Banker's Right of Set-Off

The term Set-off mean the same thing as combination of accounts, it also means the same thing as consolidation account. This suggests that there is existence of two or more accounts before this right becomes exercisable. The law on combination of account generally is that a bank unless precluded by agreement express or implied, from the cause of business is entitled to combine the account opened for the customer in his own right and in the same bank and treat the balance as that only amount in customer's credit.

Set-off is a legal right which entitles a debtor to take into account the sum immediately to him by a creditor when determining the net sum due to the creditor. It is based on the general commercial principle that says when debt are mutual, only the net balances is payable. According to the case of Ibrahim Alabi V Standard Bank of Nigeria, in which it was defined as the right which entitles the banker to retain a credit balance in customer's account against a debt owed to the bank or to treat the fund in customer's account as not available to meet drawings.  

As far as the banker's right of set-off is concerned, there is a conflict of judicial opinions. In Garnett Vs Mckervan, it was held that in the absence of a special agreement to the contrary, a banker might set-off a customer's credit balance against a debt due to him from the customer, and that there was no legal obligation on a bank to give notice to a customer about its intention to combine accounts.  

Nevertheless, in Greenhalgh and Sons Vs Union Bank of Manchester, the Learned Judge observed: “If the banker agrees with his customer to open two accounts or more; he has not in my opinion, without the assent of the customer, any right to move either assets or liabilities from one account to the other; the very basis of his agreement with his customer is that the two accounts shall be kept separate".

In view of these disagreeing judicial pronouncements, the banker can be on the safer side by entering into an agreement with the customer authorizing the banker to combine the accounts at any time without notice and to return cheques which, as a result of such an action, would overdraw the combined account.

Nonetheless, in cases such as the death or bankruptcy of the customer, in order to recover the net amount owing to him, the banker can exercise the right of set-off without notice even in the absence of an agreement.

At the same time, it may be noted that the right of set-off cannot be exercised by the banker if he has made some agreement, express or implied, to keep the accounts separate. This has been laid down in Halesovven Presswork and Assemblies Ltd. Vs Westminster Bank Ltd. Another point to be noted in this connection is that the banker cannot exercise his right of set-off if the accounts are not in the same right. For instance, the banker cannot setoff the credit balance on a partner's account against a debt due on the partnership firm's account and vice versa. Further, the banker cannot combine a trust account with the personal account of the customer.

Again, the right of set-off applies only to existing debts and not to contingent liabilities. Thus in Jefftyes Vs Agra and Masterman's Bank Ltd., the Learned Judge observed "You cannot retain a sum of money which is actually due against a sum of money which is only becoming due at a future date".

Furthermore, the right of set-off does not apply where the customer has deposited an amount taking a loan from a third party on condition that the money is repayable if not used for a particular purpose, the bank having been notified of this condition and where the customer is unable to utilize the loan due to liquidation, as was decided in Quistclose Investments Ltd. Vs Rolls Razar Ltd. (involuntary liquidation) and Other.

Conditions before right of Set-off can be exercised

i. The amount must be ascertained sum.

ii The debt must be due to and from the same person and in the same bank.

iii. The debt must be due for payment either immediately or on demand.

INTERNATIONAL FINANCIAL SYSTEM

Sometimes referred to as the global
financial system, this is the collective
name for the various official and legal
arrangements that govern international financial flows in the form of loan investment, payments for goods and services, interest and profit remittances.

The international financial system consists of institutions, their customers, and financial regulators that interact and operate act on a global stage. The term is regarded in an all-bracing to constitute the various official and legal arrangements that govern international financial flows in the form of loans, investment, payments for goods and services, interest and profit remittances.

In basic terms, the main elements of international financial system are the surveillance and monitoring of economic and financial stability, and provision of multilateral finance to countries with balance of payments difficulties. Therefore, the organization at the nerve-centre of the system is the International Monetary Fund (IMF). This is because IMF, in line with its charter, is bequeathed with the responsibility of ensuring its effective running. In another perspective, there is the view that international financial system holds that the system involves the interplay of financial companies, regulators and institutions operating on a supranational level.

The global financial system can be divided into regulated entities (international banks and insurance companies), regulators, supervisors and institutions like the European Central Bank or the International Monetary Fund. The system also includes the lightly regulated or non-regulated bodies, which collectively is known as the “shadow banking” system. Essentially, this covers hedge funds, private equity and bank sponsored entities such as off-balance-sheet vehicles that banks use to invest in the financial markets.

In evolutionary terms, the history of financial institutions can be traceable to the first commodities exchange in Europe, the Burges Bourse in 1309 and the first financiers and banks in the 15th–17th centuries in Central and Western Europe. The first global financiers were the Fuggers (1487) in Germany; the first stock company in England (Russian Company 1553); the first foreign exchange market (The Royal Exchange 1566, England); the first stock exchange (the Amsterdam Stock Exchange 1602).

The remarkable developments in the history of global financial system include the establishment of the Gold Standard (1871–1932), the founding of the International Monetary Fund (IMF) and the World Bank at Bretton Woods 1944. Others include the abandonment of the US dollar as reserve currency in 1971, the abandonment of fixed exchange rates in 1973 and China pegging its currency, the Yuan, to the US Dollar in 1994, which led to their accumulation of more than $1trillion of international reserves.

PERSPECTIVES ON INTERNATIONAL FINANCIAL SYSTEM 
There are three primary approaches to viewing and understanding the global financial system.

1. Liberal Perspective The liberal view holds that the exchange of currencies should be determined not by state institutions but instead individual players at a market level. This view has been labeled as the Washington Consensus.

2. Social Democratic Perspective 
The social democratic view advocates the tempering of market mechanisms, and instituting economic safeguards in an attempt to ensure financial stability and redistribution. Examples include slowing down the rate of financial transactions, or enforcing regulations on the behavior of private firms.

3. Neo Marxists Perspective
Neo Marxists Perspective holds the view that the political North comprising the developed countries abuses the financial system to exercise control over developing countries' economies, which promotes inequality between the advanced economies and the less developed nations.

Main Players of International Financial System 

1) International Financial institutions  
These include important financial institutions such as banks, hedge funds whose failure may cause a global financial crisis, the International Monetary Fund and the Bank for International Settlements.

2) Customers of Global financial system
These include multinational corporations, as well as countries, with their economies and government entities, for instance, the central banks of the G20 major economies, finance ministries, EU, NAFTA, and OPEC, among others.

3) Regulators of Global Financial System
Many of these regulators play dual roles because they operate as financial organizations at the same time. These include International Monetary Fund, Bank for International Settlements, particularly its Global Economy Meeting (GEM), in which all emerging economies’ Central Bank governors are fully participating, has become the prime group for global governance among central banks.

Such apex banks’ governors include President of the European Central Bank, financial regulators of the U.S.A (the US agency quintet of Federal Reserve, Office of Comptroller of the Currency, Federal Deposit Insurance Corporation, Commodity Futures Trading Commission, Federal Reserve Board, Securities and Exchange Commission, Europe (European Central Bank) and the Bank of China, besides others.

Points to note by an astute and diligent Teller before paying a cheque across the counter

1. Date on the cheque – it should not be stale

2. The presenter of the cheque, the payee [the cheque ] is not endorsed for another person

3. Amount in figures and words must agree

4. The cheque bears the signature authorized in the customer’s mandate

5. The cheque is not mutilated

6. The signature must be regular

7. There is sufficiency of fund to meet the payment

8. There is no stop notice/ countermand of order

9. There is no government order on the account

10. There is no bankruptcy notice on the customer

11. Any alterations on the cheque is duly signed by the authorized signatory

12. There is no court order freezing the account

13. No garnishee order on the account is received

Modus Operandi Of The Central Securities Clearing System, (CSCS) In Relation To Stocks And Shares In Nigeria.

Introduction 

The Central Securities Clearing System, CSCS, has become a major operator in the Nigerian stock market, as stock transactions cannot be completed without interfacing with the CSCS. The Central Securities Clearing System's depository, clearing, settlement and delivery functions ensure the speedy and transparent conduct of share transactions on the Nigerian Stock Exchange. For a shareholder, a CSCS account has become a pre-requisite for share transfers, whether buying or selling shares.

The Central Securities Clearing System is a subsidiary of the Nigerian Stock Exchange and is licensed by the Securities and Exchange Commission, Nigeria, as a capital market agent to handle central depository, clearing and settlement services for transactions in the Nigerian stock market. It began operations in April 1997.

By its depository function, the Central Securities Clearing System has created a central depository for the shares of the quoted companies on the Nigerian Stock Exchange. What that means is that shareholding certificates of individual shareholders are captured into the depository, which maintains a record of them. By dematerializing the shareholdings into electronic records, share transactions are expedited. Now, a shareholder can have all his shareholdings in electronic information, domiciled in his CSCS account, a statement of which can easily be obtained. In several respects, that eases the processing of transactions, giving the shareholder better opportunity to respond quickly to market action and take advantage of market trends.

The Central Securities Clearing System controls the clearing process of the share transactions on the Nigerian stock Exchange. Information on the day's transactions is forwarded to the CSCS by the Stock Exchange, enabling the latter to process them for settlement. Settlement is the process whereby the stockbrokers' accounts are charged or given value for the shares they've bought and sold respectively. The Central Securities Clearing System has appointed Clearing Banks, which work with it to complete the clearing process.

Transactionary Processes at CSCS
A stockbroker is required to have a settlement account with at least a clearing bank. Such account is expected to be funded for any share purchase the stockbroker would undertake on a given day.

The stockbroker's account is debited for such trades through the settlement process, while the selling stockbroker's account is credited. Through its settlement procedures and rules, the Central Securities Clearing System ensures the smooth conduct of those
transactions and that parties meet their obligations. In effect, it is not expected that a shareholder, whose shares have been sold by his stockbroker, will fail to receive the proceeds and in good time. The clearing and settlement process is designed to ensure that value is transferred within the stipulated time frame.

Part of that process is the delivery of stocks to a buyer. The CSCS, as an integral part of the clearing and settlement process, ensures delivery of stocks to the party that bought. That is guaranteed by the requirement that shares be deposited in the CSCS depository, prior to the trade. In effect, a stockbroker is not permitted to sell without the availability of the stocks meant for the sale. This protects the buyer as the shares are in the CSCS depository and are transferred to his account as payment settlement is done. By that, there is convergence of payment and delivery. That process is required to be concluded on the fourth day, that is "T + 3" (transaction day plus 3).

Before CSCS, there was the difficulty associated with the transfer of shares and the production of certificates for traded securities between stockbrokers and the registrars. It usually takes several months to conclude, but with the advent of CSCS Plc, transaction circle is now T+3 (Three working days after transactions). The CSCS system operates a T+3 settlement circle for transactions on The Nigerian Stock Exchange floors in conformity with the practice in emerging markets. The T+3 settlement circle is facilitated by the immobilization of share certificates in a central location, which in turn
enables trades to be processed in an electronic book-entry form. In effect, physical delivery of share certificates to fulfill settlement obligations has been replaced by electronic credits and debits to shareholders stock position.

Procedures for using shares in CSCS depository as collateral for loan
In recent years, trading and settlement volumes especially withthe Securities Settlement System (SSS) have soared, as securities markets have become an increasingly important channel for intermediating flows of funds between bor and lenders and as investors have managed their securities port more actively.
Before the global financial crisis eroded the value of stocks on the nations bourse, one of the collateral for assessing loans from financial institutions ishares in the Central Securities Clearing System (CSCS). T currently this trend seems to have fallen but the CSCS still believe investors need to understand how they can use such shares in depository as collateral for loan facility.

1.The first step is for the lender to demand from the borrower, a current statement of stock position issued to him/her/it by CSCS Limited.

2. The lender can confirm from CSCS, the statement of shareholding issued to a shareholder/prospective borrower by CSCS (status report) on payment of a fee of N100.00kobo. The lender must obtain from the borrower/shareholder a letter of authority to the effect that the borrower/shareholder has mandated the lender to collect the stock position on his/her/its behalf.

3.(a) Thirdly, a memorandum jointly, signed by the parties requesting CSCS to place a lien on specific quantity of the stock(s), should be forwarded to CSCS Limited.
Also, an undated letter signed by the borrower, authorising the lender to sell the stocks in the event of default at the expiration of the loan due date, must be given to the lender upon which CSCS would act when the lender so instructs.

(b) It is essential that the Joint Memorandum be registered at the Stamp Duties Office or sworn to before a Commissioner for Oaths in any Court of Law. Note that the Joint Memorandum must have been completed on the front and reverse sides as directed thereon and explicit therefrom, before same is stamped or sworn to by Authorised Signatories of the Lender (and /or the Borrower).

(c) It is in the interest of the lender not to disburse funds until a letter advising lien placement has been received from CSCS Limited.

(d) The lender, the borrower and the stock-broking firm (s) may be required to confirm and/ or consent to the lien agreement. The stock broking firm(s) in particular is required to expressly ascertain/ confirm in writing that the Shareholder is the genuine owner of the stated stock(s) and that they therefore have no objection on Lien being placed on the stated stock(s) by CSCS Limited.
Furthermore, The stock broking firm (s) must write the letter as earlier referred and addressed to CSCS of which same is expected to accompany the Joint Memorandum when forwarded to CSCS limited. Any insertion/alteration on the Joint Memorandum may be a ground for rejection of the application. The draw down date and duration of the lien agreement must be specifically stated (filled out) in the Joint Memorandum.

4. Upon the receipt of the executed Joint Memorandum and after the lien processing at CSCS have been completed, the shareholding of the shareholder would be moved into a CSCS Reserved Lien Account with the interest of the lender noted. This will be communicated to the parties, thereafter.

5. The lender (and no other party) should advise CSCS to remove the lien placed on stocks en bloc when the Borrower has discharged his/her/its obligation under the contract.
The stock(s), which should be listed on the letter of instructions from the Lender, is/are moved back to the original stock-broking firm(s) from where the stock(s) was taken.

6. When the borrower defaults and/or fails to discharge his/her/its obligation under the contract, the Lender at the expiration of the loan due-date shall:

(i) Inform the borrower of his /her default and this will put the borrower on notice that the lender can exercise his option to sell the stocks to realize the benefit of the contract.

(ii) Inform CSCS of the default by the Borrower and advise CSCS to remove the lien to enable sale to be effected. With a copy of the undated letter written by the borrower to the lender further give instructions/directives to CSCS for the purpose of the release and sale of the totality of the holdings through a mandated or named stock-broking firm, which is a member of The Nigerian Stock Exchange. CSCS, if satisfied that the procedure has been complied with, will be obliged to remove the lien on the stock(s) upon such information/ instructions from the Lender after the expiration of the loan due-date without recourse to the Borrower, moreso when evidence of Notice of Default from Lender to Borrower is received/sighted by CSCS Limited. If the Debtor/Shareholder refuses to acknowledge receipt of the Notice of Default, write a letter to CSCS affirming such position/situation which may suffice for CSCS to release the stock(s) without recourse to the Debtor/Shareholder.