The Expanding Boundaries of MiFID's Duty to Act in the Client's Best Interest: The Italian Case

The Italian Law Journal (Forthcoming)

27 Pages Posted: 20 Dec 2017 Last revised: 21 Dec 2017

See all articles by Luca Enriques

Luca Enriques

University of Oxford Faculty of Law; European Corporate Governance Institute (ECGI)

Matteo Gargantini

CONSOB (Commissione Nazionale per le Società e la Borsa)

Date Written: December 15, 2017

Abstract

MiFID requires investment firms to act in accordance with the best interests of their clients. This overarching principle shapes firms’ professional conduct in at least two ways. First, it sets a general standard firms have to comply with when dealing with their clients and its breach may lead to civil remedies for clients or administrative sanctions for investment firms. Second, the duty is the backbone of the detailed conduct of business rules within the body of MiFID II and its implementing measures, playing a role in their interpretation. In this paper, we analyse the duty to act in the clients’ best interest within the MiFID II framework, and illustrate its practical relevance by looking at its role in Italian financial markets law. More specifically, after recalling how the duty came to be an essential part of the ISD/MiFID framework, we map how the duty is spelt out, at various junctures, in the Directive and highlight its functions. Next, we look into how the duty operates with reference to the individual investment services and activities covered by MiFID II, claiming that the duty is quite difficult to reconcile with services characterized by at-arms’-length relationships between the investment firm and the client. Then, we focus on the use of the duty in the law in action of one member state, Italy, where retail investors have suffered from egregious cases of misselling of bonds issued by the banks acting as their investment services providers. We conclude that the MiFID II regime falls short of clarifying with sufficient precision the implications of the best interest duty and, at least in the civil law jurisdiction we focus on (Italy), significantly expands the scope for judicial review of purely arms-length firms-clients relationships.

Keywords: MiFID II, investment services, fiduciary duties, best interest of the client, conduct of business rules, self-placement, Italian private law, remedies, investment advice, ESMA

JEL Classification: G23, G24, K12, K22

Suggested Citation

Enriques, Luca and Gargantini, Matteo, The Expanding Boundaries of MiFID's Duty to Act in the Client's Best Interest: The Italian Case (December 15, 2017). The Italian Law Journal (Forthcoming). Available at SSRN: https://ssrn.com/abstract=3088832

Luca Enriques (Contact Author)

University of Oxford Faculty of Law ( email )

St Cross Building
St Cross Road
Oxford, OX1 3UL
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http:/www.ecgi.org

Matteo Gargantini

CONSOB (Commissione Nazionale per le Società e la Borsa) ( email )

via GB Martini, 3
Roma 00198
Italy

Register to save articles to
your library

Register

Paper statistics

Downloads
174
Abstract Views
615
rank
174,401
PlumX Metrics