Instruction No. 060/CREPMF/2020 on Discretionary Portfolio Management under Mandate on the UMOA Regional Financial Market

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Union Monétaire Ouest Africaine (West African Monetary Union) -------------------------------- crepmf Conseil Régional de l'Epargne Publique et des Marchés Financiers (Regional Council for Public Savings and Financial Markets)

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INSTRUCTION NO. 060/CREPMF/2020 ON THE MANDATE-BASED MANAGEMENT ACTIVITY ON THE UMOA REGIONAL FINANCIAL MARKET ------------------------------------

The Regional Council for Public Savings and Financial Markets,

Having regard to the Agreement of 3 July 1996 establishing the Regional Council for Public Savings and Financial Markets (hereinafter "Regional Council" or "CREPMF") and its Annex on the Composition, Organization, Operation, and Powers of the Regional Council for Public Savings and Financial Markets;

Having regard to General Regulation No. 001/97 of 28 November 1997 on the Organization, Operation, and Control of the UMOA Regional Financial Market, particularly Articles 5, 6, 38, 46, 57 to 65, 153, and 154;

Having regard to Decision No. CM/DAC/04/04/2017 of 14 April 2017 by the UMOA Council of Ministers appointing the President of the Regional Council;

Having regard to the resolutions of the Regional Council at its 37th extraordinary session on 17 December 2019;

H E R E B Y I S S U E S

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Instruction No. 060/CREPMF/2020

TITLE 1: GENERAL PROVISIONS

Article 1: Definitions
For the purposes of this Instruction, the following terms are defined as:

a) Managed client: the client whose portfolio is subject to discretionary management by a mandatary based on a contract.

b) Manager (the mandatary): the Management and Intermediation Company or Wealth Management Company holding the management mandate.

c) Mandate-based management: the discretionary portfolio management in the name and for the account of a managed client, being a natural or legal person other than a Collective Investment Scheme in Securities (UCITS), in compliance with the management mandate.

d) Portfolio manager: a natural person who is a member of the staff of a Management and Intermediation Company (M&IC) or Wealth Management Company (WMC), responsible for managing the portfolios of managed clients.

e) Management mandate: an agreement, drafted on paper or any other durable medium, by which a managed client (the mandator) grants power to a manager (the mandatary) to manage a portfolio including one or more financial instruments (shares, bonds, UCITS, monetary products of the Central Bank of West African States - BCEAO, ...), according to the client's profile previously assessed by the mandatary.

f) Managed client profile: a categorization of the managed client based on their personal financial situation, knowledge of stock market and financial product investments, experience and projects, attitude toward financial risk, and return expectations. The managed client's profile must enable the establishment of the management mandate and allow the Portfolio Manager to construct the client's portfolio.

g) Management strategy: the portfolio management orientation taking into account the client's profile. It defines the targeted asset allocation by class, i.e., by investment category, as well as the weighting levels of said assets and performance criteria.

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Instruction No. 060/CREPMF/2020

Article 2: Object
This Instruction sets forth the conditions for exercising mandate-based management activity on the UMOA financial market.

TITLE 2: GENERAL CONDITIONS REGARDING KNOWLEDGE OF THE MANAGED CLIENT

Article 3: Client identification
Prior to signing the management mandate, the manager is obligated, in accordance with legal and regulatory provisions on combating money laundering and terrorist financing in the West African Economic and Monetary Union (WAEMU), to collect information on the identity of the managed client or the identity of the person for whom said managed client acts.

Article 4: Assessment of the managed client's profile The manager implements necessary means to obtain information on the managed client enabling assessment of their profile, specifically collecting information regarding their personal or wealth financial situation, competence and experience in investing in financial products, risk and return objectives, investment horizon, categories of financial instruments that may comprise their portfolio, and constraints, where applicable.

Article 5: Information provided to the managed client Before signing the management mandate, the manager must provide the managed client with detailed information on:

• their management formulas according to the managed client's profile;
• the types of financial instruments likely to be included in the portfolio according to management formulas;
• transactions that may be executed;
• management objectives and the risks they entail;
• performance evaluation mechanisms for the management mandate;
• fees associated with the management mandate.

Article 6: Objectives assigned to mandate-based management Based on the information collected about the managed client, the manager:

• verifies that the proposed management strategy meets the managed client's objectives;

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Instruction No. 060/CREPMF/2020

• precisely expresses the management strategy determined in the management mandate, particularly the return-risk profile, horizon, and investment objectives;
• verifies that the managed client has the experience and knowledge to understand the risks inherent in mandate-based portfolio management. Failing this, the information provided to the managed client must be adapted to their knowledge to ensure proper understanding of the risks associated with the proposed investment service.

The return-risk profile may be presented as a scale ranging from the lowest capital loss risk to the highest.

TITLE 3: FORMALIZATION OF THE RELATIONSHIP BETWEEN THE MANAGER (MANDATARY) AND THE MANAGED CLIENT

Article 7: Validation of the managed client's profile The managed client's profile must be transcribed into a form outlining:

• their financial or wealth situation;
• their competence and experience in stock markets, securities investment, and financial products;
• their objectives regarding risk, return, and investment horizon;
• their constraints;
• the categorization of the managed client.

This form must be signed by both the managed client and the manager.

Article 8: Mandate-based management agreement Any mandate-based management begins with the signing of a management agreement between the manager and the client.

The mandate-based management agreement must contain the following mandatory details:

1. Information concerning the parties to the mandate-based management agreement:

• identity and address of the contracting parties (managed client and manager);
• responsibilities of the contracting parties;
• obligations of the contracting parties;
• election of domicile.

2. Information concerning the management mandate:

• subject matter of the mandate;

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Instruction No. 060/CREPMF/2020

• information exchange procedures between the parties;
• management fees;
• contract validity conditions;
• mandate termination conditions;
• confidentiality clauses;
• jurisdiction attribution clause;
• date and place of contract signing.

The mandate-based management agreement must be executed in two (02) copies, one delivered to the managed client and the other retained by the manager in the client's file constituted in accordance with prevailing provisions.

A model management mandate contract is attached to this Instruction.

Article 9: Managed client accounts
Mandate-based management is conducted on the managed client's cash account and securities account. All operations are initiated by the Portfolio Manager without referring to the managed client.

The managed client is prohibited from interfering in the management of their account.

TITLE 4: OBLIGATIONS OF THE MANAGER (MANDATARY)

Article 10: Due diligence obligations
The manager must act in the exclusive interest of the managed client. To this end, they must possess:

• an organization and procedures enabling them to:
  • access, at all times, the securities and cash positions of managed accounts;
  • initiate and transmit orders securely, promptly, and with equal treatment among managed clients;
• technical analysis and decision-support means.

The organization implies the existence of at least one portfolio manager and an investment committee composed of management company staff, excluding the Trader.

Article 11: Management strategy
The manager (mandatary) defines different management formulas by weighting assets, horizon, and investment objectives. The management strategy mentions the existence of a floor or ceiling for certain asset categories.

The management strategy for managed clients with the same profile must be consistent.

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Instruction No. 060/CREPMF/2020

Article 12: Establishment of control procedures The manager (mandatary) must implement adapted control procedures to verify:

• the compliance of mandate-based management with this Instruction and the terms of the management mandate;
• the performance compliance of mandate-based management for different managed clients, taking into account performance by management strategy;
• the compliance of documents sent by the manager to managed clients and the accuracy of the information contained therein;
• conflict-of-interest situations and their management;
• the absence of insider information usage in operations.

Article 13: Information procedures for the managed client The manager (mandatary) sends to the managed client, according to a periodicity agreed between the two contracting parties, or at least quarterly if none is agreed:

• an operations journal summarizing all operations executed for the managed client during the considered period;
• a valued portfolio statement detailing each financial instrument, its volume, and market value, with cash balance at the beginning and end of the covered period. Quoted securities must be valued at the last quoted price of the considered period;
• a statement highlighting portfolio results, particularly the evolution of managed assets during the elapsed period;
• the amount of management commissions, brokerage retrocessions, and fees incurred during the covered period;
• the amount of dividends, interest, and other payments received during the period.

The aforementioned documents and information must be transmitted within a deadline not exceeding seven (07) calendar days from the agreed date, or failing that, the end of each quarter.

Article 14: Confidentiality and data retention rules The manager (mandatary) and the portfolio manager(s) must permanently respect confidentiality rules regarding information collected within the mandate-based management activity.

The communication of information by the manager to third parties in relation to operations executed for the managed client must be previously authorized by said client, unless contrary legal or regulatory provisions apply.

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Instruction No. 060/CREPMF/2020

Furthermore, the manager is bound to respect the legal deadline for retaining documents and information on the managed client, in accordance with prevailing regulations.

TITLE 5: CODE OF CONDUCT RULES APPLICABLE TO THE MANAGEMENT COMPANY

Article 15: Exclusive management in the interest of managed clients The manager (mandatary) exercises activities with diligence, integrity, equity, and respect for client interests. They ensure equitable treatment among their clients.

The frequency of operations executed under mandate-based management must be motivated by the exclusive interest of clients.

The manager (mandatary) must not subscribe to a capital operation for under-mandate clients solely to enable the issuer to place its own securities or receive placement commissions.

The manager is prohibited from executing an operation when they or their portfolio manager possess privileged information.

Article 16: Conflict of interest management by the management company The manager (mandatary) is prohibited from:

• executing operations for their own account using managed clients as counterparties;
• executing operations between managed clients;
• executing off-market operations between managed clients and companies with which they maintain direct or indirect legal links;
• executing operations between managed clients and UCITS for which they are directly involved in marketing or liability management and/or investment policy definition. Any retrocession received by the manager under subscriptions and redemptions implies direct involvement in UCITS marketing. Likewise, participation in the Board of Directors, Supervisory Board, or Investment Committee of the UCITS implies direct participation in defining investment policy;
• incentivizing their portfolio managers to actively rotate client portfolios without justification from economic and financial considerations;
• remunerating their staff, taking into account products generated by operations executed for managed clients, including incentive remuneration that may originate in client-harmful behavior, except for duly justified outperformance commissions based on the management mandate concluded with the managed client;
• executing operations for their staff members that compete with those executed for managed clients, causing them prejudice due to price movements triggered by these operations;
• accepting interventions from a linked company or one of its directors or staff members aimed at influencing mandate-based management decisions by prioritizing, to the detriment of managed clients' interests:
  • group or subsidiary activities;
  • market products designed by group or subsidiary companies;
  • UCITS managed by the Group's Management Companies for UCITS or subsidiaries;
• accepting interventions from a mandator, an important client of a group company, to obtain undue advantages contrary to the interest of all managed clients;
• prioritizing certain mandators regarding the allocation of block trades;
• allocating to managed clients securities sold or purchased resulting from transaction errors.

The manager ensures that in case of issuance, private placement, or stock exchange listing of securities causing a scarcity effect, they will not take any action aimed at favoring certain managed clients with whom they or their staff have particular links.

When the manager has been entrusted by an issuer with a public offering, merger, absorption, or any other operation likely to affect the price of said issuer's securities, they must refrain from acquiring this security for their managed clients until information regarding said operation is made public.

TITLE 6: CODE OF CONDUCT RULES APPLICABLE TO THE PORTFOLIO MANAGER

Article 17: Independence of the Portfolio Manager The portfolio manager function must be independent from other company functions. To this end, the portfolio manager cannot manage the company's accounts nor receive orders from the company's clients.

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Instruction No. 060/CREPMF/2020

Article 18: Equitable management of managed clients When the portfolio manager acts for multiple clients under mandate-based management, they are authorized to execute a block order on behalf of said clients. To this end, they must implement a device enabling traceability of these orders, including the use of a unique reference number for transmitting this type of order to the Regional Securities Market (BRVM).

Prior to transmitting the order, they define the allocation key. Upon execution completion, the portfolio manager proceeds with title allocation according to the predefined allocation key.

This key must provide, in case of partial execution, a pro-rata allocation based on orders or offers.

Block order allocations must be recorded in a special register enabling audit of allocations performed after each block transaction, including:

• beneficiary identities;
• allocation method and its justification;
• allocation results.

Article 19: Cases of derogation from equitable client treatment The manager (mandatary) must implement rules specifying the conditions under which the portfolio manager may exceptionally deviate from treatment principles regarding pro-rata order execution allocation. This derogation can only be justified in cases of very partial block order execution due to market conditions. Under these conditions, the portfolio manager may opt for an allocation accounting for the number of acquired titles and the impossibility of constructing a significant portfolio for certain clients.

In case of applying this exceptional derogation, the portfolio manager is required to produce a dated explanatory note enabling audit or verification of allocations performed.

Article 20: Portfolio Manager's code of conduct The manager (mandatary) implements a code of conduct applicable to its portfolio managers. This code is contained in a code of ethics whose development and updating are approved by the Management Company's Board of Directors.

To this end, the manager ensures that the portfolio manager refrains from soliciting or accepting gifts or benefits from clients that could impair impartiality or independence.

The manager ensures that the portfolio manager manages, with transparency and equity principle, operations executed for their own account as well as those concerning mandators with whom they have family links or, privately, economic and financial relations.

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Instruction No. 060/CREPMF/2020

The manager ensures that the portfolio manager's interventions do not impair market integrity. Thus, the latter refrains from:

• manipulating the market or engaging in deceptive practices;
• using confidential or privileged market information;
• disseminating false information;
• using client savings for personal purposes.

TITLE 7: INFORMATION TO BE TRANSMITTED TO THE REGIONAL COUNCIL

Article 21: Submission of the code of ethics and management procedure The manager must transmit to the CREPMF General Secretariat the code of ethics for its personnel and a mandate-based management procedure, approved by its Board of Directors, at least one (01) month before their implementation.

Modifications to the code of ethics and management procedure must be approved by the Board of Directors and transmitted to the CREPMF General Secretariat at least one (01) month before implementation.

Within the aforementioned deadline, if the Regional Council deems it necessary, it may make observations that must imperatively be taken into account before implementation of the code of ethics or management procedure.

Article 22: Annual report
The manager (mandatary) is required, upon transmission of the internal control annual report, to send the CREPMF a report on the exercise of mandate-based management activity that:

• describes the means implemented for executing mandate-based management;
• presents the evolution of managed clients (number of clients, portfolio values, etc.);
• provides a list of their ten largest clients based on portfolio value and the performance achieved by these portfolios during the period;
• inventories controls performed to ensure proper implementation and compliance with mandate-based management procedures, in accordance with this Instruction;
• highlights control results, particularly irregularities, shortcomings, identified conflicts of interest, and corrective action plans.

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Instruction No. 060/CREPMF/2020

TITLE 8: TRANSITIONAL AND FINAL PROVISIONS

Article 23: Transitional provisions
Approved management companies prior to the effective date of this Instruction have a maximum deadline of six (06) months from its signature date to comply with its provisions.

Article 24: Entry into force date
This Instruction, which will be published as needed, repeals Instruction No. 19/99 on the management mandate contract for listed securities as well as all contrary provisions.

It enters into force from its signature date.

Made at ____________, on 20 MAR. 2020

For the Regional Council,
The President

Mamadou NDIAYE

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Instruction No. 060/CREPMF/2020

Appendix: Model of mandate-based management contract for securities accounts

BETWEEN THE UNDERSIGNED:

First names, surname, date and place of birth, domicile or address of the place of activity exercise, postal address, and national identity card number for natural persons;

Or

Name, corporate form, capital, registered office, commercial register number, tax account number, first names and surname of the social director(s) authorized to bind the company.

Hereinafter designated (e): "the Client"

AND

Name, corporate form, capital, registered office, commercial register number, tax account number, first names and surname of the social director(s) authorized to bind the company, and approved by the Regional Council for Public Savings and Financial Markets of the UMOA, in the capacity of ____________ under number ____________, represented by ____________, having the necessary powers for the purpose of these present.

Hereinafter designated: "the Mandatary"

The Client and the Mandatary being hereinafter collectively designated as "the Parties" or individually as "a Party".

IT HAS PREVIOUSLY BEEN STATED AS FOLLOWS:

The Mandatary is an approved Management and Intermediation Company (M&IC) or Wealth Management Company (WMC), on the ........., under number ..............., by the Regional Council for Public Savings and Financial Markets (CREPMF) of the UMOA, with its main object .............................................................................. (to be specified).

The Client is a natural or legal person interested in the portfolio management services offered by the Mandatary.

The Mandator acknowledges having received the informa