The Principle of Suitability in Investment-Related Financial Activities: Concept and Justifications
Anwar Namshan Al Janfawi
PhD Researcher
College of Law, University of Sharjah, UAE
Prof Dr Rasha Mohammad Hattab
Professor of Commercial Law
College of Law, University of Sharjah, UAE
Abstract:
The Financial Activities Handbook established general principles that are binding to all practitioners of financial activities, and among these principles is the principle of suitability, as it defined it and determined the level of care required in its implementation. It also established it as one of the conditions for providing financial service to the client, the content of which and the scope of its application vary depending on the classification of the client according to his knowledge and experience in the financial market.
This study focused on investigating the principle of appropriateness in carrying out investment-related activities in terms of concept and justifications. The main problem of the study revolved around explaining the adequacy of the legal texts regulating the principle of suitability imposed on those practicing financial activities that are specifically related to investment, in achieving the desired protection for the investor sector. The importance of the study emerged in light of the novelty of this principle of suitability imposed on those practicing financial activities that specifically relate to investment.
The study worked to answer this problem by following the inductive approach, as it sought to collect the various legal texts related to the principle of appropriateness, by following a two-partition plan. In the first section, it explained the nature of the principle, and in the second section, it stopped at the justifications for this principle. The study concluded that the UAE legislator established the principle of suitability, the aim of which was to enhance investor protection in the stock exchange, provided that it also ensures a different and guaranteed degree of protection according to the different classification of investors.
The study also recommended the need to enhance the effective application of the principle of suitability, as regulatory authorities and financial institutions should take all necessary measures to ensure compliance with the principle of suitability. In addition, it is necessary to strengthen legislation and regulations related to the principle of appropriateness, provided that they are very precise and comprehensive in all aspects.
Keywords: the principle of suitability, financial activities related to dealing in investments, securities portfolio management, investment management, and obligations of those practicing financial activities.