ntation that there are reasonable grounds for holding that opinion. Specifically, recommendations of an investment product that a regulated person make are likely to be considered to contain implied representations that he has considered the nature of the investment product, that he has assessed the needs of the investor, and that the investment product meets those needs.
Also, the recent Field v Barber Asia Limited litigation highlights the impact of the law of negligence. In that case, a duty of care was held to arise regardless of the existence of contractual terms between the parties, and that the investor should have been provided with investment information that a reasonable investment adviser would consider necessary to provide and to warn of particular gearing risks.
It is too early to say whether the distributors of minibonds have incurred legal liability to investors. If there were client agreements, it is possible that those client agreements contained provisions that fashioned the scope of the liability of distributors in contract and negligence. This could be achieved by clearly setting out the role of the distributor and limiting any representations, implied or otherwise, to that role, and by imposing duties on investors to make disclosures to the distributors to assist the distributor to identify investment objectives and risk appetites. Additionally, the client agreement could contain disclaimers and warning statements. Further complexities may arise if the only agreements are between Lehman Brothers, not the distributing banks, and investors. Ultimately, however, much will depend on what the registered or licensed persons of the distributors said to investors, as the Barber case illustrates circumstances in which a person advising on investment products can assume responsibility, and create a duty of care, independently from the contract.
Civil claims may, at worst, lead to an award of damages against the distributors. This does not deal with the regulatory risk that the distributor faced.
The regulatory aspect
Hong Kong regulation is based on a sectoral approach, under which separate regulators focus on different aspects of the financial services industry. For instance, the Hong Kong Monetary Authority regulates banking and deposit-taking activity, and the Securities and Futures Commission regulates a broad range of financial services that concern dealing or advising on securities or foreign exchange, and fund management. The benefit of a sectoral approach is that it facilitates a tailored and sophisticated regulatory approach to specific sections of the financial economy.
The alternative approach, where there is a "super-regulator" for the entire financial services industry — such as the Financial Services Authority in the United Kingdom — avoids duplication of regulation, but also carries a risk of increased or cumbersome bureaucracy. The handling of the regulatory issues in respect of the minibonds highlights the Hong Kong approach to regulatory overlap inherent in a sectoral approach to financial regulation.
Already, the Hong Kong Monetary Authority has reviewed information received from aggrieved investors and has referred a number of matters to the SFC. This is a concrete example of the cooperative arrangements between HKMA and the SFC in respect of the regulation of persons working with banks who are involved in regulated activities such as promoting and advising on investment products. The
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