A big win for the banks: The impact of ASIC v Citigroup
In a landmark decision, the Federal Court of Australia has held that the law will enable an investment bank to contract out of, or modify, any fiduciary obligations owed to a client.
(This article appears courtesy of International Financial Law Review, sign up for a free trial on their site) The June 2007 decision in ASIC v Citigroup Global Markets Australia is also relevant for financial services companies that operate on a public/private division. Liability for insider trading will be determined by the adequacy of Chinese wall arrangements. The courts require not only extensive written procedures, but also that all employees understand and apply them to a host of possible conflicts of interest and duty.
This heralds a big win for investment banks. It provides greater certainty that in Australia the courts will uphold the efficacy of retainer arrangements that seek to exclude an investment bank's fiduciary obligations to its client. It also emphasizes the importance of internal compliance procedures such as Chinese walls in preventing liability for insider trading. This clarification is crucial for consistency and predictability in the financial services sector given ASIC's aggressive regulatory approach.
ASIC sued the Australian arm of the global investment bank, Citigroup, alleging breaches of fiduciary duty to its client, Toll Holdings. The breaches were alleged to have occurred in August 2005 when Citigroup's private arm advised Toll on a proposed takeover of Patrick Corporation.