CHAPTER 46:08 - NON-BANK FINANCIAL INSTITUTIONS REGULATORY AUTHORITY: RULES

NON-BANK FINANCIAL INSTITUTIONS REGULATORY AUTHORITY (MARKET INTERMEDIARIES’ CONDUCT OF BUSINESS) RULES2012

(Section 50)

March 2012ARRANGEMENT OF RULES

RULES

  1. Citation
  2. Interpretation
  3. Application
  4. General requirements for the conduct of business
  5. Relations with the Authority
  6. Relations with Clients
  7. Complaints
  8. Client Money
  9. Client Assets
  10. Executing Client Orders
  11. Contract notes
  12. Minimum financial requirements
  13. Accounts and Audit
  14. Conflicts of Interest
  15. Confidentiality and security
  16. Advertisements
  17. Prevention of market abuse
  18. Offences and Penalties

Schedule 1: Reporting to the Authority

Schedule 2: Client Agreements

Schedule 3: Declaration by expert clients

1.Citation

(1)These rules may be cited as the Non-Bank Financial Institutions (Market Intermediaries’Conduct of Business) Rules 2012-.

2.Interpretation

(1)In these Rules, all terms carry the same meaning as in the Act:-

“the Act” means the Non-Bank Financial Institutions Regulatory Authority Act.

“the Authority” means the Non-Bank Financial Institutions Regulatory Authority;

“advertisement” means a communication to the public, any section of the public, to clients, or any group of clients that provides information about products, services, investment opportunities offered by a market intermediary.

“board” means

  1. where the securities business is a company, the Board of directors;
  2. where the securities business is a partnership, the partners; or
  3. where the securities business is conducted in another legal form, the persons registered with the Authority as having responsibility for the conduct of the business.

“broker” is a person whose licence permits the conduct only of the activities defined in paragraph (b) of the definition of “securities dealer” in Section 2 of the Act.

“broker/dealer” is a person whose licence permits the conduct only of the activities defined in paragraphs (b) and (c) of the definition of “securities dealer” in Section 2 of the Act.

“client” is a person to whom a market intermediary provides services, or intends to provide services in the course of its regulated activity and includes a potential client.

where the market intermediary is a custodian, or trustee of a collective investment undertaking, the term “client” shall mean the collective investment undertaking or undertakings for which the market intermediary provides services.

where the market intermediary is an asset manager, a management company or a person operating a collective investment undertaking the term “client” shall mean the collective investment undertaking and the investors in that undertaking.

“client account” has the meaning given in Rule8.

“client assets” means any property other than client money that a market intermediary holds but whose beneficial owner is the client, regardless of the legal title.

“client money” means money of any currency that, in the course of carrying out a securities business, a market intermediary holds or receives on behalf of a client or which it owes to a client.

“financial year” means the twelve month period covered by a market intermediary’s annual accounts;

the “functionaries of a collective investment undertaking” means the management company, operator of a collective investment undertaking, trustee and custodian.

“dealer” is a person whose licence permits the conduct only of the activities defined in paragraphs (c) of the definition of “securities dealer” in Section 2 of the Act.

“expert client” is a client of an asset manager, broker, broker/dealer, or investment adviser who:

has a minimum of [P1000 000.00] available for investment, excluding the main residence;or

who is an appropriately qualified employee of a licensed market intermediary;or

who is a financial services business licensed to conduct regulated activity; or

or is a bank licensed in Botswana or elsewhere; or

who is an institutional investor such as a pension fund, insurance fund or collective investment undertakingand

who signs a declaration in the form at Schedule 3.

“key personnel” means the chief executive officer, the directors or partners (as the case may be), the compliance officer and internal auditor;

“market intermediary” means any of the following:

an asset manager,

a broker;

a broker/dealer;

a custodian,

a dealer;

an investment adviser,

a management company for a collective investment undertaking,

a person operating a collective investment undertaking, or

a trustee of a collective investment undertaking

that holds a license under Section 43 of the Act.

“person operating a collective investment undertaking” means the management company of a collective investment undertaking

“regulated activity” means any activity falling under the Act, or Regulations or rules made under the Act.

“written notification” means notification in a letter or other communication submitted to the Authority on paper or by electronic means.

3.Application

(1)These rules apply to all market intermediaries.

(2)Where a market intermediary is part of a financial group, certain rules, where specified, shall apply to the financial group as a whole.

4.General requirements for the conduct of business

(1)A market intermediary shall, when conducting regulated activity:

  1. act with integrity;
  2. applydue skill, care and diligence in the best interests of its clients and the integrity of the market;
  3. observe high standards of market conduct;
  4. place its clients’ interests above its own; and
  5. give similar treatment to similarly situated clients.

(2)A market intermediary shall not conduct any business, other than that permitted by the licence, without the permission of the Authority except that a management company or a person operating a collective investment undertaking may engage in activities related or ancillary to the operation of a collective investment undertaking and in activities related to or ancillary to asset management and may engage in no other activities.

(3)A market intermediary shall at all times act in compliance with the Act, Regulations and rules made under the Act and with any other applicable financial services law or any regulatory requirements of the Authority.

(4)A market intermediary shall not act in a way that brings the capital markets of Botswana into disrepute.

5.Relations with the Authority

(1)A market intermediary and any financial groupof which it is a part shall, at all times, co-operate with the Authority and give the Authority such reasonable assistance as the Authority may require for the performance of its functions.

(2)A market intermediary shall make payments of fees promptly.

(3)All fees and charges specified in these rules shall be payable to the Authority in such form or manner as it may approve.

(4)A market intermediaryand financial group shall give the Authority reports and notifications as specified in Schedule 1.

(5)The Authority may prescribe the form in which audited financial statements of market intermediaries should be published.

(6)Where the Authority, after consultation with the market intermediary, directs the market intermediary to do or refrain from doing anything and where the Authority affirms that it has reason to believe that the action (or the prevention of the action) is necessary in the interests of the investors or the capital markets, the market intermediary shall comply.

(7)The Authority may require the market intermediary to appoint an appropriately qualified person to undertake a study into a matter related to the performance of a market intermediary with its regulatory obligations or the performance of the business and to copy the report to the Authority. The Authority may specify the person to be appointed to undertake the task.

6.Relations with clients

(1)A market intermediary shall have a duty of care to its clients and shall act fairly and with due diligence in the best interests of its client when providing services to the client in accordance with the client agreement.

(2)A market intermediary may disapply sub rule(5), (7), (8), and (11) when providing services to expert clients provided that the intermediary has satisfied the Authority that it has:

  1. documented its policy for identifying and verifying clients who may be regarded as expert clients;
  2. secured the approval of the Authority to that policy; and
  3. undertaken the appropriate due diligence for each expert client.

(3)A market intermediary that is a broker, broker/dealer, asset manager or investment adviser shall have a written agreement with each client that is signed by the client and the market intermediary, and:

  1. the client shall have a copy of the agreement;
  2. the market intermediary shall abide by the agreement;
  3. the agreement shall include all the information described in Schedule 2;
  4. the market intermediary shall review the agreement no less frequently than annually; and
  5. the market intermediary shall update the agreement whenever any material information changes and where required by the annual review.

(4)A market intermediary that is a broker, broker/dealer, asset manager or investment adviser shall only charge fees in accordance with a client agreement, or as may be prescribed by the Authority. A market intermediary shall not take fees or charges from a client account except in accordance with the client agreement or as prescribed by the Authority.

(5)A market intermediary that is a broker, broker/dealer, asset manager or investment adviser and is providing investment advice or asset management services shall not provide such services unless and until the intermediary obtains sufficient information about the client and the client’s circumstances to ensure that the services provided are consistent with those circumstances. The information shall include, inter alia, particulars of:

  1. the client’s knowledge;
  2. the client’s experience;
  3. the client’s financial position; and
  4. the client’s risk appetite.

(6)A market intermediary that is a broker, broker/dealer, asset manager or investment adviseris not required to obtain information from a client where the services provided are confined to the execution of client orders and the client agreement states that advice will not be given.

(7)A market intermediarythat is a broker, broker/dealer, asset manager or investment adviser shall take all reasonable steps to enable its clients or its potential clients to take informed decisionsrelating to their business or potential business with the market intermediary. These steps shall include, inter alia, the provision, in a clear and comprehensive manner, of information that is

  1. clear and accurate;
  2. sufficient for the client to make the appropriate decision;
  3. not misleading; and
  4. only uses meaningful, fair and accurate comparisons.

(8)Where a market intermediarythat is a broker, broker/dealer, asset manager or investment adviseris making investment recommendations to a client, the market intermediaryshall take and document reasonable steps to satisfy itself that the client has a full understanding of:

  1. the risks of the investment;
  2. the nature of the investment;
  3. the fees and charges associated with the investment;
  4. the factors that are likely to affect the performance of the investment;
  5. the terms and conditions of the investment; and
  6. the consequences of departing from the terms and conditions (such as seeking early withdrawal of an investment that is made for a fixed term).

(9)A market intermediary shall not make any guarantees concerning the performance of an investment unless a return is contractually guaranteed, in which case, the market intermediary shall explain on what basis that guarantee is given.

(10)A market intermediary shall be liable to its clients for:

  1. any unjustifiable failure to meet its commitments; or
  2. the improper performance of its obligations

(11)A market intermediary that is a broker, broker/dealer, asset manager or investment adviser and is providing investment advice or asset management services shall:

  1. provide suitable written advice, or take investment decisions, as the case may be, taking account of the client’s financial position, investment objectives, attitude to risk and other relevant circumstances;
  2. ensure that any claim it makes as to its independence or impartiality adequately discloses any limitation there may be on such capacity;
  3. execute transactions on the best terms available to the market intermediary, within any parameters defined in the client agreement;
  4. refrain from undertaking investment transactions of a frequency that is inappropriate for the client; and
  5. conduct an annual review of the client’s investment portfolio and provide a written report to the client of the outcome of the review.

(12)A market intermediary that is a management company, a person operating a collective investment undertaking, a custodian or a trustee of a collective investment undertaking shall act in accordance with the constituting documents and prospectus of the CIU

7.Complaints

(1)A market intermediaryshall have a complaints procedure that is disclosed to the client and displayed in a public area.

(2)A market intermediaryshall deal with each complaint in a fair and timely manner, and shall inform the client of the outcome. Depending on the nature of the complaint, the market intermediaryshall

  1. provide appropriate restitution, where the complaint is justified;
  2. address any weaknesses in the internal systems that led to the action causing the complaint; and
  3. document any actions taken.

(3)The complaints procedure shallinclude, inter alia, the following elements:

  1. the allocation of responsibility to a person other than that about whom a complaint was made or who was responsible for the actions that led to the complaint;
  2. the target timetable for dealing with the complaint;
  3. the deadlines for informing the complainant of progress with dealing with the complaint, which shall not leave the complainant without information for more than three months; and
  4. an appeal to the chief executive (or another appropriately senior officer nominated by the chief executive) where the complaint cannot otherwise be resolved.

(4)The client shall be informed of his right to take action through the courts if the client does not consider that the complaint has been satisfactorily resolved.

(5)A market intermediaryshall inform the Authority of any complaints still unresolved more than three months after they were received.

(6)A market intermediaryshall maintain a record of complaints that identifies:

  1. the person from whom the complaint was received;
  2. the nature of the complaint;
  3. the officer dealing with the complaint;
  4. the officer about whom the complaint was made or who was responsible for the action that led to the complaint;
  5. the progress in dealing with the complaint;
  6. the way the complaint was resolved; and
  7. the time it took to resolve the complaint.

(7)A market intermediary shall also maintain a summary register of complaints.

8.Client money

[Explanatory Note: This rule does not apply to market intermediaries who do not handle client money]

(1)A market intermediary shall safeguard any client money entrusted to it.

(2)A market intermediary who receives or holds client money shall open one or more client accounts in a bank approved by the Bank of Botswana.

(3)A client account is a bank account controlled by a market intermediary and into which client money is paid. Client accounts may be general accounts, containing funds for a number of clients or a separate client account containing money from just one client. A client account shall have the words “client account” in the name of the account and shall be separate from any other accounts controlled by the market intermediary. The market intermediary shall document the fact that the money in the client account is held in trust for the clients.

(4)A market intermediary shall immediately pay into a client account all client money coming into its hands for or from a client and shall ensure that interest and income accruing to the client is credited to the account.

(5)A market intermediaryshall obtain from the bank at which a client account is held, a written statement of acknowledgement that the client money in the client account is held in trust for the client or clients and is not available to offset any obligations of the market intermediary. The written statement shall be held by the market intermediary in its records.

(6)Only client money may be paid into the client account, unless it is paid in to replace money withdrawn in error and in that case, the error shall be documented.

(7)A market intermediary who has control of client money in a client account may only:

  1. pay the client money to the client or a bank account in the client’s name;
  2. transfer the money to another client account; or
  3. use the client money in settlement of an obligation of the client (including an obligation to pay the fees of the market intermediary, to purchase securities or units in a collective investment undertaking) either on the instructions of the client or in accordance with a written agreement with the client.

(8)A market intermediary shall ensure that the management of client accounts is such that:

  1. client money held for one client shall never be used to meet the obligations of another;
  2. the total funds in a client account held for multiple clients shallnever be less than the total obligations to clients; and
  3. no client account shall ever be overdrawn.

(9)Every day, a market intermediaryshall reconcile the records showing the money being held on behalf of each client with the client bank accounts. Where there is more than one client account, the reconciliation shall apply to each client account separately as well as to all client accounts in aggregate.

(10)The reconciliation shall be conducted by an officer who is different from the officer with responsibility for authorising payments from the client account.

(11)Except where the client is a collective investment undertaking, a market intermediary shall send a statement to each client setting out the details of client transactions that involve the movement of client money and showing the amount owed by the market intermediary to the client (or vice versa) at the end of the period. For clients with more than ten transactions a month, the statement should be sent monthly. For all other clients, the statement should be issued every six months, unless there were no transactions in the period. All clients should receive a statement no less frequently than annually.

9.Client Assets

[Explanatory Note: This rule does not apply to market intermediaries who do not have control of client assets]

(1)A market intermediary who has control over client assets shall ensure that the legal title to the assets is registered to:

  1. the client; or
  2. a company controlled by the intermediary, which shall hold no assets other than client assets; or
  3. a licensed market intermediary, whose licence permits it to act as a custodian.

(2)A market intermediary shall not dispose of client assets except: