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Client’s best interest rule: Difference between revisions
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The general principles in play here are: | The general principles in play here are: | ||
*Principle 2 '''Skill, care and diligence''' – A firm must conduct its business with due skill, care and diligence. | *Principle 2 '''Skill, care and diligence''' – A firm must conduct its business with due skill, care and diligence. | ||
*Principle 6 ''' | *Principle 6 '''Customers’ interests''' – A firm must pay due regard to the interests of its customers and treat them fairly. | ||
*Principle 7 '''Communications with clients''' – A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading. | *Principle 7 '''Communications with clients''' – A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading. | ||
*Principle 8 '''[[Conflicts of interest]]''' – A firm must manage [[conflicts of interest]] fairly, both between itself and its customers and between a customer and another client. | *Principle 8 '''[[Conflicts of interest]]''' – A firm must manage [[conflicts of interest]] fairly, both between itself and its customers and between a customer and another client. | ||
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There is much general lofty aspiration here, but not much by way of flesh on the bones. This, generally, is how the [[JC]] likes regulations — self explanatory, and demanding the application of common sense — but it does lead nervous compliance officers, who, having been beaten and bloodied in the foregoing decade don’t always have much of a conceptualisation of common sense — to adopt a bunker mentality. So a few remarks about what the fairness requirement should not mean. You know how we like disclaimers, folks, and this being turf into which the better angels of [[Magic circle law firm|the professional advisorate]] tend not to rush — consider our disclaimer absolute. Take the following as you find it, and don’t blame me if you wind up in jail. | There is much general lofty aspiration here, but not much by way of flesh on the bones. This, generally, is how the [[JC]] likes regulations — self explanatory, and demanding the application of common sense — but it does lead nervous compliance officers, who, having been beaten and bloodied in the foregoing decade don’t always have much of a conceptualisation of common sense — to adopt a bunker mentality. So a few remarks about what the fairness requirement should not mean. You know how we like disclaimers, folks, and this being turf into which the better angels of [[Magic circle law firm|the professional advisorate]] tend not to rush — consider our disclaimer absolute. Take the following as you find it, and don’t blame me if you wind up in jail. | ||
==== It doesn’t mean you have to offer the same product, on the same terms, to everyone. ==== | |||
That would be madness. But you see this argument advanced: | That would be madness. But you see this argument advanced: | ||
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When you back out of that cul-de-sac, you are left with one conclusion: At the end of the day, a [[dealer]]’s decision to deal must be its own sovereign right. [[TCF]] must be about fair treatment of customers the dealer ''has'' traded with, not with random people on the street with whom you haven’t. | When you back out of that cul-de-sac, you are left with one conclusion: At the end of the day, a [[dealer]]’s decision to deal must be its own sovereign right. [[TCF]] must be about fair treatment of customers the dealer ''has'' traded with, not with random people on the street with whom you haven’t. | ||
====But [[conflicts of interest]]==== | |||
It is true, Principle 8 extends to conflicts ''between different clients'' as well as between [[dealer]] and [[client]]. But surely these conflicts must arise as a result of some kind of direct interaction between the two clients, rather than the abstract fact that both of them happen to be on the demand side of the same resource for which there is limited supply. Again, regulatory rules here — [[best execution]] — are about the price at which you do trade, if you trade, and not whether you trade at all, and the conflict is between dealer and client and not between the clients. | It is true, Principle 8 extends to conflicts ''between different clients'' as well as between [[dealer]] and [[client]]. But surely these conflicts must arise as a result of some kind of direct interaction between the two clients, rather than the abstract fact that both of them happen to be on the demand side of the same resource for which there is limited supply. Again, regulatory rules here — [[best execution]] — are about the price at which you do trade, if you trade, and not whether you trade at all, and the conflict is between dealer and client and not between the clients. | ||