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 General Business Conduct and Practice Code of Conduct and the Advertising Code of Conduct, and sets out the standards of conduct, disclosure, advertising, portfolio management and conflicts of interest that the BMA expects licensed investment providers to observe. Non-compliance is not itself a criminal offence but will be taken into account by the BMA when assessing whether a firm is conducting business in a sound and prudent manner.

• Professional conduct: Requires integrity, cooperation with the BMA, adequate compliance procedures, risk management frameworks, complaint handling and disciplinary processes, and provision for cessation of business.
• Advertising and promotion: Sets general and product-specific requirements for advertisements and promotional material, including for internet-based offers.
• Client relationships: Covers client risk profiling, client agreements (including discretionary portfolio management agreements), suitability assessments, disclosure of fees, remuneration, commissions and performance, and protection of client records.
• Portfolio management: Addresses independence, fair dealing, prohibition on churning, best execution, use of an Investment Policy Statement, fair asset allocation, and valuation of non-marketable investments.
• Conflicts of interest: Requires identification and disclosure of conflicts, fair treatment of research, disclosure of associate relationships, and restrictions on use of material non-public information.
• Futures, options, CFDs and retail OTC leveraged products: Imposes enhanced standards including risk warnings, margin requirements, negative balance protection for retail clients, cost and risk disclosure, and fair pricing and order execution rules.
• Electronic transactions: Sets requirements for offers, disclosures and record-keeping for investment business conducted over the internet or other communication channels.

The Code applies proportionately based on each investment provider's nature, scale and complexity, and includes sample disclosure templates (risk profile letters, risk disclosure statements, performance and valuation statements, fees and expenses reports, conflicts of interest reports, and terms of business) in its appendices for firms to adapt.

Key obligations

• Investment providers must deal openly and cooperatively with the Authority and proactively alert it to significant developments such as staffing changes, systems and controls issues, material insurance claims, criminal proceedings, mergers or acquisitions, sale of the business, material cybersecurity incidents, and issues affecting licensing criteria.
• Investment providers must maintain adequate compliance procedures and a risk management framework appropriate to their nature, scale and complexity.
• Investment providers must enter into a client agreement (including, where applicable, a discretionary portfolio management agreement) save for specified exceptions.
• Investment providers must assess client risk profiles and suitability before making recommendations and ensure clients can make informed investment decisions.
• Investment providers must disclose fees, remuneration, commissions, performance information, benchmarks and conflicts of interest to clients.
• Investment providers must provide periodic information and valuations to clients and protect the confidentiality of client records.
• Investment providers must ensure prompt and timely execution, best execution, and fair allocation of transactions among clients, and must not engage in churning or market manipulation.
• For retail OTC leveraged products, investment providers must apply minimum margin requirements, limit negative balances/retail client losses, disclose costs, charges and risks, and use fair pricing methodologies and verifiable price sources.
• Investment providers conducting business over the internet or other electronic communications must disclose required information and maintain records of such communications and transactions.

Applies to

investment providers, persons carrying on investment business licensed or registered under the Investment Business Act 2003

Related documents

• This document is made under Investment Business Act 2003