THE views of the Association of Banks in Singapore in the report, 'Forged cheques: Should banks be liable for losses?' (Oct 3), are simplistic given the complexity of today's banking operations.

There is no question of liability where banks are 'solely negligent' in honouring forged cheques. It is in cases of contributory negligence that the bank's liability should be assessed.

Banks, in their professional role as a fiduciary agent, owe a contractual duty to safeguard customers from losses arising from providing banking services.

Indeed, a bank's professional duty of care is so deeply entrenched that not only the paying bank (the victim's bank) where the forged cheque may be encashed, but also the collecting bank (the perpetrator's bank) where the cheque may be deposited, is obliged to obtain a satisfactory explanation from its customer regarding the purpose for which the cheque is encashed or collected.

For this reason, banks maintain a database of customer information, such as occupation, business, income and other circumstances, to enable them to spot transactions that are irregular or not in the ordinary course of the customer's business, or otherwise suspicious.

Thus, a skilfully forged cheque does not absolve a bank from culpability, and it should decline to pay or collect a cheque when its inquiries about the bona fides of the transaction are not answered satisfactorily by the customer.

While the paying bank's liability can be a contractual one, the collecting bank may also be liable to the victim for the tort of conversion. The need for banks to inquire into the purpose of the transaction has assumed greater importance due to concerns over unlawful activities such terrorism, money laundering and drug trafficking. These are also the subject of international treaties to which Singapore is a signatory.

Tan Yip Meng

This article was first published in The Straits Times.