INTERNATIONAL LAWS – APPLICATION IN INTERNATIONAL BANKING SCENARIO :
– Choice of Laws: In case of cross border transactions, it is important to determine which law should govern the international banking transaction/s. Hence, it is imperative to choose a particular law which would protect the rights and obligations of the parties involved.
– Proper Law: The selection of choice of legal clause is very important to ensure that a proper law is selected, to protect the rights and obligations of the parties concerned. For example, the typical clause which would be incorporated in the agreements would be like this: ‘This agreement shall be governed, continued and interpreted in accordance with the law of (the name of the country).
This indicates that the parties concerned have agreed to a particular law, if there is any dispute in the future, to protect their rights and obligations.
– Recognition and enforcement of judgments: This is another important aspect which deals with enforcement of judgments rendered by foreign courts or awards of foreign arbitrations.
In view of the past experience London (English) and New York Laws are preferred since both have a well developed legal framework, covering the commercial jurisprudence which is very well integrated with the international banking system.
Language: An important factor which influences the selection of law is the language in which the International financial market deals and financial terms are used. English is preferred as an international language; therefore there is a preference for either English Law or New York Law.
The selection of the court which would have primary jurisdiction over any dispute is also influenced
By the following reasons:
(a) Speedy and effective judicial remedies in case of any breach of international agreements
(b) Recognition and enforcement of the judgments by the courts in other countries
Legal Issues – Trade Disputes:
The international trade and finance have certain peculiar aspects, some of which are given below:
– Buyers and sellers, investors, lenders, borrowers rarely meet each other
– On account of locations at different time zones, long distances(proximity), culture, political setup, languages, currency, systems and procedures, legal frame work, interpretations etc., invariably international commercial and financial markets face lot of differences and issues in dealing with different types of clients/ banks.
– The international trade takes place basically with the support of relevant documents and legal papers. Some of the important documents used are: Letters of Credit, Guarantees, Bills of Exchanges, Trade and loan agreements and other supporting commercial (Commercial Invoice) transportation (Bills of Lading), risk covering (Insurance Policy) and regulatory documents.
– The International Chamber of Commerce (ICC) Paris, publishes the UCPDC (Uniform Customs and Practices for Documentary Credits) and international trade related guidelines. In view of this, the honorable courts generally recognize these guidelines and refrain from giving verdicts in respect of trade disputes and the concerned parties are advised to be governed by ICC publications relevant to various transactions. International Chamber of Commerce (ICC) provides a conciliation/arbitration platform for settlement of international trade disputes. Besides this, Singapore International Arbitration Center has also of late, become a widely acceptable center for arbitration of disputes in international trade.
Derivative Transactions: Derivative is a financial instrument which derives its value from the value of underlying entities such as an asset, index or interest rate. It has no intrinsic value in itself. Derivative transactions include a variety of financial contracts including structured debt obligations and deposits, swaps, futures, options, caps, floors, collars, Forwards and various combinations of these…Different types of derivative instruments are used as risk management tools to hedge various risks like credit risk, interest rate risk, foreign exchange risk, etc.,
Standardization of Legal Documents:
As regards the derivative transactions, one of the important concerns for the international market players is the enforceability, which presents the greatest legal risk.
To mitigate the Legal Risk, some of the important standardized legal documents used in international banking system are:
– Master Agreements (Documentation)
– International Swap and Derivatives Association Master Agreement (ISDA)
– International Currency Options Master Agreement (ICOM)
– International Foreign Exchange Master Agreement (IFEMA)
ISDA Master Agreement is a comprehensive, omnibus document covering various derivatives Transactions/deals.