Guidelines on Conduct of Business for Execution-Related Advice

Monetary Authority of Singapore FINANCIAL ADVISERS ACT (CAP. 110) GUIDELINES ON CONDUCT OF BUSINESS FOR EXECUTION-RELATED ADVICE

Guideline No : FAA-G08 Issue Date : 18 February 2004 (Last revised on 8 October 2018) GUIDELINES ON CONDUCT OF BUSINESS FOR EXECUTION￾RELATED ADVICE Purpose of the Guidelines on Conduct of Business for Execution￾Related Advice [“these Guidelines”] [Amended on 1 July 2005] 1 These Guidelines are issued pursuant to section 64 of the Financial Advisers Act (Cap. 110) [“the Act”]. 2 These Guidelines set out the standards to be maintained by dealers and their trading representatives when they provide execution-related advice in relation to any capital markets product. These Guidelines do not apply – (a) in circumstances where a dealer or its trading representative merely carries out instructions by a client to buy or sell a specific capital markets product without the dealer or trading representative making any recommendation or giving any advice in relation to that specific capital markets product; and (b)to a dealer who is exempted from complying with section 27 of the Act under regulation 33A of the Financial Advisers Regulations (Rg 2) [the “FAR”] and a trading representative of the dealer. [Amended on 1 April 2017] 3 These standards are consistent with the business conduct requirements imposed on financial advisers which provide standalone investment advice. However, taking into account the business model and modus operandi of dealers which provide execution-related advice, the Monetary Authority of Singapore [the “Authority”] has adopted a principle-based approach rather than a detailed prescriptive approach in these Guidelines. The Authority expects dealers to adhere to these standards and introduce other practices, processes and procedures, where appropriate, to safeguard the interests of their clients. [Amended on 1 July 2005]

Guidelines on Conduct of Business For Execution-Related Advice 2 Definitions 4 For the purpose of these Guidelines: “capital markets product” means – (a) any capital markets product that is a specified product other than a listed prescribed capital markets product; or (b) a futures contract; [Amended on 1 April 2017] [Amended on 8 October 2018] “dealer” has the same meaning as in regulation 34A(2) of the FAR; [Amended on 1 July 2005] [Amended on 1 April 2017] “execution-related advice” has the same meaning as in regulation 34A(2) of the FAR; [Amended on 1 July 2005] [Amended on 1 April 2017] “listed prescribed capital markets product” has the same meaning as in regulation 33A(8) of the FAR; [Amended on 1 April 2017] [Amended on 8 October 2018] “specified product” has the same meaning as in section 2(1) of the Securities and Futures Act (Cap. 289); and [Amended on 8 October 2018] “trading representative” has the same meaning as in regulation 33A(8) of the FAR. [Amended on 1 April 2017]

Guidelines on Conduct of Business For Execution-Related Advice 3 Recommendations on Capital Markets Products 5 Section 27 of the Act requires a financial adviser to have a reasonable basis for any recommendation made with respect to any investment product to a person who may reasonably be expected to rely on the recommendation. In particular, a financial adviser should give due consideration to the person’s investment objectives, financial situation and particular needs. 6 A dealer should put in place adequate systems and processes that commensurate with the size and complexity of its business to ensure compliance with the requirements stipulated under section 27. [Amended on 1 July 2005] 7 A dealer is expected to have sufficient knowledge of the client’s investment objectives, financial situation and needs before it advises on sales or purchases of capital markets products suitable for the client. Thus it is normally not possible for a dealer to offer such advice to a new client before the relevant information is obtained. 8 Obtaining relevant information about the client is usually done at the time when relationship is first established with the client. Where execution-related advice is provided on an on-going basis, a dealer should update the client profile and conduct a needs analysis at a reasonable interval, at least once a year. This is consistent with good business practice of reviewing customers’ profiles and needs on a regular basis. 9 Where a client does not want to provide any of the information requested, a dealer may proceed with the client’s request. However, it should document the decision of the client and give a warning to the client that any recommendation made or advice given will not take into account his particular investment objectives, financial situation and particular needs and that it is the client’s responsibility to ensure the suitability of the product recommended. 10 Where products are traded on a margin basis, a dealer should highlight the risk of such products to the clients.

Guidelines on Conduct of Business For Execution-Related Advice 4 Documentation and Record Keeping 11 A dealer is expected to maintain proper records to be able to demonstrate the basis of the recommendation made to the client and warnings provided either in the form of a file note or tapes of the telephone conversation. The keeping of these details is also sensible protection for the dealer and part and parcel of maintaining good customer relations. 12 The nature of the records to be kept is best determined by the dealer, taking into account the nature of its business and the likelihood of a particular client subsequently disputing that advice was rendered without due consideration of his investment objectives, financial situation and needs. As a best practice, a dealer should keep such records for at least 6 years. [Amended on 1 July 2005] Disclosure of Conflicts of Interest 13 With regard to the disclosure of conflicts of interest, a dealer should disclose to its clients any actual or potential conflict of interest either orally or in writing or both, before or at the time advice is rendered. 14 A dealer is not required to repeat such disclosure of conflict of interest each time an execution-related advice is rendered under the following circumstances: (a) the previous disclosure remains up-to-date, comprehensive and accurate; and (b) it can reasonably expect the client to be fully aware of the previous disclosure. A dealer should take into account the following when considering whether a client may reasonably be expected to be fully aware of a previous disclosure: (i) whether or not there is a long lapse of time between the previous disclosure and the current recommendation or advice; and

Guidelines on Conduct of Business For Execution-Related Advice 5 (ii) whether the client is reasonably likely to draw an inference that the previous disclosure no longer applies in the context of the current recommendation or advice. [Amended on 1 July 2005] Disclaimer 15 Some dealers include formal disclaimers in documents to their clients to the effect that they are in the business of providing “execution only” services or they do not provide advice to clients. If such disclaimers are made, the dealers should put in place appropriate systems, procedures, and training to ensure that they do not provide any advice to clients. 16 Notwithstanding any formal disclaimers to the contrary, the dealers will be subject to statutory provisions if they provide advice to clients. In addition, any disclaimers to the effect that advice given by dealers should not be assumed to have taken into account the investment objectives, financial situation and needs of the clients, or that clients should independently assess whether the advice is appropriate for them will not absolve dealers of the statutory obligations and liabilities imposed under the Act. The Authority will enforce the provisions of the Act to ensure that clients enjoy the protection accorded to them under the Act. [Amended on 1 July 2005]