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The Paradox of Financial Services Regulation: Preserving Client Expectations of Loyalty in an Industry Rife with Conflicts of Interest


Andrew F. Tuch


Washington University in Saint Louis - School of Law

January 1, 2008

in THE REGULATION OF WEALTH MANAGEMENT 53-85 (Hans Tjio ed., 2008)
Sydney Law School Research Paper No. 08/21

Abstract:     
This paper considers the implications of Australian Securities and Investments Commission v. Citigroup [2007] FCA 963, a landmark decision of the Federal Court of Australia. The case highlights an apparent paradox in financial services regulation: at the same time as allowing, or even fostering, the development of financial services conglomerates, regulation in multiple jurisdictions preserves potentially incompatible general law obligations that arise from client expectations of loyalty. The paradox is most evident in the context of the modern investment bank.

The paper discusses the dynamic nature of investment banks, their organizational structure, the types of conflicts they typically face and recent trends in the industry. It also considers a number of questions about the regulation of conflicts of interest at these firms. First, when an investment bank performs one of its traditional functions, what fiduciary constraints is it likely to face? Second, to what extent will the classic formulation of fiduciary obligations take account of both the conglomerate structure of the modern investment bank and the co-existence of legislation that regulates conflicts of interest? Finally, quite apart from the fiduciary obligation, what does - and should - a statutory obligation to "manage" conflicts of interest require? These questions are considered against the backdrop of ASIC v. Citigroup.

Number of Pages in PDF File: 41

Keywords: investment banks, conflicts of interest, fiduciary obligations, mergers and acquisitions, financial services regulation, ASIC v Citigroup, Australian Securities and Investments Commission

JEL Classification: K22, G34, G24, G28, K20

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Date posted: January 25, 2008 ; Last revised: September 11, 2013

Suggested Citation

Tuch, Andrew F., The Paradox of Financial Services Regulation: Preserving Client Expectations of Loyalty in an Industry Rife with Conflicts of Interest (January 1, 2008). in THE REGULATION OF WEALTH MANAGEMENT 53-85 (Hans Tjio ed., 2008); Sydney Law School Research Paper No. 08/21. Available at SSRN: http://ssrn.com/abstract=1086480 or http://dx.doi.org/10.2139/ssrn.1086480

Contact Information

Andrew F. Tuch (Contact Author)
Washington University in Saint Louis - School of Law ( email )
Campus Box 1120
Saint Louis, MO 63130
United States
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