Law No. 2005-96 of October 18, 2005 on Strengthening the Security of Financial Relations

1 Law No. 2005-96 of October 18, 2005 On Strengthening the Security of Financial Relations (1) In the name of the people, Having been adopted by the Chamber of Deputies, The President of the Republic promulgates the law as follows: (…………………………………………)

TITLE THREE Specific Provisions for Strengthening the Role of the Financial Market Council in the Exercise of Its Duties

CHAPTER ONE The Organization of Portfolio Management Activities for Third Parties

ARTICLE 19. – Portfolio management for third parties is the issuance of orders concerning securities in the name of and on behalf of the client, pursuant to a written mandate.

ARTICLE 20. – Portfolio management for third parties is carried out by credit institutions governed by Law No. 2001-65 of July 10, 2001, on credit institutions, by stock exchange intermediaries governed by the aforementioned Law No. 94-117, and by management companies that are joint-stock companies whose purpose is the portfolio management of securities for third parties.

ARTICLE 21. – Institutions carrying out portfolio management for third parties must comply with the following conditions:

• carry out the activity with full independence and provide sufficient guarantees regarding organization, technical means, and human resources;
• perform duties with the diligence of an experienced professional and a loyal fiduciary for the interests of clients and market integrity;
• avoid conflicts of interest and resolve them fairly, taking into account client interests where applicable;
• provide the means and procedures that ensure activity control to verify compliance with sound management rules in all aspects of client relations;
• identify the financial capacity, objectives, and financial expectations of their clients;

(1) Preliminary works: Discussion and adoption by the Chamber of Deputies in its session on September 27, 2005.

• inform their clients of the risks inherent to the nature of the operations they intend to perform;
• establish, for their own account, control procedures for operations carried out by persons responsible for portfolio management for third parties, to guarantee transparency regardless of the location where securities accounts are opened and the obligations required of these persons to prevent undue circulation of inside information;
• avoid anything that may lead to the priority of shareholders' own interests over clients' interests, and protect managers' independence to ensure client interest priority;
• prohibit direct operations either between their clients' accounts, or between their shareholders' accounts and their clients' accounts, or between their own accounts and their clients' accounts.

ARTICLE 22. – Credit institutions and stock exchange intermediaries must declare their portfolio management for third parties activity to the Financial Market Council within one month from the commencement of the activity. However, credit institutions and stock exchange intermediaries exercising this activity on the date of entry into force of this law must declare it to the Financial Market Council within six months from the date of promulgation of this law.

ARTICLE 23. – The exercise of portfolio management for third parties by the management companies referred to in Article 20 of this law is subject to approval granted by the Financial Market Council under conditions fixed by decree. (2) The Financial Market Council decides to withdraw approval either upon the request of the approval holder or on its own initiative after hearing the approval holder, as follows:

• if the approval has not been used within twelve months from the date of its grant;
• or if the approval holder no longer meets the conditions that led to the granting of the approval;
• or if it has committed a serious breach of the applicable legislation or regulations. In case of withdrawal, the company must be liquidated and its activity must cease within one year from the date of the withdrawal decision, in accordance with applicable legislation.

ARTICLE 24. – Institutions exercising portfolio management for third parties, their executives, and personnel under their authority are subject to the control of the Financial Market Council with respect to this activity. This control aims to verify the compliance of portfolio management for third parties with applicable legal and regulatory provisions, particularly those of the aforementioned Law No. 94-117 of November 14, 1994. The concerned institutions must transmit to the Financial Market Council all information regarding this activity that it requests to enable it to perform the control. These institutions, as well as their executives and personnel under their authority, are subject to the disciplinary power of the Financial Market Council with respect to portfolio management for third parties.

ARTICLE 25. – Any person or any de jure or de facto executive of an institution exercising portfolio management for third parties without having obtained approval, or continuing to exercise this activity after the withdrawal of approval, shall be punished by imprisonment from sixteen days to one year and a fine of two thousand to twenty thousand dinars, or by one of these two penalties. The penalty is doubled in case of recidivism. The same penalty applies to any executive of a company not belonging to the category of management companies that has used a name or corporate title, advertising, or generally anything suggesting that the company it manages is approved as a management company or creating confusion in this regard. A fine of two thousand to twenty thousand dinars applies to any executive of a credit institution or stock exchange intermediary who fails to make the declaration referred to in Article 22 of this law.

ARTICLE 26. – The provisions of this chapter do not apply to venture capital investment companies with respect to special resources made available to them for portfolio management on behalf of third parties, as referred to in Article 23 of Law No. 88-92 of August 2, 1988, on investment companies, as amended and supplemented by subsequent texts.

(…………………………………………) This law shall be published in the Official Journal of the Tunisian Republic and executed as the law of the State. Tunis, October 18, 2005. Zine El Abidine Ben Ali

(2) Decree No. 2006-1294 of May 8, 2006.