Conduct of business rules

Conduct of business rules are the rules governing investment firms’ behavior when offering financial services to their customers. This chapter offers a comparative analysis of these rules, focusing on the EU and US legal systems. First, the chapter discusses conflict of interest rules, highlighting their gaps and deficiencies in ensuring adequate investor protection. Second, it provides a description and an analysis of the suitability and appropriateness duties. It underscores the different scope of the two duties in the EU and the US, investigates their alleged paternalistic nature and briefly discusses their role in strengthening financial stability. Third, the chapter offers an analysis of the best execution duty, namely investment firms’ duty to execute financial transactions at the best possible terms for their clients. Fourth, the chapter examines the recent EU rules mandating investment firms to take into account investors’ sustainability preferences for the purpose of assessing an investment’s suitability, highlighting how conforming to such preferences may negatively affect the client’s financial interests and pointing out the gaps of the new regime in addressing this trade-off. The chapter concludes with some reflections on the degree of convergence between the EU and the US in this area of financial regulation and on the possible trajectories of future evolution.