Commercial Aspects of Trusts and Fiduciary Obligations

By Ewan McKendrick | Go to book overview

2
THE STATUTORY REGULATION OF FINANCIAL SERVICES IN THE UNITED KINGDOM AND THE DEVELOPMENT OF CHINESE WALLS IN MANAGING CONFLICTS OF INTEREST

Peter Graham

This chapter has two objectives. The first is to take a brief look at the history of statutory regulation of the financial services industry in the UK. The second is to review the development of Chinese Walls as an accepted means of regulating conflicts of interest within the context of the statutory regulation of financial services.


1. A Brief History of Statutory Regulation of Financial Services in the UK

The issue of securities to the public has been regulated since 1900 by the Companies Acts, but, with certain limited exceptions,1 dealing in securities was not regulated by statute until 1939. In that year the first Prevention of Fraud (Investments) Act was passed, partly in response to an outbreak of fraudulent share pushing in the early 1930s and partly in response to the growth of the unit trust movement. That Act was amended by the Companies Act 19472 and consolidated in the Prevention of Fraud (Investments) Act 1958 (PFIA).

This legislation made it an offence for someone to carry on the business of dealing in securities without being licensed, under an annual licence, by the Board of Trade. This licence was normally both easy to obtain and to renew. Certain categories of person were exempted from the need to be licensed. These included members of the London Stock Exchange, members of an association of dealers in securities, managers and trustees of an authorized

____________________
1
Statutes were passed in the 17th and 18th cent. to regulate brokers and jobbers but they either lapsed or were not rigorously enforced.
2
ss. 117 and 118 of the Companies Act 1947.

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