Statement of Guidance on Client Understanding, Suitability, Dealing and Disclosure for Securities Investment Business

Summary

This is a CIMA Statement of Guidance directed at Cayman Islands licensees conducting securities investment business, setting out expected standards of conduct in dealing with clients before, during and after transactions.

• Pre-transaction: Suitability and risk-disclosure duties owed to private clients.
• Dealing standards: Avoiding churning, overcharging, and front running, and ensuring fair and timely allocation and execution of orders, plus 'best execution'.
• Post-transaction: Requirements to provide clients with periodic written statements about their portfolios.

The guidance distinguishes between private clients, who receive enhanced protections, and professional/execution-only clients, who do not benefit from the suitability and risk-understanding safeguards.

• Risk disclosure acknowledgements: Licensees must obtain signed risk disclosure acknowledgements before recommending certain higher-risk products (futures, options, contracts for differences, warrants) to private clients.
• Illiquid investments: Written consent is required before recommending illiquid investments.
• Account statements: Detailed content, timing and frequency requirements are set for client account statements, varying by client type and product (e.g., contingent liability positions, discretionary portfolios, broker funds).

Because this is a Statement of Guidance rather than binding law, it describes CIMA's expectations as to how licensees should conduct themselves and will likely be used as a benchmark in supervisory assessments, though the precise legal force and current status of the document (e.g., whether superseded) is not stated in the text itself.

Key obligations

• Ensure a transaction is suitable for a private client before making a recommendation to them or exercising discretion over their assets.
• Take reasonable and appropriate steps to enable a private client to understand the risks of a recommended transaction before recommending it or acting with discretion.
• Do not advise a private client to deal in futures, options or contracts for differences unless the client has received and signed/returned a risk disclosure statement containing the elements in Appendix 1.
• Do not advise a private client to deal in warrants unless the client has received and signed/returned a risk disclosure statement containing the elements in Appendix 2.
• Do not advise or effect purchase of an illiquid or not readily realisable investment for a private client unless the client has been informed of the risks (including valuation difficulties) and has given written consent.
• When introducing a private client to investment business outside the Cayman Islands, disclose to the client the nature and extent of the regulatory regime in that jurisdiction.
• Do not effect transactions with unnecessary frequency or excessive size for a client over whose funds the licensee exercises discretion (avoid churning).
• Ensure charges are not unfair or unreasonable and are adequately disclosed to the client before the relationship commences.
• Do not deal ahead of a client (front running) where the client ought to have priority.
• Allocate partially filled bulk orders fairly and uniformly, placing the licensee's own participation last unless it benefits each client.
• Promptly allocate executed transactions to the correct client account rather than retrospectively allocating trades.
• Execute client orders as soon as reasonably practicable once agreed or decided upon, absent reasonable grounds to postpone in the client's interest.
• Provide best execution by taking reasonable care to ascertain the best available price for the client and dealing on terms not less advantageous, disclosing net price after charges/commissions.
• Deal with client and own-account orders fairly and in due turn, not placing the licensee's own interests above the client's.
• Do not trade ahead of distributing own/associate research with advance knowledge of price-sensitive information, and disclose any benefit expected from distributed research.
• Provide clients managing/administering securities accounts or portfolios (including uncovered contingent liability positions) with a written statement at suitable intervals containing adequate information on value and composition of the account.
• Retain a copy of any client statement provided for five years from the date it was provided.
• Send contract notes to clients with due dispatch, disclosing the method of delivery in the client agreement.
• Provide a private client statement within 25 business days after the end of the relevant period, or within 10 business days if the portfolio includes uncovered open contingent liability positions.
• Provide statements at six-monthly intervals by default (or as otherwise agreed with the private client), monthly if contingent liability positions exist, or up to every 12 months if the client has requested less frequent statements in writing.
• Include in client statements the general information (contents, value, valuation basis) and any additional information required for discretionary portfolios, contingent liability transactions, or broker funds as set out in the guidance's tables.

Applies to

licensees conducting securities investment business, licence-holders

Deadlines

• within 25 business days after the end of the period to which the statement relates: Deadline for providing a private client with a portfolio/account statement (general case).
• within 10 business days after the end of the period to which the statement relates: Deadline for providing a private client with a statement if the portfolio includes uncovered open positions in contingent liability transactions.
• six-monthly intervals: Default frequency for providing statements to a private client, absent an agreement on adequate intervals.
• monthly: Required statement frequency where the client's portfolio includes an uncovered open position in a contingent liability transaction.
• not exceeding 12 months: Maximum interval for providing statements if the private client has requested less frequent statements in writing.
• five years from the date on which it was provided: Retention period for copies of client statements.