Research On The Legal Connotation Of The Suitability Obligation Of Financial Institutions

The financial institution suitability obligation is generally defined that a financial institution should recommend or sell the investor financial products or services commensurate with its risk bearing capacity.There are many expressions of "Suitability" in our country,such as "Suitability" "Suitability management" "Suitability principle" and so on.The reason lies in that the "Suitability"(suitability)was from abroad and the domestic researches conducted the "Suitability" from different angles at the beginning.However,in the United States,the original rule requiring brokers to recommend only "suitable" investments was designed to prevent brokers from abusing their position of trust and confidence.And then,Suitability system has increasingly been proved to be a good way for protecting investors to remedy the deficiency of the disclosure regulatory system.As a result,the applicability of Suitability system became wider.Suitability gradually changed from a moral constraint to a legal obligation,which has been increasingly accepted by mature capital markets such as the United States and the European Union.In recent years,the reform and development of capital market in China have made the present financial market convergence with that of the United States when the Suitability system emerged..The legal relationship between investors and financial institutions in financial transactions were changing,which strengthens the demand of the constraint for financial institutions’ recommendation.The Suitability system is necessary for current financial market.Investor protection is an indispensable part of promoting the development of financial market,and the Suitability obligation is a basic obligation that financial institutions should fulfill in the process of promoting products based on the need of investor protection.However,the development of the investor Suitability system in China does not match the demand of the market.The understanding of the legal connotation of Suitability obligation is also inadequate.The current investor Suitability system in China is built from bottom to top,which is gradually established by law as a legal obligation from the industry standard.However,as China’s financial market is stillrelatively immature and there is no self-regulatory rule formed spontaneously,the Suitability system is practiced by the financial regulator,so that the Suitability obligation was established by regulatory rules,which is called "Suitability management" or "investor suitability rule" rather than a definite obligation for financial institutions.As a result,the Suitability system is often mistaken for a regulatory norm in China,which ignores the specific role of Suitability in the process of financial institutions’ recommendation to investors.Meanwhile,the responsibility sharing and standard definition for financial institutions to fulfill the obligation of Suitability are so unclear that Financial institutions weaken the substantive requirements for Suitability obligation and perform Suitability obligation in a formal manner.At present,Chinese scholars have some deficiencies in understanding the appropriateness system: First,failure to recognize the substance of the Suitability obligation,so that the Suitability system of investors is identified as a "management" system;Second,failure to specify the normative requirements of the Suitability obligation,so that the investor suitability system is mixed to the Qualified investor system.The disadvantages of the Suitability system in the construction are as follows:first,there is no uniform system of Suitability in financial markets,and different segments of the financial market have their own suitability norms,which are relatively scattered,independent and lack of comprehensiveness and systematization;Second,the content of financial institutions’ suitability obligations is not clear,and the performance standards are also very vague.So that the allocation of responsibilities between financial institutions and investors is often controversial in the judicial practice.These differences and deficiencies hinder the development of the Suitability system in China and are not conducive to the healthy development of the financial market.The most important thing to construct the Suitability system is: first,to define the substance of the Suitability;Second,Clarify the content of the Suitability obligation of financial institutions;Third,Clarify the performance standard of the Suitability obligation of financial institutions.This paper consists of four chapters.Chapter one:To explore the theoretical basis and legal nature of Suitability obligation,clarify the substantive connotation of Suitability obligation,and determine the content of Suitability obligation of financial institutions;The last three chapters: To respectively study and discuss three aspects of the content of Suitability obligation:Differentiated management obligations;Suitability assessment obligations;Obligation of suitable recommendation.By sorting out the origin and development of the Suitability obligation of financial institutions,this paper explores the theoretical basis of the Suitability obligation and clarifies the concept of the appropriateness system.This paper analyzes the current regulations on the Suitability obligation of financial institutions in China,explores the development path of the Suitability obligation in China’s capital market,and clarifies the content of the Suitability obligation of financial institutions.From the perspective of financial institutions,this paper analyzes the specific criteria of performing the Suitability obligation,so as to make the suitability obligation play its practical value in the process of investor protection.