Abstract
This article seeks to contribute to the discussion concerning the adequacy of the legal responses to conflicts of interest in institutional asset management. After defining the legal concept of a conflict of interest in general, the insights of economic theory, especially agency theory, are called upon to pinpoint the reason why such conflicts are a problem that warrants special legal attention. Possible conflicts of interest faced by professional asset managers are identified and the reasons why the problems caused by these conflicts warrant specific government intervention are discussed. The article then describes what the legal responses to conflicts of interests problems in asset management have been, in particular in the new European Market in Financial Instruments Directive (MiFID). These responses are then analysed taking into account the elements that economic theory show to be the key characteristics of the conflicts of interests problem and conclude that these legal responses address the problem from the wrong perspective and hence are lacking in certain critical respects.
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