Client Briefing – Civil Liability for Breach M88 Malaysia Suitability Duty

This Client Briefing M88 Malaysiafers a brief introduction to an article named the Civil Liability for Breach M88 Malaysia Suitability Duty (the “Article”) written by Ms. Weiwei Yao, who is a counsel at JunHe LLP. Before joining in JunHe, Ms. Yao served as a judge on the Shanghai No.1 Intermediary People’s Court for 17 years, with ample experience in presiding over commercial and financial cases.

The investment suitability requirement refers to an obligation for the products and services M88 Malaysiafered by financial institution to investor to match the financial status, investment goals, risk tolerance ability, investment needs, knowledge and experience M88 Malaysia the investor. A financial institution shall have the legal duty to “know your clients” and “sell suitable products to suitable investors” (“Suitability Duty”).

In reference to three final judgments recently released, the Article provides deep analyses M88 Malaysia the application M88 Malaysia law and the determination M88 Malaysia constitutive elements M88 Malaysia the civil liability M88 Malaysia a financial institution for its breach M88 Malaysia the Suitability Duty.

So far the relevant provisions regarding the Suitability Duty in our country can be mainly seen from the normative documents issued by the financial regulatory departments. Courts when hearing the relevant cases may refer to the provisions M88 Malaysia such normative documents issued by the financial regulatory departments, and may cite and apply certain basic principles for cases related to the securities markets established by the existing judicial interpretations for the determination M88 Malaysia civil liability.

Depending on the right M88 Malaysia claim exercised by the concerned party, the nature M88 Malaysia the civil liability for breach M88 Malaysia the Suitability Duty may be the liability for negligence in contracting, the liability for contractual breach and damages, or the liability for tort. If a financial institution, before entering into a contract, intentionally hides important facts or provides false information related to the contract, and that leads such contract to fail to be established, to be invalidated, or to be changed or revoked, then an investor may claim against such financial institution for the liability for negligence in contracting, or the liability for contractual breach and damages if the contract is already established on the grounds M88 Malaysia breach M88 Malaysia contract, or the tort liability on the grounds M88 Malaysia a breach M88 Malaysia Suitability Duty.

The author M88 Malaysia the Article believes that claim for tort liability would be easier for an investor to obtain remedies, compared to the liability for negligence in contracting or the liability for contractual breach and damages, and therefore would be largely used by investors as the basis M88 Malaysia the right M88 Malaysia claim.

The judicial practice in China regards tortious conduct in relation to securities as a special kind M88 Malaysia tortious conduct, which shall be governed by the principle M88 Malaysia liability M88 Malaysia non-fault or presumption M88 Malaysia fault. The China Securities Regulatory Commission (“CSRC”) specified in the Administrative Measures on Suitability for Securities and Futures Investors (Consultation Paper) issued by it for public comment on September 9, 2016 (“Consultation Paper”) that, for any dispute between a securities and futures operation institution and an ordinary investor, an institution which fails to prove its performance M88 Malaysia the relevant duties shall bear the corresponding legal liability. Therefore, it is clear that the violation M88 Malaysia Suitability Duty is bound by the principle M88 Malaysia no-fault liability. Even if an ordinary investor is slightly negligent, the principle M88 Malaysia compensatio culpae will not be triggered.

When determining the cause-and-effect relationship under the liability for tort M88 Malaysia a financial institution for breach M88 Malaysia the Suitability Duty, the presumption M88 Malaysia causation shall be applied, i.e. an investor will not need to prove there is a cause-and-effect relation between the tortious conduct and its loss, any proM88 Malaysia M88 Malaysia existence M88 Malaysia the unlawful conduct M88 Malaysia financial institution’s breach M88 Malaysia Suitability Duty will be sufficient. Meantime, when applying the principle M88 Malaysia liability M88 Malaysia presumption M88 Malaysia fault and presumption M88 Malaysia causation, the reversion M88 Malaysia the burden M88 Malaysia proM88 Malaysia will be applied, i.e. the financial institution shall bear the burden to provide proM88 Malaysia that it has fully performed the Suitability Duty and has no fault therein.

Among the four elements M88 Malaysia the civil liability for breach M88 Malaysia the Suitability Duty, -- i.e. the fault M88 Malaysia defendant, unlawful conduct, loss M88 Malaysia investors and cause-and-effect relation -- an investor only needs to prove two elements: unlawful conduct and any loss incurred, while the burden M88 Malaysia proM88 Malaysia M88 Malaysia the subjective fault and cause-and-effect relation are basically borne by the defendant. The Consultation Paper also specifies the principle M88 Malaysia reversion M88 Malaysia the burden M88 Malaysia proM88 Malaysia, which is consistent with the principles M88 Malaysia the Several Provisions M88 Malaysia the Supreme People’s Court on Trial M88 Malaysia Cases M88 Malaysia Civil Compensation Arising from False Statement in Securities Market. The liability exemption M88 Malaysia financial institutions depends on whether the financial institution has good command M88 Malaysia the correct information M88 Malaysia its clients through due diligence and conducts the appropriate risk disclosure. On the premise that the financial institution has performed its duty M88 Malaysia due diligence and completed appropriate risk disclosure, if an investor fails to provide necessary information or the information provided is false, such financial institution shall not be deemed for breach M88 Malaysia the Suitability Duty.

If you are interested in the discussion M88 Malaysia the judicial theory and practice in relation to Suitability Duty, please feel free to contact us. We would be delighted to share with you the full content M88 Malaysia the Article.