Safeguard by Rule of Law for the Fiduciary Construction of Chinese Capital Market

Article excerpt

Abstract

Fiduciary construction in the capital market requires the safeguard by rule of law, i.e., legislation and enforcement of fiduciary law as well as construction of fiduciary morality and cultural system. As a separate legal category, fiduciary law provides for fiduciary duties and liabilities for entities and individuals in both private and public power sectors and imposes proper penalties on those fiduciaries for their failure in fiduciary duties through a set of consistent legal systems and rules. Legislation in fiduciary law should be based on the Securities Law, clarify the fiduciary duties and liabilities of fiduciaries and focus on the arrangement of legislation and enforcement as a whole.

Key Words: Fiduciary construction; Fiduciary law; Fiduciary duties; Legal liabilities

The Constitution is a fiduciary law of public power, just as fiduciary law is the constitution of private power (Tamar Frankel, 2011). Fiduciary principle is always recognized as the basis of conduct, the paramount rule of social interaction and the common value of culture, morality and law. Fiduciary construction of capital market is a systematic project, led by culture, oriented by morality and based on and safeguarded by law. As far as the relationship between fiduciary culture and morality and fiduciary law, the latter has a role in protecting, or even enhancing, a culture of trustworthiness, while the former makes the latter more effective.

In addition to enhancing the construction of fiduciary morality and culture, what is the most important in the current fiduciary construction of Chinese capital market is the fiduciary construction by rule of law. When more efforts shall be made to strengthen regulatory enforcement and crack down on illegal and irregular behaviors, a special system for fiduciary regulation and restriction shall be established to impose legal penalty and restriction on breach of fiduciary duties. To this end, the following important measures should be taken.

1. TAKE STEPS FOR IMPROVING LEGISLATION IN FIDUCIARY LAW

Fiduciary law herein refers to a separate legal category, which specifies the fiduciary duties and legal liabilities for entities and individuals in both private and public power sectors (collectively referred to as "fiduciaries") and imposes proper penalties on fiduciaries for their failure in performing fiduciary duties through a set of consistent legal systems and rules. Fiduciary law aims at promoting and protecting the interest of entrustors and the society, covering entrusted property and power. It relates to not only private power sector, but also public power sector including governments. As far as governmental powers in the public power sector, the constitution and law of a country derives from fiduciary law. Fiduciary law has a critical role in restricting the temptation for fiduciaries to abuse entrusted power by providing for the duties of loyalty and care of fiduciaries, collectively, fiduciary duties.

Legislation in fiduciary law of capital market requires for sticking to the fiduciary principle in the laws on capital market, which principle should be embodied in specific rules and regulations, such as suitability rule, rule of conflicts of interest and due diligence rule. The fiduciary principle in the fiduciary law of capital market is a professional principle, which, though closely related to, is different from the bona fide principle in the General Principles of Civil Law and the Contract Law of the PRC. The bona fide principle in civil law and contract law requires that one should respect and increase (or at least not damage) the interests of others and social public interests when seeking for his own interests, while the fiduciary principle in fiduciary law as a separate category has special meanings. In China, the fiduciary principle is set forth in the Securities Law, the Company Law, the Trust Law, the Securities Investment Fund Law and the Regulations on the Administration of Futures Trading, which is applicable to the above-mentioned fiduciaries. …