Abstract

The nature and extent of a financial service provider’s (‘FSP’s’) liability for the advice or information that it provides is a core issue globally and is frequently cited in complaints and lawsuits.  Commercial banks are particularly vulnerable to advice liability and cannot afford to downplay the risk as they continue with fast-paced innovation. In this context the Financial Advisory and Investment Services Act (‘FAIS Act’) has attempted to intervene in the FSP– customer relationship by regulating conduct and elevating advisory standards. Unfortunately, the Act is constrained by antiquated distinctions and has failed to improve on the common-law advisory duty. It is hoped that the proposed Conduct of Financial Institutions Bill will improve on this. The current statutory exclusions from the definition of ‘advice’ lead to a dichotomy that is unhelpful in modern banking. Furthermore, the lack of recourse to a statutory mechanism in respect of what are currently deemed ‘non-FAIS’ activities is confusing.  The consequences of the current legislative framework are a lack of legal clarity (which is not good for business), inadequate regulation, and an increase in abusive practices. A reform of the legislation is needed, failing which the courts should develop the common law to impose liability even absent a regulated advisory relationship.