The evolving client-firm relationship: Fiduciary Duties and Regulatory Rules - are the English courts and the UK financial conduct regulator on a collision course?

<p><strong>This thesis comprehensively explores the relationship between the fiduciary and common law duties and the development of the United Kingdom’s financial services regulatory regime. The historical development of the law in this area demonstrates the gradual advancement of common law through judge-made precedents and the establishment of rules or principles applicable to various legal relationships between parties. Concurrently, the evolution of the law through the regulatory framework of the Financial Services Act 1986 and the Financial Services and Markets Act 2000 has shown the emergence of administrative or regulatory law, driven by interventions from authorities—initially from the City and later from Parliament—aimed at formulating policy and enforcing binding public laws to regulate those relationships.</strong></p><p>There is, however, a noticeable disjuncture between the approach taken by the English courts in applying the law and the objectives and methods of the United Kingdom’s financial services conduct regulator, the Financial Conduct Authority, in the formulation of its rules. Of particular concern is where an authorised and regulated firm owes conflicting duties to its clients or where there is a conflict between the firm’s own interests and those of its clients. Assuming that the standard rules of statutory interpretation are applicable, it can be inferred that Parliament does not intend to infringe private law rights unless such intent is clearly indicated in the statutory provisions. This thesis argues that this disconnect between the courts and the regulator is deeply embedded in the current legal system. It directly impacts the legal and regulatory duties and obligations on authorised firms as well as their relationship with their clients. It also affects the rights and redress available to investors. While the English courts have generally upheld the sanctity of contract law, they have been hesitant to acknowledge the public law aspects of the regulatory rules in what is now a fully statutory regulatory system. Similarly, the Financial Conduct Authority has not adequately acknowledged the weight of the common law within its regulatory framework and the rule-making processes.</p><p>This thesis posits that the United Kingdom’s Parliament has become confused in its intent to foster consumer protection while promoting economic growth and innovation within the strictures of the existing legal framework and the limits of regulatory policy and enforcement. This confusion stems from a lack of consensus among Parliament, the courts, and the regulator on the most effective means of achieving these goals. As a result, legal uncertainty has emerged and recent case law, including mis-selling claims and disputes based on the lack of transparency, has shown these differences can be costly and disruptive to the financial services industry and the British economy as a whole.</p><p>This disconnect has been addressed in the past. The Law Commission, as the statutory body responsible for reviewing English law, has considered the interrelationship between fiduciary duties and regulatory rules on several occasions. It has identified a number of substantive issues that contribute to this uncertainty. However, its recommendations to resolve the inconsistencies and discrepancies between common law and regulatory rules have either been rejected or not implemented, often due to political considerations and resistance from the industry.</p><p>This thesis contends that significant legal issues persist between the approaches taken by the courts and the regulator. The unresolved inconsistencies between fiduciary principles, common law and the regulatory rules have contributed to an uncertain business environment. This thesis proposes that steps, including both primary and secondary legislation, could be taken to help bridge that gap. However, a more radical and comprehensive solution to address this disjunction would be re-evaluating the relationship between the common law and the regulatory rules as part of a broader strategy to create a more resilient and adaptive legal and regulatory environment through a consolidation act for financial services following the United Kingdom’s withdrawal from the European Union.</p>