HC Deb 27 June 1996 vol 280 c236W
Mr. Matthew Banks

To ask the Chancellor of the Exchequer whether he intends to amend the Financial Services Act 1986 as recommended by the Law Commission's report (No. 236) on fiduciary duties and regulatory rules. [35120]

Mrs. Angela Knight

At the time of the reference to the Law Commission in 1990, there was some concern about the possible mismatch between regulatory rules and common law fiduciary duties owed by firms. Structural changes of the financial markets in the mid-1980s, particularly with firms offering a wide range of financial services, increased the potential for such conflicts. This led the DTI, in April 1990, to refer the issue to the Law Commission. A parallel reference was made to the Scottish Law Commission. Since then, responsibility for this area has passed to the Treasury.

The Law Commission's report represents a thorough review, which has exposed whether the original concerns were indeed well founded and has led to an informed consideration of all the issues. As the Law Commission's report recognises, since consulting on this issue regulatory and legal developments have helped clarify the relationship between fiduciary duties and regulatory rules. Both Law Commissions recommend that legislation would be desirable to clarify the effect of Chinese wall arrangements, so as to provide statutory protection to firms which comply with regulatory rules against any claims for breach of fiduciary duties arising out of the use of such arrangements.

Consultation with relevant representatives within the financial services sector suggests that there is now sufficient confidence in the effectiveness of Chinese wall arrangements, without concern of exposure to possible legal uncertainties. Experience of operating under the financial regulatory system, with few practical problems of the sort feared in 1990 avoids the need to amend the Financial Services Act in this respect.

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