The Research On The Suitability Obligation In The Sale Of Financial Products

Suitability Obligation originated in American securities industry, and nowadays it has become an important obligation rule in numerous countries and regions to regulate financial institutions in the sale of financial products. The rules stipulate that in recommending to a customer the financial product, a financial institution shall have reasonable grounds for believing that the recommendation is suitable for such financial consumer. The obligation redresses the imbalance between the judgement of both parties in the financial product transaction, through protective legislation slanting towards the financial consumer. With the development of the financial market in our country, the problem is looming large in unsuitable recommendation. Our country transplanted the suitability obligation rules, however, following the legislative strategy that the legislative gave a corresponding suitability obligation rule when a new financial product appeared. Furthermore, the original intention of legislation was merely to enhance market regulation rather than financial consumers’ protection, so that financial consumers are at an unfavourable position in the financial disputes due to absence of legal basis. In order to settle foregoing problems, the purpose of this paper is to build the suitability private obligation rule, which sphere of application includes the whole financial industry, regulating recommendations of financial institutions.This paper has three parts: preface, text and conclusion. The text is divided into the following four sections:In the first part, firstly the author interprets the concept of financial product, mainly demonstrates that the extension of financial product should includes deposit and insurance and should not merely put the investment financial products into the regulative field. Secondly the author analyses private relationships which form during the selling process. And this analysis foreshadows the discussion of the nature of civil liability to the suitability obligation. Thirdly, the author generalizes the definition and connotation of the suitability obligation from certain legislations of countries and regions. In addition, expounds that it is essential for our country to regulate suitability obligation because there is an issue of imbalance between the judgement of both parties, current civil rules cannot deal with such issue, the right of financial consumer and the booming financial market could be adversely affected if this issue would not be disposed.The purpose of the second part is to point out two limitations of current suitability obligation rules, the relatively tight sphere of application and the absence of civil rules, after sorting out suitability rules of our country’s securities industry, banking and trust industry, and questioning the courts’ interpretations of suitability cases which were depend on “ let the buyer beware” principle. These two limitations have been caused by the deviation of legislative orientation. Moreover, the suitability obligation rules of our country could not cope with the internet finance which is the financial innovative fields. Thus, there is an urgent need for the construction of the civil rule of suitability obligation, which sphere of application should include the whole financial industry.The purpose of the third part is to expand the sphere of application of our country’s suitability rules. In this part, from the perspective of comparative law, the author analyses the application sphere and the specific methods to define the sphere in different countries and regions, introduces the legislative experience of suitability obligation in American online security trading and crowdfunding fields, and also the dispute in the legislation and theoretical research. Learning from above experience, in this part, the author offers a proposal about how to expand the sphere of application in our country.In the fourth part, the author attempts to construct the civil rule of suitability obligation. On one hand, the author suggests the articles of the rule, on the other hand, discusses the civil liability if one breaches the suitability obligation. Among this topic the nature of the liability, constitution elements and burden of proof are mainly discussed. Thus, through appropriate intervention, legislation of obligation and liability rules, the protection slanting towards the financial consumer who is the vulnerable group would be achieved. Furthermore, the legislative procedure could not be done at one go so that it is essential to emphasize the arrangement of legislative schedule.