Who Bears Responsibility for Investment Losses? Beijing Financial Court Releases Precedent Case Clarifying the Boundaries of "Suitability Obligation"

21st Century Business Herald Reporter Guo Congcong

On February 1, the “Measures for the Management of Suitability of Financial Institution Products” (hereinafter referred to as the “Measures”) issued by the China Banking and Insurance Regulatory Commission officially came into effect. The Measures clarify the standards for establishing the suitability management system for financial institutions, the suitability requirements at the product sales stage, and the supervisory responsibilities of regulatory authorities. This provides a clearer institutional basis for small and medium investors to protect their rights in financial disputes.

The so-called “duty of suitability” generally means that financial institutions must “know their clients and know their products” when recommending and selling financial products, ensuring that suitable products are recommended to suitable clients. However, disputes are not uncommon in practice.

Recently, the 21st Century Business Herald learned that, to support the implementation of the Measures and further clarify investor rights protection channels, the Beijing Financial Court released three typical cases. From a judicial perspective, these cases specifically address how investors can legally safeguard their rights when financial institutions fail to fulfill their suitability obligations.

Can risk assessment questionnaires be filled out by others?

The dispute involving retired worker Li stems from a risk assessment questionnaire, serving as a warning to many elderly investors.

In September 2021, Li’s bank deposit matured. Customer manager Zhang recommended a trust plan with a risk rating of R3, requiring investors to have more than two years of investment experience and a household financial net worth of at least 3 million yuan. Li completed an initial risk assessment at the bank counter, which showed he was a conservative investor and did not meet the purchase criteria.

The next day, Li returned to the bank. Under Zhang’s guidance, he downloaded the bank’s app and completed a second online assessment. This time, the result was “steady,” but since his reported household net worth was only 1 million yuan, he still could not purchase the product. More than half a month later, with Zhang’s help, Li used the app to modify his household net worth to over 3 million yuan and signed a qualified investor declaration, ultimately purchasing 500,000 yuan of the trust product.

Two years later, when Li redeemed the product, he found a loss of over 50,000 yuan. Li sued the bank, claiming it failed to fulfill its suitability obligations.

The court found that the bank’s sales process had flaws. Although the risk disclosure process via mobile banking was compliant, Li’s two assessments, especially the significant differences in his answers to the same questions, were not further verified by the bank. The bank also did not issue a special written warning about the product’s risks exceeding his capacity. Accordingly, the court ruled that the bank should bear 30% of the compensation for Li’s investment loss.

The judge reminded that Article 13 of the Measures explicitly prohibits sales personnel from evaluating clients on their behalf or influencing assessment results. Investors should truthfully fill out questionnaires, keep their account passwords secure, and avoid letting others operate their accounts. Before signing documents, they should read carefully to prevent adverse consequences caused by negligence.

Does fund conversion mean re-purchasing?

Shang, who has been purchasing funds at a bank for a long time, encountered a dispute during a fund conversion.

In September 2017, 65-year-old Shang started buying fund products recommended by bank manager Liu. Liu regularly conducted risk assessments, which showed Shang was a C3 balanced investor.

In January 2021, on Liu’s recommendation, Shang subscribed to a bank-distributed R3 medium-risk fund with an investment of 1.2 million yuan. Soon after, he re-evaluated himself via the app, and the result showed he was now a C2 steady investor.

In August of the same year, Liu informed Shang that his fund had lost about 90,000 yuan and suggested converting to another fund, B, claiming it was “high quality with great potential.” Without further risk inquiry, Shang agreed to the conversion. Later, it was found that Fund B’s risk level was R4—high risk—while Shang’s risk tolerance was only C2, which did not meet the purchase requirements.

By 2024, when Shang redeemed the fund, he found no gains and a loss of over 700,000 yuan.

The bank argued that the fund conversion was Shang’s autonomous operation, and he should bear the consequences himself. The court, however, held that fund conversion is not a simple after-sales operation but involves the sale of a new product. The bank did not re-assess Shang’s risk profile during the conversion nor inform him about the risk level and investment strategy of the new product, constituting improper performance of its suitability obligations. Therefore, the bank should be liable for Shang’s losses.

Ultimately, the court ruled that the bank should bear 70% of Shang’s losses from the fund conversion.

The judge pointed out that Article 18 of the Measures pays special attention to elderly investors, requiring financial institutions to provide age-appropriate financial services and special risk prevention measures. For operations like fund conversions, investors should focus on whether the institution clearly explains the risk characteristics of the new product, adhering to the principle of “no investment without understanding” and “no blind decisions.”

Can experienced investors be exempt from risk assessments?

The third case involves an investor with extensive investment experience.

In 2015, Cai, introduced by a friend, transferred over 7 million yuan to a trust company to purchase trust products, but only recovered about 3.8 million yuan in liquidation. Cai claimed that he had not signed a written contract, the signatures on the trust agreement and questionnaire were not his, and the trust company failed to fulfill its suitability obligations, demanding compensation.

The trust company argued that Cai had many years of securities trading experience, with over 1,500 transactions across multiple securities firms, involving high-risk products like margin trading, indicating strong risk recognition and tolerance, and thus should be exempt from the suitability obligation. They claimed the losses were due to market risk and not their fault.

The court found that, although Cai had rich investment experience, the amount invested in this trust was far higher than any of his previous securities transactions. His past risk willingness did not imply he was willing to bear the risks of this transaction. The trust company also failed to provide evidence of client qualification review or risk disclosure, and the questionnaire was not signed by Cai himself. The trust company did not fulfill its suitability obligations and should be liable for damages.

The court ordered the trust company to compensate Cai for over 3.9 million yuan in losses.

The judge reminded that Articles 4 and 10 of the Measures clearly state that financial institutions are responsible for suitability management, requiring truthful customer information collection, strict qualification review, and risk disclosure. Investment experience can only serve as a reference for assessing risk awareness and does not exempt institutions from their legal duties.