Dispute resolution focus on legal risk prevention in financial markets

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The principle of good faith lives in the process of dispute resolution. Where a decision faces different choices, the choice that lets the party prevail in good faith should be picked

With the rapid development of the financial market, various legal risks have been embedded in the increasing number of transactions and changing regulations. According to the Legal Risk Index Report about Listed Companies in China (2017), the financial industry ranked first among all industries in terms of the legal risk.

As a result, dispute resolution institutions are also facing challenges. Beijing Arbitration Commission/Beijing International Arbitration Centre (BAC), for example, has experienced growth in financial cases in recent years. In each of the past five years, financial cases contributed to more than 50% of the disputed amount of all cases.

Zhang-Haoliang-Beijing-Arbitration-Commission
Zhang Haoliang
Division Chief
Beijing Arbitration Commission/
Beijing International Arbitration Centre

In addition, frequent disputes over new transaction structures, complex factual matters and difficult legal relationships are unveiling the legal risks embedded in the development of the financial market.

The authors believe that dispute resolution institutions could act on and safeguard the rules by reducing the uncertainty in transactions and in the process of dispute resolution, and thus resolve disputes and prevent future risk.

The function of risk prevention in the process of dispute resolution neither substitutes business risks control of financial institutions, nor substitutes regulatory precautions, nor prevents individual disputes. It is the implementation of each agreement properly and proportionally that makes laws and rules effective, and fosters a good business environment. Specifically, this should include the following elements.

Promote healthy development of the financial market. First, dispute resolution institutions are able to maintain a consistent and accurate application of laws and interpretation of transactions. A process of dispute resolution should preclude bias in expertise and thus balance interests, which helps in solving problems rather than just closing a case.

Second, it should be sensitive and consistent to industry regulations and rules. In terms of this sensitivity and consistency, dispute resolution institutions do not have a direct responsibility to regulate markets or transactions. However, in terms of executing regulation de facto, the outcome of dispute resolution should be in line with the regulative orientation by identifying such orientation and understanding the financial market and transactional expectations.

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