Electronic funds transfer: exploring the difficulties of security

• Author: Mpakwana Annastacia Mthembu
• Position: University of South Africa, South Africa
• Pages: 201-205

Journal of International Commercial Law and Technology Vol. 5, I ssue 4 (2010)

201

Electronic Funds Transfer: Exploring the Difficulties of Security

Mpakwana Annastacia Mthembu

University of South Africa, South Africa

mthemma@unisa.ac.za

Abstract. Generally the banking laws, regulations and supervision were designed primarily to

address the fundamental principle relating to safe and sound business practices by fin ancial

institutions. In order to maintain safe and sound business practice it is of outmost im portance that

customers are protected against losses resulting from inadequate remedies available to them.

Banking by its very nature is a high risk business. However, the major risks associated with banking

are legal risks, credit int erest rates and liquidity. Internet banking has increased some of these risks

by creating new ones. Electronic funds transfers are based on technology which by its n ature is

designed to extend the geographical reach of banks and customers. This kind of a market expansion

extend beyond borders, therefore there will be problems which banks will try to avoid like

regulation and supervision. Other regulatory and legal risks include, the uncertainty about legal

requirements in some countries and jurisdiction a mbiguities regarding the responsibilities of

different national authorities. Customers and banks may be exposed to legal risks associated with

non-compliance with different national laws and regulations including consumer protection laws,

record keeping and report r equirements. Due to insecurity created by electr onic funds transfer, it of

importance to analyse measures under South African Law and whether these measures can

effectively prevent insecurity and what lessons can be learned from abroad.

1 Introduction

South Africa relies to a large extent on common-law principles of th e law of contract to solve the many potential

legal problems posed by electronic funds transfers the primary sources of law relating to payment by electronic

funds transfers are the law of mandate and the law of contract. There is no legislation in South Africa dealing

directly and exclusively with electronic funds transfers. Although the Electronic Communications and

Transactions Act 25 of 2002 (‘ECTA’) provides a wide and general framework for the facilitation and regulation

of electronic communications and transactions, including electronic transactions for financial services, especially

S42 it does not deal exclusively with electronic banking services. The Regulation of Interception of

Communications and Provisions of Communication Regulated Information Act 70 of 2002 is another example of a

statute that may be relevant to electronic banking which provides a wide and general framework for the facilitation

and regulation of electronic communications and transactions, including electronic transactions for financial

services, however, it does not deal exclusively with electronic banking services. (Schulze 2004)

1.1 Electronic Funds Transfers

It is a custom t hat banking laws are designed mainly to address fundamental principles relating t o safe an d sound

business practices by financial institutions (Van Jaarsveld, 2000). South Africa is regarded as one of the countries

with most advanced banking systems. For years there has been a steady increase in the number of electronic funds

transfers, utilisation thereof and it has become the most popular method of payment in South Africa (Schulze,

2007). Electronic funds transfers are defined as an instruction by a client to his bank to transfer funds from the

client’s account to a beneficiary’s bank account. Fein (2000) opines that there are three main forces underlying the

revolution of electronic funds transfers, namely changes in in formation technology, changes in communications

technology and globalization. Electronic funds transfers are effected through the banking system by electronic

techniques which promise financial benefits for banks and potential inconveniences for customers (Schulze,

2004). Electronic funds transfers are recognised and accepted globally. Meiring (1996) states that electronic funds

transfer are based on technology which by its n ature is designed to extend the geographical reach of banks and

customers. This kind of a market expansion extend beyond borders, therefore there will be danger which banks

will try to avoid like regulation and supervision. Other regulatory and legal risks include, the uncertainty about

legal requirements in some countries and jurisdiction ambiguities regarding the responsibilities of different

national authorities. Customer and banks may be exposed to legal risks associated with non-compliance with