On The Principle Of Suitability And Institutionalization In The Transactions Of Financial Products

In the context of the current financial innovation evolving, a lot of new financialproducts are designed in the financial markets. At the same time of bringing about anumber of investment opportunities to investors, these financial products also bringproblems to the protection of investors’ rights and interests due to the inherentlyhigh-risk and financial specialty. With the trend of increasing complication of financialproducts, more and more investors buy financial products depending on therecommendation of the financial institutions with limitations on investment knowledgeand experience, so the recommendation of financial institutions is gradually playing animportant role for investors to make investment decisions. At the same time, employeesof financial institutions often recommend the unsuitable financial products to investorsfor economic interests, regardless of the investor’s individual circumstances, so that thelegitimate interests of investors in a weak position easily have been violated. In this case,the explanation obligation and risk disclosure obligation given to financial institutionsare unable to protect the interests of investors adequately, so the countries and regionswith developed financial markets all have introduced the principle of suitability to thefield of financial products sales and institutionalized this principle, in order tostrengthen the protection of investors by giving suitable recommendation obligations tofinancial institutions. At present, the principle of suitability has been introduced into theregulations of financial markets in China. However, compared to the institutionalizationof suitability principle in other countries and regions, there are still many deficiencies inthe relevant provisions on the principle of suitability, besides, the relevant provisionsalso fail to give investors the adequate protection in practice, therefore the relevant legalsystem on the principle of suitability should be improved with the urgent need in China.The article is divided into five sections elaborating on the issues:The first part is about the research of basic areas and the overview of practice andevolution, this article determines the concepts of the financial products and the principleof suitability, and gives summary description on financial transaction and the evolutionof suitability principle; The second part discusses the theoretical basis and the need forthe principle of suitability in the transactions of financial products. The following thirdpart discusses, in a horizontal way, the research analysis and presentations of regulationson the principle of suitability of the United States, the European Union, the United Kingdom and Japan, and sums up some experience concerning regulations of thesuitability principle within the legal system in these countries and the EU. Besides, thefourth part describes the main content of the regulations on the suitability principle inChina and points out some problems in the regulations of the suitability principlethrough theoretical study and comparative analysis, including lower level of legislation,the imperfection of laws and regulations on the principle of suitability, oversimplifiedprovisions in relevant regulations, imperfection of the investors classification system,lacking of diversified remedies for investors and so on. The fifth part provides the issueof the legal system for regulations of the suitability principle in our country, and theauthor will give some suggestions for these issues, such as perfecting the structuresystem of the content of laws and regulations on the principle of suitability, making thespecific and clear provisions of suitability obligations, perfecting the rules of investorsclassification, building the system of investor remedies and so on.