An unlimited duty of care of banks?
The current standards of due care in financial law do not seem to offer enough protection to clients of financial undertakings. Financial supervisors suggest the introduction of a ‘generic’ duty of care: what are the limits of this proposed duty of care?
Previous decisions by Dutch courts show that banks should not only comply with standards of due care by virtue of the Dutch Financial Supervision Act (FSA), but that they are also subject to a ‘special’ duty of care in respect of their clients. The extent of this special duty of care depends on the circumstances of the case.
The application of this special duty of care has been well illustrated in the case which Wouter den Hollander discussed in his blog. From this decision by the Dutch Supreme Court it can be deduced that the special duty of care pertaining to private law goes beyond the provisions governed by financial law. In other words: the financial law provisions seem, in the eyes of the courts, to not always offer enough protection to clients of banks.
Not only judges, but Dutch financial supervisors as well seem to want to broaden the duty of care banks and other financial undertakings have beyond the current FSA provisions. For in practice it sometimes seems difficult for financial supervisors to intervene when they think it is necessary, because in some cases there is no legal basis for it. Accordingly, the Netherlands Authority for the Financial Markets (AFM) has recently suggested in a letter to the Minister of Finance that an extra duty of care be introduced in the FSA, a so-called ‘generic’ duty of care. By including such a generic duty of care, it will be easier for financial supervisors to take action when needed. To ensure that this generic duty of care is applicable when necessary, it should be formulated as a principle-based norm. Such a norm, however, has one big disadvantage: it could decrease legal certainty. This problem could be solved by giving the AFM the opportunity to clarify this generic duty of care by publishing policy rules. But there are snags to this solution which should not go undiscussed. First of all, the problem that the legal status of the publications of the AFM is not always clear. This vagueness has consequences for the financial undertakings which are supervised by the AFM.
Moreover, there is the continuing issue of whether the principle-based nature of norms can still be called principle-based when such a norm has been interpreted thoroughly by a financial supervisor. Does the clarification of the principle-based norm by the financial supervisor not resemble a rule-based norm too much? In other words: does the purpose of a principle-based norm (compliability) still exist after the various interpretations of the norm by the financial supervisor? These two problems indicate the possible issue concerning the role of the AFM when explaining the meaning of the generic duty of care: the financial supervisor could misuse the generic duty of care by applying it too easily.
A generic duty of care seems to be indispensible for financial supervisors to be able to take action when needed. There could, however, be doubts about the application of the generic duty of care. It should be made clear that the term ‘generic’ will not stand for ‘unlimited’.