JAIIB PPB Module-D Unit 5 : Banking Ethics: Changing Dynamic

27/09/2023

Table of Contents

JAIIB Paper 2 PPB Module D Unit 5 : Banking Ethics: Changing Dynamic (New Syllabus)

IIBF has released the New Syllabus Exam Pattern for JAIIB Exam 2023. Following the format of the current exam, JAIIB 2023 will have now four papers. The JAIIB Paper 2 (Principles & Practices of Banking) includes an important topic called “Banking Ethics: Changing Dynamic”. Every candidate who are appearing for the JAIIB Certification Examination 2023 must understand each unit included in the syllabus. In this article, we are going to cover all the necessary details of JAIIB Paper 2 (PPB) Module D ( Ethics in Banks and Financial Institutions ) Unit 5 : Banking Ethics: Changing Dynamic Aspirants must go through this article to better understand the topic, Banking Ethics: Changing Dynamic, and practice using our Online Mock Test Series to strengthen their knowledge of Banking Ethics: Changing Dynamic. Unit 5 : Banking Ethics: Changing Dynamic

Ethics and Technology

Role of Information Technology in Banking

The banking industry is going through a period of rapid change to meet competition, challenges of technology and the demand of end user. Clearly technology is a key differentiator in the performance of banks. Banks need to look at innovation not just for product but for process also.
Today, technology is not only changing the environment but also the relationship with customers. Technology has not broken barriers but has also brought about superior products and channels.
This has brought customer relationship into greater focus. It is also viewed as an instrument of cost reduction and effective communication with people and institutions associated with the banking business.
The RBI has assigned priority to the up gradation of technological infrastructure in financial system. Technology has opened new products and services, new market and efficient delivery channels for banking industry. IT also provides the framework for banking industry to meet challenges in the present competitive environment. IT enables to cut the cost of global fund transfer.

Important events in evolution of Information Technology:-

Introduction of MICR based cheque processing
Arrival of card based payments
Introduction of Electronic Clearing Services
Introduction of RTGS/NEFT
Introduction of Cheque Truncation System (CTS) or Image-based Clearing System (ICS)
Introduction of Core Banking Solutions (CBS)
Introduction of Automated Teller Machine (ATMs)
Introduction of Phone and Tele Banking
Introduction of Internet and Mobile Banking

Background

Committees headed by Dr. C. Rangarajan, RBI’s Committee on Mechanisation in the Banking Industry (1984) and RBI’s Committee on computersation in Bank (1988) laid the foundation for larger-scale introduction of IT in India’s Banking Sector. Futher, The Reserve Bank of India Constituted a committee called ‘Committee on Technology Issues relating to the Payments system, cheque Clearing and Securities Settlement in the Banking Industry (1994) under the Chairmanship of Shri W S Saraf. This Committee made a number of recommendations that covered payment systems including Establishment of an Electronic Fund Transfer (EFT) system, introduction of Electronic Clearing Service Credit for low value repetitive transactions such as interest, dividend, salary, pension payment and an Electronic Debit Clearing for payments to utility companies. Large scale induction of computers and communication technology in service branches, etc, were also part of the recommendations.

Role of Ethics in Technology

Using theories and methods from multiple domains, technoethics provides insights on ethical aspects of technological systems and practices, examines technology-related social policies and interventions, and provides guidelines for how to ethically use new advancements in technology. Technoethics provides a systems theory and methodology to guide a variety of separate areas of inquiry into human-technological activity and ethics. Moreover, the field unites both technocentric and bio-centric philosophies, providing “conceptual grounding to clarify the role of technology to those affected by it and to help guide ethical problem solving and decision making in areas of activity that rely on technology.” As a bio-techno-centric field, technoethics “has a relational orientation to both technology and human activity”; it provides “a system of ethical reference that justifies that profound dimension of technology as a central element in the attainment of a ‘finalized’ perfection of man.’

Ethics address the issues of what is ‘right’, what is ‘just’, and what is ‘fair’. Ethics describe moral principles influencing conduct; accordingly, the study of ethics focuses on the actions and values of people in society (what people do and how they believe they should act in the world).
Technology is the branch of knowledge that deals with the creation and use of technical means and their interrelation with life, society, and the environment; it may draw upon a variety of fields, including industrial arts, engineering, applied science, and pure science. Technology “is core to human development and a key focus for understanding human life, society and human consciousness.”

Data Security and Privacy

With the increased intervention of technology in the banking sector globally, the need for sophisticated laws to protect customer information has gained significant attention. While several countries have enacted comprehensive legislations to protect customer’s sensitive information, some countries are still in the process of introducing legislations to keep up with the changing pace of technology. In India, banks are regulated by the Reserve Bank of India (RBI) and the RBI through various notifications, circulars, directions and guidelines from time to time, obligates banks to maintain customer confidentiality and protect the privacy of customers’ data.

The government of India also introduced the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 with an aim of creating a robust legislation, which would protect customer’s sensitive personal data by only allowing banks to release data when the customer has explicitly consented to such disclosure. The Rules also permit banks to only collect sensitive personal information for lawful purposes connected with the function or activity of banks and when the collection of the information is necessary for such purpose.

Credit Information

However, while providing the necessary protection to customers there is also a need to ensure that banks are not victimized for no fault of theirs by not being able to recover their debts from defaulting customers. To meet this end, the Credit Information Companies Act, 2005 (CIC Act) was introduced in India in 2005.
Credit Information Companies (CICs) are independent third party organizations that provide credit information to banks and financial institutions and asses credit worthiness of individuals based on their past repayment and default records. Banks can, through such information, determine whether they should provide credit facilities to the client. A CIC is required to furnish information to its members and has to maintain principles of privacy enumerated under Section 20 of the CIC Act.

Information Utilities

Recently, with the introduction of the Insolvency and Bankruptcy Code, 2016 (the Code), a new concept of the Information Utilities (IU) was brought into the picture and subsequently notified with effect from 1 April 2017.
An IUs under the Code is an infrastructure facility which, like the CIC, is to create a financial information database of all entities availing credit in the country with the aim to enable better decision making by creditors and to ensure discipline among debtors.
To ensure data privacy, IUs are required to store all the information received in a facility located in India and should have high quality data storage systems to avoid loss/ corruption of data.
The information stored with an IU can only be accessed by certain specific categories of persons, which includes inter alia any user who submitted the information, National Company Law Tribunal, insolvency professionals and the Insolvency and Bankruptcy Board of India.

Intellectual Property Right and Patents

Intellectual Property refers to creation of an asset by any individual or anyone using his or her creativity, innovation. Such intellectual property (IP) belongs to that individual and any unathorised use of such IP is strictly under the applicable law of land. Some example of IP is artistic works; and symbols, innovative process, method etc.

Intellectual property included into two categories:

Intellectual Property includes patents for inventions, trademarks, industrial designs and geographical indications.
Copyright covers literary works (such as novels, poems and plays), films, music, artistic works (drawing, paintings etc) and architectural design.

What is Patent?

A patent is a form of intellectual property that gives its owner the legal right to exclude others from making, using, selling and importing an invention for a limited period of years (Generally 20 years) , in exchange for publishing an enabling public disclosure of the invention.

Ethics of Information Security

As technology is taking over most of the Banking activities; threats associated with the use of technology also need to be tackled. The IT team of the bank or financial institution in a way becomes the custodian of the information of its customers/dealings/ activities.

The following aspects relating to information security may be worth following by the employees:

Making the employee (IT and non-IT) be aware of their professional obligations relating to the information security of the bank, customers and other stakeholders.
Notifying from time to time the existing laws and crimes as and when the cyber laws get amended in the country or internationally (for off-shore transaction).
Making the bank employees (especially the IT employees) aware of the patterns of IT attacks on bank customers/servers/ other assets like ATMs, etc. and to familiarize the profiles of attackers and patterns of the thefts, modus operandi, if any.

Cyber Threats

Need for Cyber Security Awareness

Despite the Indian Banking system having completed its process of computerization and online-ready transactions, a significant proportion of the customers of banks are still not adequately well-versed with the importance of cyber security. Banks are making their sincere efforts to educate and bring in awareness among their customers on the importance of memorizing their passwords. Firstly, setting the password itself is not taken seriously by many customers.

There are four characteristics advised by typical IT personnel of banks while setting a password. The passwords are ideally to be:

Personal
Unique
Secret
Complex

Cyber Security Framework in Bank

Reserve Bank of India, thought its Notification dated June 2, 2016, advised all commercial banks in India’s to have in place a cyber- security policy with the the approval of their Boards. RBI gave about 4 months timeframe to the commercial banks to set up such cyber security policy and give a compliance conformation to the RBI. RBI notification directed the commercial Banks further on this aspect us under:

“In order to address the need for the entire bank to contribution to a cyber-safe environment, the Cyber Security Policy should be distinct and separate from the broader IT policy/ IS security policy so that it can highlight the risk from cyber threats and the measures to address/mitigate these risks.

Banks need to promote the following enabling programs

Take preventive steps
Provide guidelines steps
Engage state- of- the art IT security protection systems
Build confidence in staff and customers

Digital rights management (DRM)

Digital rights management (DRM) is a systematic approach to copyright protection for digital media. The purpose of DRM is to prevent unauthorized redistribution of digital media and restrict the ways consumers can copy content they’ve purchased.
DRM products were developed in response to the rapid increase in online piracy of commercially marketed material, which proliferated through the widespread use of peer-to-peer file exchange programs. Typically DRM is implemented by embedding code that prevents copying, specifies a time period in which the content can be accessed or limits the number of devices the media can be installed on.
Although digital content is protected by copyright laws, policing the Web and catching law-breakers is very difficult. DRM technology focuses on making it impossible to steal content in the first place, a more efficient approach to the problem than the hit-and-miss strategies aimed at apprehending online poachers after the fact.

Download PDF

JAIIB PPB Module D Unit 5- Banking Ethics Changing Dynamic (Ambitious Baba)