Investment firms - the new white-collar police force? : an evaluation of the investment firms' duties in the financial market

Abstract

The Thesis opens by discussing the special nature of the investment services, and the objectives, rationale and reasons for their regulation. Particularly, Chapter 1 questions whether the investors really need the protection offered gallantly by the state or whether this is a smokescreen for the state to be able to impose duties and obligations that allow regulators to indirectly administer and run the investment firms (IFs), and as a consequence, the market.

In Chapter 2, the debate focuses on the obligations imposed on IFs through the Investment Services Act and MiFID. This Chapter opens by analysing the prelicensing requirements and evaluates whether such requirements act as a barrier to entry in the market. The discussion then turns on the conduct of business rules, to discuss the IFs’ duties and obligations prior, during and after the conclusion of a contract. Subsequently, the debate focuses on the regulatory failures, with particular emphasis on the notorious case of Bernard Lawrence Madoff, to ascertain whether the market and the investors would have been better off without the supervisory authorities (moral hazard). The thesis then focuses on two other areas that are also affecting the work and nature of the IFs, and their relationship with the investors, namely the antimoney laundering (AML) and market abuse legislation. Chapter 3 questions why the private sector is roped in the fight against money laundering. The chapter commences by analysing the justifications for the imposition of the AML obligations on the IFs. The thesis then examines both the customer due diligence and the reporting requirements to determine whether these are fair and proportionate, and how they are affecting the IFs. This chapter concludes by analysing the costs arising from the AML regime. In chapter 4,the discussion turns on market abuse. The thesis debates whether there is a need to regulate against insider dealing and who should combat market abuse, with particular emphasis on the investigative tools and supervisory powers provided to the Malta Financial Services Authority.

The final chapter discusses the recent and proposed changes to the legislative framework, with particular focus on the new supervisory framework and the proposed MiFID II and MAD II regime. The discussion focuses on how these reforms will affect the investment firms. The thesis concludes by discussing the costs of over-regulation, and by proposing suggestions for an optimal regulatory regime.