User:BNClawyer32/Financial Law

Financial law is the law and regulation of the insurance, derivatives, commercial banking, capital markets and investment management sectors. Financial law forms part of commercial law; the sale of goods may be part of commercial law but not financial law.

=Overview= It is defined by three overarching components which form the law on this matter: market practices, case law, and regulation. These are underpinned by five legal concepts upon which financial law depends, which facilitates financial instruments and financial market structures to be categorised into five legal silos.

=Three Components of Financial Law=

Market Practices
These constitute a core aspect of the source of law of the financial markets, primarily within England & Wales. The actions and norms of parties in creating standard practices creates a fundamental aspect of how those parties self-regulate. These market practices create internal norms which parties abide by, these influence legal rules which result when the market norms are either broken or are disputed through formal, court, judgments.

The principle role is to form ‘soft-law; as a source of rules of conduct which in principle have no legally binding force but have practical effects. This has created standard forms of contracts for various financial trade associations such as Loan Market Association, Swaps and Derivatives etc. The implementation and value of soft law within the system, particularly is relationship with globalisation, consumer rights, and regulation. The FCA plays a central role in regulating the financial markets but soft law, voluntary or practice created legal schemes play a vital role. Trade associations have a vital role in creating standard form documentation and legal opinins that shape the schemes. Soft law can fill market uncertainties what are produced by common law schemes. Obvious risk that that participants become lulled into believing statements of soft law is the law. Perception that an opinion constitutes ipso facto clear and widely held opinion is wrong Cf the consumer relationship with Abbey national fined by the FSA for failing to handle complaints set out in soft law principle practices on broadly worded business principles. ‘Paying due regard to the interests of its customers and treat them fairly’Reports that consumer protection policy is too far off center and that education of consumer merely results in false security. This is a balance between educating consumers to knowingly enter and freedom of contract. Great difficult on the rise of security instrumeents in civil jurisdictions especially those insturments like floating charges. Cannot be just bolted on, such as close out netting provisions and the cross-polination of those concepts. Credit Derivatives in London has flourished on the back of the characteristically robust opinion of A&O re ISDA; CD could not be insurance business under insurance companies act 1982 and were not a contract of insurance. ISDA was firm in rejecting a statutory definition of insurance. ‘In practice market participants have had few concerns as to the impacts of boundary issues between CD’s and contracts of insurance.’
 * Defines the nature and incidents of the relationships that participants of particular types of transactions expect.
 * Soft law effects produced by legal opinions such as guidance provided by Financial Market Law Committee and various City of London Law Societies.

Soft law has practical effect in that it is liable in many cases to be turned into hard law, but with verified and experienced practice evidence. In the case vanheath Turner (1622) the court remarked that custom of merchants is part of the common law of this kingdom. This highlights a long history of incorporating and accounting for the lex mercatoria into the english law. Law merchant had been so absorbed by the 18th century that the bills of exchange act 1882 could provide CL rules and merchant law in tandem.
 * Consider Tidal Energy Ltd v Bank of Scotland, where Lord dyson held that ‘a many who employee a banker is bound by the usages of bankers’ [per Hare v Hently (1861)] which meant that if a sort and acct number was correct, it didn't matter if the name did not match.

There are risks on over-reliance on soft law sources (as McCormick points out). English law makes it difficult to create a type of security and reliance on rules may result in established views which reinforce errors. This could result in unacceptable security even if legally valid.

Case Law
There are two exceptions, attempting to limit the expectations to reasonable commercial men and uphold the freedom of contract.
 * Autonomy is at the heart of commercial law. Strong case for autonomy in complex financial instruments.
 * RE Bank of Credit and Commerce SA (No 8) highlights striking effect on financial law. Lord Hoffman upheld the validity of a charge in favour of its bank over its credit balance with that bank. Formidable conceptual problems.
 * Careful to declare practices as conceptually impossible. Charge is no more than labels to self-consistent rules of law.(Hoffman) an opinion shared Goff in Clough Mill v Martin [1985] 1 WLR 111 “concepts such as bailment and fiduciary duty must not be allowed to be our masters, but tools of the trade fashioning to aspects of life
 * Must be careful to not yield (Good on Legal Problems of Credit and Security.) Relationship between banker and customer is debtor and creditor. Merely an obligation.

Case coverage is unsystematic. Wholesale and international finance is patchy. Market participants generally prefer to settle disputes than litigate, thus the importance of soft law. However, in face of disaster, litigation is essential, especially surrounding major insolvencies, market collapse, wars, and frauds. Lehman Brothers provides a good example, with 50 judgments from the senior courts and 5 from the supreme court.

Regulation and Legislation
National and International regulatory and legislative regimes operate to regulate the practice of financial services. In the EU these might be exampled by MiFiD II, payment serivces directive, Securities settlement regulations and others which have resulted from the financial crisis or regulate financial trade. Regulatory control by the Financial Conduct Authority and Office of Fair trading set out clear rules replacing extra-statutory codes of conduct and has seen recent resurgence following the 2008 financial crisis. They have not all been rectified as to how they are coherent with English law. Consider Lehman Brothers [2012] EWHC(Extended liens case) where Briggs J struggles to determine the legislative intent of the Financial Collateral Directive.

=Legal concepts prevalent in Financial Law=

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