Abstract

In the 1970s and 80s, as major financial institutions grew and diversified their operations, courts and scholars recognized that fiduciary law posed profound challenges for the organizational practices of these firms. The challenges were considered existential by some: firms, ultimately, would need to slim down their operations, and perhaps even need to disaggregate some units, to avoid fiduciary liability. However, since these challenges were recognized, financial conglomerates have grown massively and focused more on taking direct stakes as principals, a practice that accentuates the risk of conflicts of interest. How were financial conglomerates able to continue growing and diversifying despite the imposition of fiduciary constraints generally seen as robust? Did fiduciary law weaken, as some scholars contend? This chapter in the Research Handbook on Fiduciary Law examines these questions under both US and UK law by considering potential explanations for firms’ increasing scale and scope. These explanations include the contractual erosion of fiduciary principles, the regulators’ and courts’ legitimation of information barriers as checks on conflicts, the molding of fiduciary law by regulation, the non-enforcement of fiduciary duties by clients, and the shift toward arbitration of client disputes. I suggest that in the US the weak deterrent force of fiduciary law owes less to changes in the law than to inhibitions on its enforcement, while in the UK courts have been generally willing to conform fiduciary duties to inconsistent regulatory rules.

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