Consultation Paper - Proposed Enhancements to the Investment Business Regime: General Business Conduct and Practice: Code of Conduct and Advertising Code of Conduct (February 2022)

Summary

This is a Bermuda Monetary Authority consultation paper proposing to merge the existing Investment Business General Business Conduct and Practice Code and the Advertising Code of Conduct into a single new Code of General Business Conduct and Practice. It forms part of a broader initiative to modernise the investment business regulatory framework, including expanding the framework to new categories of registered persons and a new regulated activity. A full draft of the proposed consolidated Code is attached as Appendix I.

• Scope expansion: The Code would apply to all investment providers as newly defined, including two new categories of registered persons being added to the regime, and would introduce a proportionality principle for assessing compliance.
• OTC leveraged products: New provisions would set enhanced expectations for sale and marketing of OTC leveraged products (including CFDs) to retail clients, covering minimum margin requirements, negative balance protection, disclosure of costs, charges and risks, risk warnings, restrictions on aggressive sales tactics, fair pricing, best execution, and specific leverage limits by asset type.
• Consultation question: The Authority specifically seeks stakeholder views on whether to prohibit use of credit card payments to fund purchase or trading of OTC leveraged products by retail clients.
• General modernisation: Other Code provisions are updated to reflect changes in industry practice, regulatory standards, and communication/delivery channels since the Code was last updated in 2010.

This is a consultation paper only; the proposed Code is not yet in force. The Authority indicates it will separately consult on updated guidance and application forms for prospective licence applicants once the related legislative changes take effect.

Key obligations

• Stakeholders wishing to comment must submit feedback to policy@bma.bm by close of business on 21 March 2022
• Under the proposed Code, firms would need to formalise and communicate minimum margin requirements for retail investors trading OTC leveraged products
• Under the proposed Code, firms would need to provide retail clients negative balance protection so losses cannot exceed amounts invested
• Under the proposed Code, firms would need to fully disclose costs, charges and risks associated with OTC leveraged products to retail clients
• Under the proposed Code, firms would need to provide appropriate risk warnings with any invitation to retail clients to invest in OTC leveraged products
• Under the proposed Code, firms would need to conduct suitability/appropriateness assessments before marketing OTC leveraged products to avoid mis-selling and avoid aggressive or intrusive sales tactics
• Under the proposed Code, firms would need to use fair and transparent pricing methods and verifiable data sources
• Under the proposed Code, firms would need to deliver best execution outcomes for retail clients trading OTC leveraged products

Applies to

investment providers, registered persons under the Investment Business Act 2003, licensed investment business firms, firms marketing or selling OTC leveraged products (including CFDs) to retail clients

Deadlines

• 21 March 2022 (close of business): Deadline for industry and stakeholders to submit comments on the consultation paper and draft Code to policy@bma.bm