Professional Civil Liability of the Financial Intermediaries as an Instrument of Investor Protection.

Abstract

The Great Depression, which started in the United States in 1929 and rampaged across whole capitalist world, revealed that in the face of specific investor protection problems, general law is not sufficient. Therefore, to protect investors the US promptly created regulation of the financial markets, which proved to be sufficiently effective not only to withstand time challenges, but also to spread in the other parts of the globe. Reception of the US law also took place in its main trade partner – the European Union and therefore its member state Lithuania. Ambitious Financial services action plan (1999) culminated in 2004 then Markets in Financial Instruments Directive (MiFID), which established qualitatively different regulation of the investment services and consequently – new design for protection of investors in the secondary markets, was adopted. However, in contrast with the financial regulation of the United States, one fundamental investor protection issue was not directly addressed in MiFID – this directive still does not regulate professional civil liability of the financial intermediaries against investors. European Commission, in its MiFID review consultation, raised questions about possibility to establish rules of civil liability in the MiFID, but in the light of very different positions of the Member States and especially due to very straight objections from several Member States, the new MiFID recast does not include this initiative. Question of civil liability of the financial intermediary, except several minor aspects, also is untouched in the Prospectus directive. Therefore, it is correct to state, that today, with several insignificant exceptions, the European Union law does not directly addresses the issue of civil liability of the financial intermediary neither in the primary, nor in the secondary markets at all and this issue, at least for now, is left to the domain of national law. Current state when the EU law on financial markets essentially does not regulate questions of civil liability of the financial intermediary is taken as starting point for purposes of this research. Whereas European legislator does not undertook any related actions (although discussed and had chance to do it), for the purposes of this thesis, first of all, hypothetically will be presumed that in the present circumstances it is best and optimal legislative decision, which is in harmony with purposes of financial regulation, and second, the author will try to assess the correctness of the hypothesis, which means – to convincingly confirm or deny it.