Investment firms and financial undertakings that are licensed to provide investment services must act honestly, fairly and professionally in accordance with the best interests of its clients. They must act with a view to ensuring the integrity of the financial market and client interests and follow customs in securities trading and conduct of business standards.
Contracts and information to customers
- An investment firm that provides investment services to customers must enter into a written basic agreement with the customer that stipulates the principal rights and obligations of the investment firm and the customer.
- The investment firm is obliged to keep a record of all contracts made with each customer.
- Customers must receive adequate information about the services provided, including regular notifications taking into account the type of financial instruments related to the service, their complexity and the nature of the service provided.
- The costs related to the transaction and/or services provided must be disclosed.
Classification of customers
- The investment firm has an obligation to classify customers at the start of a business relationship.
- Customers must be informed of the investor category they belong to.
- The categories are:
- Retail investor, enjoys the most protection.
- Professional investor, enjoys less protection.
- Eligible counterparty, enjoys less protection.
- Before investment firm accepts a customer’s request to be treated as a professional investor, the firm is required to assess the customer’s experience, knowledge and expertise in order to make investment decisions and understand the risks involved.
Assessment of suitability and appropriateness
- When an undertaking provides investment advice or performs asset management, it must assess whether a product or service is suitable for a customer and gather information about:
- The customer's experience and knowledge in the field of investments that is relevant to the specific type of product or service.
- The customer's financial position, including his/her ability to meet losses.
- Customer's investment goals, including his/her risk tolerance.
- When an investment firm provides investment services other than investment advice or asset management, it must assess whether the product or service is appropriate for the customer.
- Information about the customer's knowledge and experience in the investment field to the specific type of product or service offered or demanded.
Best execution of orders
- Investment firms must ensure that customers’ orders are executed on terms that are most favourable to the customer and take all sufficient steps to obtain the best possible result for their customers.
- Factors to consider are, for example, the price, costs, speed, likelihood of the transaction and settlement, scope and nature of the trading or other relevant factors.
Conflicts of interest
- Investment firms shall take all appropriate measures to identify, prevent or manage conflicts of interest in connection with the investment services they provide.
- If an investment firm is unable to prevent or manage the risk of conflicts of interest, it must inform the customer about the general nature and/or sources of conflicts of interest and what measures have been taken to reduce the risk.
- Investment firms must organise their activities in such a way that there is as little risk of conflicts of interest as possible.
Key information documents
- Key information documents are documents that must be provided to retail investors, before a transaction takes place or an agreement is reached, e.g. due to trading in unit shares of UCITS and other packaged investment products or insurance-based investment products.
- The documents should contain comparable information that enables retail investors to understand a specific product, its inherent risks and the benefits that can be expected, along with information about the costs and fees that will be charged and what the minimum period for the custodianship is if such obligations exist.
- Key information documents can be no more than three pages long.