The Analysis Of Civil Liability Of Financial Institutions For Violating Suitability Obligation

The suitability obligation was initially applied in the field of American securities and gradually extended to all fields of finance.Currently,it has become the common obligation for many countries to regulate sales of financial products.Based on this obligation,financial institutions can only recommend products or services which they have reasonable foundation to believe suitable for their clients.This obligation is aimed at correcting potential differences between parties in the financial transactions and intendedly protecting investors through legislation.Given the financial market is experiencing a period of development and revolution,the problem of financial institutions' inappropriate recommendation is increasingly prominent.However,the current suitability regulation focuses on reinforcing the market supervision only by afterwards administrative punishment which manifest the inability on the regulation of sales behavior of financial institutions and protection for investors.For investors,only private law relief can perfectly protect their rights and interests.In order to make the appropriateness obligation system truly shows its value of investor protection,it must be made into a private law that regulates behaviors of financial institutions and clarifies the civil liability for violating appropriateness obligations.This article consists of two main parts which are introduction and the text body.The text body would be divided into four chapters:The first chapter explains the notion of suitability obligation which refers to requiring financial institutions to merely recommend products or services which they have reasonable foundation to believe suitable for their clients.Then,this chapter sorts out the legislative and judicial status of the civil liability determination rules when financial institutions violate suitability obligations,and points out that the current domestic determination rules have the drawbacks which are lack of suitability obligations in legislation,the unclearness of the legal nature of civil liability,lack of uniformity of criteria for judgement of appropriateness,and vague boundary of civil responsibility.The second chapter analyzes the legal nature of financial institutions' civil liability when violating the suitability obligation.Considering the appropriateness obligation as an implied guarantee obligation of a financial institution or recognizing the validity of an agreed obligation clause lacks the practical feasibility to establish a liability for breach of contract.Based on the breach of the pre-contractual obligation,the liability for negligence in contracting may be established;but it depends on judges' discretion case by case which leads to uncertainty.The suitability obligation can be recognized as a statutory obligation in China,which makes assuming tort liability justified.Moreover,the definition of tort liability can be associated with the civil liability system for securities fraud,which can provide guidance for judicial decisions.Consequently,it is most appropriate for financial institutions to bear tort liability when they violate the suitability obligation.The third chapter focuses on the constitutional elements of suitability obligations.In terms of behavioral elements,it includes suitability of violation cognition,suitability of violation risks and suitability of violation of transaction purpose.As regards the principle of imputation,it adopts fault liability and applies regulatory norms as a criterion for judging faults.As for the cause-effect relationship,it should refer to the financial transaction behavior recommended by financial institutions and thereby suffers losses.The maturity of investors can be used as a criterion.As for the damage,the scope should be limited within principal losses and take the presumption mechanism for the amount of damage.The fourth chapter aims to establish the rules for determining the civil liability of China's financial institutions for violating the suitability obligation.Firstly,the obligation of suitability should be statutory in legislation and investors should be entitled to own an independent right of claim whose corresponding constituent elements are clarified.Secondly,clarifying the boundary of civil liability for the suitability obligation and set safe harbor rules for financial institutions to balance the interests of both parties.;Finally,it is proposed to protect the investors on the weaker side in terms of the burden of proof.