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13 - Mapping Client Sophistication

Critical Enquiry or Unnecessary Distraction?

from Part III

Published online by Cambridge University Press:  19 April 2018

Richard C. Nolan
Affiliation:
University of York
Kelvin F. K. Low
Affiliation:
City University of Hong Kong
Tang Hang Wu
Affiliation:
Singapore Management University
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Summary

A client’s sophistication has long been considered important in determining the extent to which financial services providers should be legally required to disclose the features of the financial products that they sell, including ensuring that those products are suitable for, and their risk-profile understood by, clients. The more sophisticated a client, the better he can safeguard his own best interests without the need for any legal intervention, and vice versa. Whilst the English courts, like their American counterparts, have recognised the significance of sophistication, that notion is at present both ill-defined and inconsistently applied at common law. Although regulatory developments under MiFID and FSMA 2000 have reduced somewhat the significance of common law liability for mis-selling financial products, enforcement of the statutory regime remains patchy and the approach to client sophistication too rigid. This chapter examines both the common law and statutory approaches to client sophistication and discusses how the two regimes might be meshed together more effectively to provide an equitable and predictable outcome for both investor and financial services provider.
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Publisher: Cambridge University Press
Print publication year: 2018

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