The Weakening of Fiduciary Law

Research Handbook on Fiduciary Law 354 (D. Gordon Smith & Andrew S. Gold eds., 2018)

Washington University in St. Louis Legal Studies Research Paper No. 17-04-03

24 Pages Posted: 12 Apr 2017 Last revised: 16 Sep 2018

Andrew F. Tuch

Washington University in St Louis - School of Law

Date Written: January 1, 2018

Abstract

In the 1970s and 80s, as major financial institutions grew and diversified their operations, courts and scholars recognized that fiduciary law posed profound challenges for the organizational practices of these firms. The challenges were considered existential by some: firms, ultimately, would need to slim down their operations, and perhaps even need to disaggregate some units, to avoid fiduciary liability. However, since these challenges were recognized, financial conglomerates have grown massively and focused more on taking direct stakes as principals, a practice that accentuates the risk of conflicts of interest.

How were financial conglomerates able to continue growing and diversifying despite the imposition of fiduciary constraints generally seen as robust? Did fiduciary law weaken, as some scholars contend? This chapter in the Research Handbook on Fiduciary Law examines these questions under both US and UK law by considering potential explanations for firms’ increasing scale and scope. These explanations include the contractual erosion of fiduciary principles, the regulators’ and courts’ legitimation of information barriers as checks on conflicts, the molding of fiduciary law by regulation, the non-enforcement of fiduciary duties by clients, and the shift toward arbitration of client disputes. I suggest that in the US the weak deterrent force of fiduciary law owes less to changes in the law than to inhibitions on its enforcement, while in the UK courts have been generally willing to conform fiduciary duties to inconsistent regulatory rules.

Keywords: fiduciary duties, organizational structure, conflicts of interest, conflicts of duties, proprietary trading, financial conglomerates, information barriers, Chinese walls, disclaimers, mandatory arbitration

JEL Classification: D40, D70, D80, G21, G24, G30, G34, G38, K10, K19, K22, K39, N20, N80

Suggested Citation

Tuch, Andrew F., The Weakening of Fiduciary Law (January 1, 2018). Research Handbook on Fiduciary Law 354 (D. Gordon Smith & Andrew S. Gold eds., 2018); Washington University in St. Louis Legal Studies Research Paper No. 17-04-03. Available at SSRN: https://ssrn.com/abstract=2951460

Andrew F. Tuch (Contact Author)

Washington University in St Louis - School of Law ( email )

Campus Box 1120
Saint Louis, MO 63130
United States

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