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Bermuda proposes changes to investment provider code

The Bermuda Monetary Authority has proposed a series of changes to the general business conduct and practice code of conduct issued under the Investment Business Act 2003 that aim to improve practices among investment providers.

The project stems from a review the authority conducted in 2009 into disclosure practices prevalent throughout the industry.

The review revealed quite widespread deficiencies which were common to a number of investment providers.
 
The current version of the code was issued in 2004. The purpose of the code is to set out specific standards for the conduct and practice of business by investment providers. Failure to comply with the provisions is taken into account by the authority when determining whether an investment provider’s business is being conducted in the requisite prudent manner.
 
The review concentrates on the following main areas:
 
• Professional conduct standards: this incorporates the section “responsible conduct” from the current code which provides detailed guidance as to the standards required in this area.  Investment providers are expected to conduct their business with their investors in a professional and ethical manner both in accordance with the draft code and with customary/applicable industry standards.
• Client relationships: this has been expanded in order that investment providers should provide clients with enhanced disclosure and to require them to create client risk profiles. The investment provider will be required to undertake risk profiling including obtaining all relevant financial and other information from investors including their investment objective/s in order to better ensure investor understanding of risk. Investment providers will be required to ensure that investors have all relevant and salient performance data and other information to enable them to make informed investment decisions.
• Portfolio management: investment providers must give investors an investment policy statement in which is set out matters relating to asset allocation, liquidity requirement and risk tolerance indications. An IPS must be provided to an investor prior to any investor monies being invested on their behalf.
• Conflicts of interest: guidance on this is now contained in its own section of the draft code and includes direction on research/analysis fairness, front running and use of material non-public information. Investment providers must be in a position to identify conflicts when they arise and communicate such matters to their investors. 

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