Disputes over the "mis-selling" of over-the-counter derivatives took place in countries with sophisticated financial market from 1990s, but the recent global financial crisis revealed the problem of "mis-selling" of over-the-counter derivatives wide-spread in many jurisdictions. This thesis addresses three research questions. The first research question is why transactions of over-the-counter derivatives are prone to "mis-selling" practices. The thesis explains that the vulnerability of over-the-counter derivatives to "mis-selling" is caused by dependence of consumers on financial institutions due to asymmetric information and knowledge, high profitability of selling over-the-counter derivatives and the expanding products and consumer base of over-the-counter derivatives. The second question is how social institutions such as statutory regulation and private law have dealt with "mis-selling" of over-the-counter derivatives. The thesis shows that statutory regulation demands that financial institutions assume fiduciary duties which cannot be denied or modified by contracts while private law sees an over-the-counter derivative transaction as just one of the commercial contracts between equal counterparties. It also explains the difference of the two institutions in testing causality between breach of standards and loss. The third research question is how to achieve harmonized interplay between private law and statutory regulation in regulating "mis-selling" of over-the-counter derivatives. The thesis proposes two legal reforms; the statutory "right of action" for breach of regulatory requirements should be extended to all consumers except for financial institutions; the causation test in private law should be relaxed to the 'significance' test.
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Mis-selling of over-the-counter derivatives: a call for more hamornized interplay between private law and financial regulation
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