Investment Business Act 2003 Code of General Business Conduct and Practice (July 2022)

Summary

This is the Bermuda Monetary Authority's Code of General Business Conduct and Practice issued under section 10 of the Investment Business Act 2003. It replaces the 2010 versions of the Investment Business Act General Business Conduct and Practice Code and the Advertising Code of Conduct, consolidating conduct standards into a single code that applies to all investment providers licensed or registered under the Act.

The Code does not create separate statutory offences, but the Authority takes compliance (or non-compliance) into account when assessing whether an investment provider is conducting business in a sound and prudent manner. It is applied proportionately according to each provider's nature, scale and complexity, and should be read alongside the Statement of Principles, Enforcement Guide and Outsourcing Guidance Notes.

Areas covered

• Professional conduct standards: Requirements on disrepute, cooperation with the Authority, compliance procedures, risk management frameworks, disclosure of licensing status, complaints handling, and staff conduct.
• Advertising and promotion: General and product-specific requirements for advertisements, including fund particulars and offering documents.
• Client relationships: Requirements for client risk profiling, client agreements (including discretionary portfolio management agreements), suitability assessments, disclosure of fees, remuneration and commissions, performance and valuation reporting, and protection of client records.
• Portfolio management: Standards on independence, integrity and fair dealing, prohibitions on churning and unreasonable recommendations, best execution, investment policy statements, asset allocation and fair allocation among clients, and prohibition on market manipulation.
• Conflicts of interest: Requirements to identify, manage and disclose conflicts of interest, disclose relationships with associates, and restrict use of material non-public information.
• Futures, options and CFDs: Risk warnings, requirement that contracts be on-exchange, liability for margins, and appropriateness assessments.
• Retail OTC leveraged products: Enhanced standards including minimum margin requirements, negative balance protection, disclosure of costs, risks and marketing restrictions, fair pricing and order execution rules.
• Internet and electronic transactions: Requirements for online offers and advertisements, disclosure of information, and record-keeping for electronic communications and transactions.
• Appendices: Sample disclosure templates for risk profile letters, risk disclosure statements, performance and valuation statements, fees and expenses disclosure, conflicts of interest disclosure, and terms of business.

Overall, the Code sets out the conduct, disclosure and operational standards the BMA expects all investment providers to follow, with detailed guidance and model wording provided in the appendices to support compliance with client agreement and disclosure obligations.

Key obligations

• Investment providers must have regard to and comply with the letter and spirit of the Code in conducting their business.
• Investment providers must deal openly and cooperatively with the Authority and proactively alert it to significant developments (e.g. staffing changes, systems and controls issues, material insurance claims, criminal proceedings, mergers/acquisitions, sale of business, material cybersecurity incidents).
• Investment providers must maintain compliance procedures and a risk management framework proportionate to their nature, scale and complexity.
• Managers of funds must observe the terms of fund particulars.
• Investment providers must disclose their licensing body to clients.
• Investment providers must maintain complaint handling procedures.
• Investment providers must enter into a client agreement with clients (subject to specified exceptions), including discretionary portfolio management agreements where applicable.
• Investment providers must assess client risk profiles and suitability before providing advice or effecting transactions.
• Investment providers must disclose fees, remuneration, commissions and other charges to clients, and avoid overcharging.
• Investment providers must disclose conflicts of interest and relationships with associates, and restrict use of material non-public information.
• Investment providers must provide periodic performance and valuation information to clients and protect client records and confidential information.
• Investment providers must ensure best execution and fair allocation of transactions among clients, and must not engage in churning, unreasonable recommendations or market manipulation.
• Investment providers offering retail OTC leveraged products must apply minimum margin requirements, limit negative client balances, and disclose costs, charges and risks clearly.
• Investment providers conducting business over the internet or other electronic communications must disclose required information and keep records of such communications and transactions.

Applies to

investment providers, investment business licensees under the Investment Business Act 2003, managers of funds, providers of retail OTC leveraged products

Related documents

• This document is made under Investment Business Act 2003