The informational duties of the financial broker

8 January 2018

Financial brokers are companies specialised in professional practice of investment activities towards the public and are the means that allow privates to enter in the market of financial instruments. The safeguard of privates with regard to the investment activity has become a leading theme following the well-known cases of Argentina, Cirio and Parmalat in the Italian market. In such cases – due to serious gaps of information from banks and professional brokers, that did not disclose the insolvency of the instruments issuer companies’ as well as the crisis of the Argentinian state – privates found themselves in having invested lots of money in high-risk financial instruments, unsuitable with their risk profile and with serious consequences on the possibility to remunerate the investment itself as well as to return the capital invested.

The financial brokerage is characterised by an information asymmetry between the financial broker and the private: the broker has information or is anyway able to obtain them as it acts professionally, whereas the investor usually do not have such information and is unable to obtain it independently.

As a remedy for this asymmetry, law dictates strict and specific information duties that the financial broker has to comply with and that are prescribed by the T.U.F. (Testo Unico della Finanza, consolidated text on finance) and by the CONSOB Guidelines (Commissione Nazionale per le Società e la Borsa, national authority that monitors the stock market).

According to such information the financial broker has to give to the private every kind of information regarding the investment proposed, as well as obtain from client the key information to qualify his risk profile and his feature of investor. The financial broker is likewise required to identify and communicate to the investor any potential conflicts of interest.

The CONSOB Guidelines order the financial broker to provide the investor, in a clear and understandable form, with all relevant information necessary to understand the nature of investment service proposed, the specific kind of financial instrument involved and the risk linked to the investment, as to consciously decide whether to invest or not in that specific instrument. The information provided needs to be correct, clear, understandable and non-deceptive, and should take into consideration the categorisation of the investor as end user or professional client.

The financial broker should behave with diligence, accuracy and transparency and has to work for the benefit of the investors and the stock market in its entirety. Following this duty, the financial broker needs to: i) obtain all relevant information regarding the financial instruments that intends to buy and sell; ii) identify the investor’s profile by gathering all relevant elements from the client (expertise and knowledge of the financial instruments market, his financial status and his tendency to risk) and submit them suitable financial instruments; iii) illustrate to the investor the submitted instrument with specific reference to its risk level.

The Italian Supreme Court paid specific attention to the consequences in the event of violation of the above mentioned informational duties by the financial broker. With two “twin-judgments” issued back in 2007 by the Sezioni Unite of the Court, it affirmed that the violation implicates the financial broker’s compensation liability, according to the particular case, precontractual or contractual one and can lead to the termination of the contract due to its non-fulfilment by the financial broker.

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Copyright 2021 Corno – Centro Terziario Avanzato s.r.l.
P.IVA 00947490967 | Capitale sociale: 100.000€ | C.F. 09206750151 | REA 1285358