Reforming Corporate Retail Investor Protection: Regulating to Avert Mis-Selling (Hart Studies in Commercial and Financial Law)

The spate of mis-selling episodes that have plagued the financial services industries in recent years has caused widespread detriment to investors. Notwithstanding numerous regulatory interventions, curtailing the incidence of poor investment advice remains a challenge for regulators, particularly because these measures are taken in a ‘fire-fighting’ fashion without adequate consideration being given to the root causes of mis-selling. Against this backdrop, this book focuses on the sale of complex investment products to corporate retail investors by drawing upon the widespread mis-selling of interest rate hedging products (IRHP) in the UK and beyond. It brings to the fore the relatively understudied field concerning the different degrees of investor protection mechanisms applicable to individual retail investors – as opposed to corporate retail investors – by taking stock of past regulatory reforms and forthcoming regulatory initiatives as well as, more importantly, the conclusions reached by the judiciary in IRHP mis-selling claims. The conclusions are particularly interesting: corporate retail investors are in a vulnerable position when compared to individual retail investors. The former are exposed to a heightened risk of mis-selling, meaning that regulatory intervention should be targeted accordingly. The recommendations made as a result of these findings are further supported by insights emerging from behavioural law and economic theories. This book is aimed at researchers, lawyers and students with an interest in the financial regulation field who are keen to explore potential regulatory reforms to the investment services regime that address the root causes of mis-selling, and restore a level playing field amongst all retail investors. Hart Studies in Commercial and Financial Law: Volume 3 Preface and Acknowledgements Table of Contents List of Acronyms and Abbreviations Table of Cases Table of Legislation PART I: THE ILLUSION OF UNIFORMITY 1. Breadth of Investor Protection Regulation I. Why Regulate to Protect Retail Investors? II. Categorising Retail Investors III. The IRHPs Mis-selling Scandal IV. The Case for Reform V. Brexit Considerations 2. Understanding Corporate Retail Investors and their Behavioural Biases I. Defining Investor 'Vulnerability' II. A Behavioural Law and Economics Perspective III. The ‘Consumer Responsibility Principle’ IV. Addressing Vulnerabilities and Biases 3. Applying Regulatory Reforms and Redress Avenues to the Case of Corporate Retail Investors I. The Regulatory Response to Retail Investor Protection Concerns II. The Limitations of the Redress Options Available to Corporate Retail Investors III. Concluding Remarks PART II: THE REGULATORY AND LEGAL INTERPRETATION OF ‘INFORMATION’ AND ‘INVESTMENT ADVICE’ 4. Distinguishing between 'Information' and 'Investment Advice' I. 'Information' v 'Investment Advice' - A Regulatory Perspective II. Views from the Academic Universe and Consumer Bodies III. A Fair and Reasonable Perspective - The View of the Financial Ombudsman Service IV. The English Courts' Interpretation of the Notions of 'Information' and 'Advice' V. Concluding Remarks 5. Championing the Written Contract as the Decisive Tool for Managing Expectations: A Focus on the Mis-selling of IRHPs to Corporate Retail Investors I. The Irrelevance of Investor Protection Objectives in Private Law II. Invoking the Doctrine of 'Contractual Estoppel' III. The Relevance of Alternative Doctrines IV. Concluding Remarks PART III: CONCLUDING REMARKS AND RECOMMENDATIONS 6. Exploring the Co-extensive Relationship between Private Law and Regulation I. A Conceptual Approach to Co-extensiveness II. English Courts' Approach to Co-extensiveness III. Concluding Remarks 7. Regulating to Prevent Mis-selling: Proposals for Reform I. The Case for 'Libertarian Paternalism' II. Recommendations III. A Side-note on Unregulated Complex Products IV. Concluding Remarks Bibliography Index "The spate of mis-selling episodes that have plagued the financial services industries in recent years has caused widespread detriment to investors. Notwithstanding numerous regulatory interventions, curtailing the incidence of poor investment advice remains a challenge for regulators, particularly because these measures are taken in a 'fire-fighting' fashion without adequate consideration being given to the root causes of mis-selling. Against this backdrop, this book focuses on the sale of complex investment products to corporate retail investors by drawing upon the widespread mis-selling of interest rate hedging products to these investors in the UK and beyond. It brings to the fore the relatively understudied field concerning the different degrees of investor protection mechanisms applicable to individual retail investors as opposed to corporate retail investors by taking stock of past regulatory reforms and forthcoming regulatory initiatives, as well as, more importantly, the conclusions reached by the judiciary in IRHP mis-selling claims. The conclusions are particularly interesting in that it is demonstrated that corporate retail investors are in a vulnerable position when compared to individual retail investors, and hence the former are exposed to a heightened risk of mis-selling, meaning that regulatory intervention should be targeted accordingly. The recommendations made as a result of these findings are further supported by insights emerging from behavioural law and economics theories. This book is aimed at researchers, lawyers and students with an interest in the financial regulation field, who are keen to explore potential regulatory reforms to the investment services regime which aim to address the root causes of mis-selling and restore a level playing field amongst all retail investors"-- Provided by publisher

The spate of mis-selling episodes that have plagued the financial services industries in recent years has caused widespread detriment to investors. Notwithstanding numerous regulatory interventions, curtailing the incidence of poor investment advice remains a challenge for regulators, particularly because these measures are taken in a 'fire-fighting' fashion without adequate consideration being given to the root causes of mis-selling. Against this backdrop, this book focuses on the sale of complex investment products to corporate retail investors by drawing upon the widespread mis-selling of interest rate hedging products (IRHP) in the UK and beyond. It brings to the fore the relatively understudied field concerning the different degrees of investor protection mechanisms applicable to individual retail investors – as opposed to corporate retail investors – by taking stock of past regulatory reforms and forthcoming regulatory initiatives as well as, more importantly, the conclusions reached by the judiciary in IRHP mis-selling claims. The conclusions are particularly interesting: corporate retail investors are in a vulnerable position when compared to individual retail investors. The former are exposed to a heightened risk of mis-selling, meaning that regulatory intervention should be targeted accordingly. The recommendations made as a result of these findings are further supported by insights emerging from behavioural law and economic theories. This book is aimed at researchers, lawyers and students with an interest in the financial regulation field who are keen to explore potential regulatory reforms to the investment services regime that address the root causes of mis-selling, and restore a level playing field amongst all retail investors.