‘Banking and Finance’ is a term that covers a multitude of activities. The principal business areas are shown below, and the principal terms and acronyms used are shown in italics:
- Commercial banking: loans and other services provided to large companies (corporates) and to small and medium-sized enterprises (SMEs). Other services may include current and deposit accounts, foreign exchange (FX) trading, cash handling, money transfers and collections, payroll payments, safe custody and related activities.
- Investment banking: issuance of bonds and shares for corporate clients, together with provision of corporate finance advice associated with these activities and with other areas such as mergers and acquisitions (M&A).
- Retail banking: provision of loans, bank accounts, debit and credit cards and other services to individuals. This category is often extended to include sole proprietors and small partnerships. Many banks include an insurance company within their group, a model often referred to as ‘Bancassurance’.
- Correspondent banking: dealings between banks in areas such as money market deposits, foreign exchange trading and correspondent accounts (for example, a US Dollar account with a New York bank used by a British bank to make and receive Dollar payments).
- Trade finance: Opening, confirming or collecting documentary letters of credit (L/Cs) or handling other international payments and collections. This heading also includes guaranteeing (confirming) the credit risk of overseas banks and buyers, and lending against the security of a customer’s debtors (factoring or invoice discounting).
- Investment management/asset management: management of investment portfolios and provision of stockbroking services for private individuals, pension and investment funds and other clients. When combined with other banking services for individuals or their families, this activity is also referred to as private banking.
These business areas will also deal with a range of lending activities:
- Extensions of credit may involve secured and unsecured lending (to companies and to individuals), property lending (both commercial and residential), aircraft, shipping, oil industry and other specialised forms of financing.
- Syndicated loans (where a number of banks club together to provide larger loans).
- Structured finance (often through specially established special purpose vehicles or SPVs), which may include non-recourse or limited recourse lending, project financing, securitisation and leasing.
Most banks are also active in derivatives, a term that covers forward foreign exchange contracts, interest and currency swaps, options and other more complex instruments. These have increasingly been used to create structured investment products of varying degrees of complexity targeted at both institutional and retail investors.
Some idea of the scale and scope of international banking can be seen from the fact that the City of London and Docklands together house more than 500 banks. Some of these are universal banks, active in most of the areas listed above, while others specialise in particular sectors, products or geographic regions.
Areas of litigation
The following areas are the most active for litigation.
- Investments – Some requests are fairly straightforward and involve ‘what if’ quantum analyses for claims of negligent, reckless or inappropriate investment management. Others are more indirect and relate to the roles and responsibilities of administrators or trustees or to the underlying elements of more complex structured investments.
- This area overlaps with that of derivatives. Much of the work in this field is as an expert advisor, supporting the legal team and the client in analysing the impact of one or more contracts (one of the more fundamental questions being ‘Can you tell my client if his position is currently in or out of the money?’).
- The issues surfacing in property lending – both commercial and residential – are depressingly recognisable to bankers who dealt with property loan portfolios in the early 1990s. The familiar allegations of negligent valuations and contributory negligence are being made by lenders and valuers respectively, with buy-to-let facilities adding an additional twist.
- Actual and potential Events of Default in syndicated facilities are leading to borrowers, agent banks and syndicate members seeking an independent view on situations that may not have been foreseen when documentation was drafted in less turbulent conditions.
- Cases involving ‘bread and butter’ banking fraud form a regular part of litigation in areas such as misuse of cheques, ATM usage and forgery of corporate or partnership signatures. Know Your Customer and Anti-Money Laundering procedures are often cited in these types of dispute, not always in ways which the authors of the procedures envisaged.
- Finally, the diverse nature of banking continues to throw up one-off requests for highly specialised expertise. These may include someone who could explain in detail the working of the UK direct debit system, a specialist on debit card cloning and an expert able to comment on French banking terminology as used in the early part of the last century.
Banking is a field where title inflation has been rife for the past 30 years. Banks, especially those active in the US, may have as many as several hundred Vice-Presidents and Directors, while Senior Vice-Presidents are also relatively common. Even the more elevated levels of Executive Vice-President and Managing Director may have many more incumbents than would be found in a corporate of a similar size.
However, the usage of job titles varies from country to country, and top levels of senior management in some countries may hold quite unimpressive titles.
Because of the fast-moving nature of the financial sector, formal qualifications have often taken a back seat to an individual’s ability to generate business.
Clearing bankers in the UK traditionally sat for the banking qualification of the Chartered Institute of Bankers (now the ‘IFS School of Finance’ after a period as the ‘Institute of Financial Services’). Passing the required exams led to an Associate of the Chartered Institute of Bankers (ACIB) qualification, which could become an FCIB (Fellowship) after additional study and experience. However, many bankers who did not join clearing banks were not required to follow this course, and the presence or absence of an ACIB/FCIB has no strong significance. Many senior bankers hold an MBA or a legal or accountancy qualification; however, many others do not.
Bankers dealing with the retail market are often required by the Financial Services Authority (FSA), which regulates the UK banking market, to hold qualifications related to their specific areas of expertise. In addition to authorising firms to conduct regulated activities, the FSA also approves specified individuals (Approved Persons) in firms who carry out particular ‘controlled functions’. If someone is (or has been) an Approved Person, this indicates a degree of responsibility within an authorised firm, but it is not a formal qualification.