The Bottom Line / Clear as Mud

The Securities Authority and commercial banks waited for an entire year for the ruling of the president of the Tel Aviv District Court, Judge Uri Goren, on the issue of the appropriate interpretation of the law regulating the occupation of investment consultant.

Yesterday, Goren published his ruling on the petition filed by the union of banks against a decision by the Securities Authority, which determined that the passing on of information regarding investments was also a form of consulting and hence could only be carried out by certified investment consultants. The banks argued that the authority's demand was unreasonable as it would require them to train hundreds investment consultants and thereby undermine their efficiency.

In the dispute between the parties, the question of what is the difference between passing on information and consulting came up over and over again. The ruling, a 33-page document, was supposed to have clarified the vagueness in the law, and to have removed any pitfalls facing both the banks and their customers on the matter of consulting.

After an initial reading of the ruling, it appears that these objectives were not achieved.

The ruling provides both the banks and the Securities Authority with an infinite number of determinations that support the claims of each of them. It lightly raps the knuckles of the authority, whose position is described as "too rigid," but also expresses real concern for the danger of "an invasion of bank clerks into the field of consulting." It shows that the court would like to see the banks preparing, from the point of view of skilled personnel, to implement the Consulting Law, but also recognizes that the legislator had no intention of undermining banking efficiency.

The ruling includes numerous arguments that neutralize each other, lots of "On the one hand... and on the other," and a healthy portion of vagueness. What it lacks is a clear-cut and unequivocal statement with regard to what the bank clerks are allowed and not allowed to say to their customers.

The court, however, shouldn't be blamed for this, because the problem lies not in the ruling, but in the law itself. Already when it was passed in 1995, it was clear that the Consulting Law would be difficult to implement and that its assimilation into the system would run into problems.

Goren's ruling does indeed include a number of dos and don'ts relating to the duties of an investment clerk at a bank, but it does not provide clear answers to the infinite number of situations to which the bank clerks and consultants are exposed.

The judge even admits to such, saying: "It is not the role of the court - and it is highly doubtful if the matter is within its capabilities - to provide a closed and all-encompassing list of issues for which providing information on them would be tantamount to consulting in that they touch on the matter of the viability of a deal. I am convinced that information that is not intended to bring its recipient to a conclusion regarding the viability of a deal is information that a bank clerk is entitled to pass on, whether it be objective or subjective. But what is such information? Only the dynamics of reality will design such tests in the future."

Aware of the complexity of the law, Goren instructed the banks and the Securities Authority to formulate principles and guidelines for implementing the ruling, even inviting the parties to bring disputed issues before the court again.

It appears that in light of the vagueness that still remains in the interpretation of the law, together with the high risk of contravening the law that face the banks, the parties will warmly welcome Goren's recommendation and provide the court with much more work in the coming years.