Consultation Paper (Appendix 1) - Investment Business Act 2003 General Business Conduct and Practice Code of Conduct

Summary

This is Appendix I to a Bermuda Monetary Authority consultation paper, containing a draft General Business Conduct and Practice Code of Conduct issued under the Investment Business Act 2003. It is a draft/consultation document, not yet a final binding code, and is intended to replace the prior 2004 version of the Code once adopted. It sets out standards of conduct that would apply to all holders of investment business licences granted under section 17 or issued under section 87(2) of the Act.

Areas covered by the draft Code

• Professional conduct: Requires acting with integrity, skill, care and diligence, cooperating openly with the BMA, maintaining written compliance procedures reviewed at least annually, keeping disciplinary and complaints records, and disclosing the licensing body in advertisements and correspondence.
• Client relationships: Covers client risk profiling, client agreements, suitability assessments, disclosure of remuneration, commissions and fund particulars, and periodic valuation/performance reporting to clients.
• Portfolio management: Addresses independence, fair dealing, prohibition on churning and market manipulation, best execution, investment policy statements, asset allocation and fair allocation of transactions among clients.
• Conflicts of interest: Requires disclosure of conflicts of interest and associate links, prohibits front running, and restricts use of material non-public information.
• Futures, options and internet business: Sets risk warning requirements for futures/options/CFDs, requires on-exchange dealing, and imposes disclosure, communication and record-keeping standards for investment business conducted over the internet.
• Sample templates: Includes appendices with sample disclosure documents: risk profile letters, disclosure statements, performance/valuation statements, asset allocation models, fees and expenses reports, conflicts of interest reports, and terms of business letters.

Because this is a draft appendix to a consultation paper, it reflects proposed requirements that would apply to investment business licensees if and when the Code is finalised and adopted by the BMA, rather than a currently binding obligation.

Key obligations

• Investment providers must liaise openly and cooperatively with the BMA, including promptly alerting it to breaches of requirements or expected standards of behaviour
• Investment providers must establish and maintain written compliance procedures and review them at least annually to ensure they are appropriate and being followed
• Investment providers must disclose the identity of their licensing body in all advertisements and correspondence with clients and potential clients
• Investment providers must maintain records of client complaints, the provider's response, and any remedial action taken
• Investment providers must maintain records of any employees disciplined for breaches of the Code, including the offence and disciplinary steps taken
• Investment providers must make provision for the protection of clients in the event of cessation of the whole or part of their investment business
• Managers of funds must take reasonable steps to comply with statements in the most recently published prospectus or explanatory memorandum and comply with duties under the Investment Funds Act 2006 and Fund Rules 2007
• Investment providers introducing clients to unauthorised persons or overseas entities must disclose that the business will not be covered by the Investment Business Act 2003 and inform clients of the relevant foreign regulatory regime
• Investment providers must disclose conflicts of interest, links with associates, and must not front run client orders or misuse material non-public information
• Investment providers must provide clients with periodic information and valuations and disclose remuneration, commissions and fees

Applies to

investment providers, holders of investment business licences under the Investment Business Act 2003, managers of funds

Deadlines

• at least annually: Investment providers must carry out a review of their written compliance procedures to ensure they remain appropriate and have been complied with.