Research On The Fiduciary Duty Of Asset Managers

As a licensed financial business,asset management is an integral part of China’s financial market.The industry is regulated through current laws and policies by the government.However,in practice,asset management has become the hardest-hit area of “shadow banking” and has extremely high financial risks.Meanwhile,due to the non-performance of the fiduciary duty in the industry for long,asset managers neglect,evade or violate the fiduciary duty in the process of wealth management,thereby causing great losses to the investors’ principals and interests.This,on the one hand,casts a shadow over the lives of numerous families and,on the other hand,is not conducive to the healthy development of the industry and the harmony and stability of the society.For the purposes of preventing financial risks,protecting the legitimate rights and interests of investors,and promoting the construction of a harmonious society,the regulatory authorities jointly issued the Guiding Opinions for Regulating Asset Management Business of Financial Institutions in April 2018,which marks the official launch of the reform on the legal regulations for asset management in China.Unfortunately,this round of reform aims to keep the bottom line of no systemic financial risk,and focuses on transferring the risk of asset managers to investors through methods such as “off-balance sheet activities”.Accordingly,this further aggravates the risks of investors,which goes against the requirement of “effectively protecting the legitimate rights and interests of financial consumers”.At the same time,it has little meaning in the attempt of this practice to fundamentally resist financial risks;rather,it can only postpone its occurrence.This is because that the asset management with the non-performance of the fiduciary duty will inevitably lose the trust of investors,the lifeline of the financial industry.In order to solve the practical issue that the legitimate rights and interests of investors are vulnerable to infringement,for which there lacks effective protection,to ease the conflicts between the control of financial risks and the protection of private interests,and to maintain the steady development of the asset management industry,it is necessary to make a special study on the fiduciary duty of asset managers.In a nutshell,the study on the fiduciary duty of asset managers is an action-forcing theoretical research based on real social problems,which focuses on solving the issues in practice and has practical significance.“Some basic concepts in financial laws are not simple reflections of financial activities,but undertake the function to allocate various authorities in specific financial areas”.It should be noticed that asset management,originating from ordinary civil activities,has evolved into special financial activities and is now returning to the essence of “asset management services for clients”.Moreover,based on reviewing the historical context,current laws and policies of asset management,it is found that the defects of laws and legal principles in four aspects have resulted in the nonperformance of the fiduciary duty required for asset managers.Firstly,it is the unclearness of legal principles,which leads to the ambiguities in the scope of the asset managers subject to fiduciary duty.Secondly,the fiduciary duty under current Chinese legal systems remain at the loose the “obligation bundle” status as under AngloAmerican law system and are in lack of the internal logic they are supposed to have,resulting in different opinions among scholars on the specific contents of the asset managers’ fiduciary duty and the failure to form systematic,enforceable and integrated concrete rules.Thirdly,the ambiguities in the legal liabilities to be taken by asset managers for breach of fiduciary duty resulted from the two issues above make it difficult to effectively regulate business behaviors and guide judicial practices.Fourthly,the lack of overall legislative design for asset managers’ fiduciary duty can be blamed for the foregoing three issues,thus hindering the implementation of the “harmonization of the regulatory criteria for the asset management products of the same category”.To conduct the study on the fiduciary duty of asset managers,the first thing needs to do is to determine the origin,functions and nature of the fiduciary duty,and then to analyze their internal components.After figuring out the internal structure of fiduciary duty,the logic for the generation of fiduciary duty in asset management will become clear and the fiduciary duty of asset managers are triggered.In terms of the origin,fiduciary duty originates from the substantial fiduciary relationship and is a supplement to the incompleteness of a contract entered into by the parties under fiduciary relationship;thus,fiduciary duty is a kind of “supplementary” rule.In other words,for a specific trustee,to determine whether the finical industry is subject to fiduciary duty needs to investigate the self-protection status of the “trustor” and the alternative protection scheme.In terms of the functions,the main purpose of fiduciary duty intends to regulate the potential moral risks on the part of the trustee,so as to adjust the relationship of rights and obligations between the parties that is established on the basis of trust.In terms of the nature,as a kind of statutory obligation different from the contractual obligations,fiduciary duty shall not be excluded with the provisions as agreed by the parties in the relevant agreement,thus having rigidity in in regulating the behaviors of the trustee.Then,it is to analyze the internal structure of fiduciary duty,i.e.to explore the characteristics of the fiduciary relationship from the perspective of differentiating them from other legal relationships,and to define their components from the internal point of view.The subjective trust and the objective status of trust explain the logic and requirements for the generation of fiduciary duty.The former specifies the basis of the trust that should in place between the trustee and the trustor,which is the starting point of the internal structure of fiduciary duty;on the other hand,the latter objectively confers the trustee with the ability and capacity to deal with relevant matters,which is the most important component of fiduciary duty.This strongly explains the generation of fiduciary duty in the asset management composed of the “agency-principal” relationship and the “trust” relationship.In another word,as far as the trust-based asset management is concerned,asset managers should naturally be subject to fiduciary duty,which is determined by the essence of trust.However,for the asset management conducted in the form of “agency and principal”,it requires to determine whether the asset manager is trusted by the beneficiary subjectively and whether the finical industry is empowered with full discretion.Only when subject trust and full discretion are both in place,should the asset manager be subject to fiduciary duty.Besides,the logic for the generation of fiduciary duty in asset management can also help to solve the harsh problems in the judicial practice of asset management.For example,through the explanation made in the Guiding Opinions for Regulating Asset Management Business of Financial Institutions promulgated in 2018 regarding the prohibition of passageway business and rigid redemption,the core connotations and denotations for the fiduciary duty of asset managers can be actually identified,so as to better regulate the acts and behaviors of asset managers and to construct a normative system for the fiduciary duty of asset managers.Furthermore,the completeness of the contents of fiduciary duty is a must for asset managers to properly fulfill their fiduciary duty.The guiding role of laws and regulations can be played their role only if the contents of the fiduciary duty are complete.Nevertheless,in general,the provisions on fiduciary duty in current legislation,including the Trust Law,the Corporate Law and the Guiding Opinions for Regulating Asset Management Business of Financial Institutions,are either made in the principle sense or are not sophisticated enough,making them unable to really play their due roles.This is also the core reason for the non-performance of the fiduciary duty of asset managers in China for long.For the formulation of detailed and implementable contents of fiduciary duty based on the current situation of China and the specific transaction structure that an asset manager is facing,it first depends on the establishment of the criteria for defining the contents of fiduciary duty.The construction of these criteria should be worked out in two aspects: one is to differentiate fiduciary duty from other obligations,which determines whether a specific duty can be incorporated into fiduciary duty;the other is to sort out the logic among the contents of fiduciary duty,which determines the attribution of a specific duty.Next,based on the foregoing criteria,clarification can be effectively made as to the scope of the fiduciary duty for the asset managers of particular trustees under the laws of China,and the loose “obligation bundles” under the common law system can be classified,so as to construct the specific consents of the asset managers’ fiduciary duty.Thirdly,in light of the differences in the contents of the fiduciary duty that asset managers are subject to,it also fundamentally depends on the differentiation of investors;therefore,it is of practical significance to reasonably differentiate investors by classification and then to accordingly analyze the differences in the fiduciary duty that asset managers are subject to.This is also a specific implementation of “harmonization of the regulatory criteria for the asset management products of the same category”.Finally,it is to analyze the objective criteria to be met and satisfied by asset managers in the performance of their fiduciary duty,which is out of the consideration for the value of law that laws should not constrain people to do things that are beyond their power.Despite that asset managers are subject to fiduciary duty,the specific rules for duty should be available for implementation;meanwhile,remedies at law should also be available in circumstances where losses are incurred to investors due to the breach of the fiduciary duty.It is worth noticing that the liability for breach of fiduciary duty and that for breach of contract are principally similar in that both are a breach of the primary obligation standards that the asset manager is expected to fulfill by virtue of the fiduciary duty,thereby resulted in the secondary obligations.Meanwhile,the legal liability for breach of fiduciary duty may be analyzed from two aspects: for one thing,it is the liability for investors;for another,it is the liability for the trusted assets.As required by the former,the asset managers should conduct management over the assets and the proceeds generated therefrom must be handed to the investors,otherwise the asset manager should be subject to corresponding legal liabilities.As for the latter,it means that,if the assets are impaired or damaged or lost due to the asset managers inappropriate acts in the process of asset management,then the asset managers should be liable for restituting the assets trusted,or making compensation or otherwise.That’s to say,depending on the different means of remedies,right of investors for remedies are divided into two categories,i.e.object-oriented remedies and for the peopleoriented ones.In the end,due to the “domestication” of the Trust Law in the process of its introduction and implementation in China and the diversification in the identification of legal relationships in asset management,the current Trust Law is unable to accomplish the mission of regulating the fiduciary duty of asset managers in a harmonized manner.Therefore,it is of high necessity to explore,with reference to the typical legislative path in foreign jurisdiction,the systematic paths for the fiduciary duty of asset managers in our country.The relevant rules for regulating asset managers’ fiduciary duty in Britain,US,Germany and Japan,which fall into two major legal systems,provide good examples that can be referenced to for the system construction for the fiduciary duty of asset managers in China.Taking all relevant factors into consideration,the rules for the fiduciary duty of asset managers in China should be considered and measured in a systematic way,which requires the joint governance of the laws and regulations at multiple levels,so as to form a systematic system of rules consisting of “basic laws + regulatory laws + self-discipline rules”.Namely,it is to have the Civil Code as the guidance,the Trust Law and the Security Law and the Securities Investment Funds Law as the framework to further refine the financial regulatory rules and make supplements to the self-discipline rules.In terms of the legislation,a phased-based and gradual strategy should be adopted.After determining the legislative pattern for the fiduciary duty of assent managers in China,it is to further complete the framing of fiduciary duty to draw a full stop for the efforts made to solve the problems in practice.