The Civil Liability Of Financial Institutions On Violating The Suitability Obligation

The legal liability on violating suitability statues existing as regulatory law is mereadministrative penalties, which shows the weakness on constraining financial institutions’behaviors and investor protection. For investors，the civil relief is the best guarantee. To putthe function on protecting investor of suitability system into effect，it is necessary to requirefinancial institutions to undertake the civil liability on violating the suitability obligation。Compared with the expectation on legislation to confer investors the private right of action，itis more desirable for investors to find the statues by law interpretation，according to whichthey could provoke a civil claim。The legislative and judicial practice of other countries whichhave the same pattern as our country enlightens us：the law to regulate the dispute ofsuitability between investors and financial institutions exists in our legal system，but weneed to find it。Nowadays，to ascertain the civil liability of financial institutions on violatingthe suitability obligation is an issue of judgment than legislation.In addition to the introduction of this article，the text is divided into four parts,The first part analyses the civil property of financial institutions’ suitability obligationfrom two different paths，in order to find the law according to which investors could provokea civil claim against financial institutions。First, on the understanding that the relationshipbetween the public law and civil law is a dynamic connection，by identifying suitabilitystatues which is public law as the law for protection，converts the obligation in public law intocivil obligation。Second，by comparing the legal connotation of the suitability theories withthe principle of good faith, suitability obligations can be interpreted as an obligation of careassigned to financial institutions based on the principle of good faith.The second part analyses the property of financial institution’ civil liability on violatingthe suitability obligation。The suitability obligation is legal obligation when it is convertedfrom public law obligation into civil obligation or a duty of care for transaction based on theprinciple of good faith, which means the liability on violating it is tort or culpa in contrahendo.By writing the suitability obligation into the contract, the financial institution’ civil liabilitymay be liability of breaching the contract, which is possible on theory based on the format of financial commodity trading contract.The third part defines the border of financial institutions’ suitability obligation to providea criterion on judging the violation of the suitability obligation. Financial institutions don’thave to rescue the investors for their economic suicide as a result of balancing the suitabilityobligation with caveat emptor. Financial institutions undertake the suitability obligation onlywhen the investors rely on their professional skills. The difference in personal characters ofinvestors would differentiate the liability and behavior norms of financial institutions，including suitability obligation.The fourth part concludes some problems in the juridical practice of our country onjudging the suitability disputes: the courts lack the incentive to find the law to regulate thedispute, which leads to careless judgment or refusal to judge; the courts incline to adoptcaveat emptor to dismiss the claim of investors; the courts haven’t acquaint the untruthfulconsensus of the parties and make unfair judgment on investors’ declaration of intention.