30th Nov 2017 | Articles

This is the first article in a series of 3 written by Richard Samuel putting forward the proposal for a Financial Services Tribunal. To date, the article has attracted over 2,500 downloads and the notion will be debated in Parliament January 2018.

Tools for changing banking culture: FCA are you listening?

Why the FCA’s IRHP mass dispute resolution system has failed and what theFCA can do about it

1. The legal underpinnings of banking cultureThere is much debate at the moment about how to change banking culture for thebetter.1Not all the issues involved are legal. However, culture has its legal underpinnings. Investment banking culture has a perfectly respectable legal basis under English commonlaw:caveat emptor. Under the common law, the purchaser of a financial product whoregrets buying it normally only has two causes of action:

(i) misrepresentation of fact at common law (as supplemented by statute); and

(ii) negligent breach of a duty at common law to advise with care.

As long as a supplier of financial services and products does neither of those things, heescapes liability to the purchaser under the common law. Before attacking this legal basisas unethical, it is worth observing that the English common law is the commercial law ofchoice around the world because it is highly developed and therefore predictable. It ispredictable because it is delivered consistently by a well-respected judiciary/body of arbitrators. These virtues of certainty are enhanced by the central place that freedom ofcontract occupies and, in particular, by the absence of a general duty of good faith incommercial dealings. It is the absence of a general duty of good faith that basicallyrestricts the causes of action to the two above. None of those fundamentals is going tochange: the common law ain’t broke and there is no appetite to fix it.

However, it has long been recognized that the basic common law position is notsuitable for all areas of the economy, where the weaker counter-party needs additionalprotection: ie consumer cases.2The Unfair Contract Terms Act 1977, the Unfair Terms inConsumer Contacts Regulations 1999 and now the Consumer Rights Act 2015 are justthree examples of legislation which introduce concepts of fairness into certain sub-sectorsof the economy in order to level the playing field in favour of the consumer. In those sub-sectors, business continues on terms acceptable to both supplier and consumer despitedeparture from the common law….

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