The growth of financial conglomerates, offering a range of services hitherto unprecedented, has caused problems for regulators. While conglomerates bring with them many economic benefits (diversification of risk, economies of scope, etc) they also impose costs (systemic risk and conflict of interest abuses). Regulators must ensure that the regulation imposed is sufficiently strong to eradicate these abuses, but at the same time, flexible to allow the benefits of conglomeration to be secured. The Chinese Wall - a regulatory mechanism aimed at stemming the flow of information between one department in a firm to another department, and reconciling conflicts of interest more generally - is singled out for special treatment.;The legal position of the device, which has become all the more important in the wake of the recent Law Commission inquiry into the relationship between the Financial Services Act 1986 (and the rules made thereunder) and the general law, is considered in detail.;Harry McVea argues that an effective Chinese Wall will in most cases be legally sufficient to absolve a firm from potential liability at general law, but that there are situations where Chinese Walls are not satisfactory. Here, the conglomerate will have to suffer th commercial disadvantages of being a fiduciary by adopting a different, albeit more restrictive, regulatory option.
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