bth&AN=126591628&site=ehost-live

Strozniak, P. (2017). Fraud case unsolved 3 yrs. later. Credit Union Times, 28(3), 1–19. Retrieved from http://search.ebscohost.com.proxyhv.lib.montana.edu/login.aspx?direct=true&db=bth&AN=121374246&site=ehost-live