Client classification, disclosure requirement and obligation to obtain information

Transcription

1 Client classification, disclosure requirement and obligation to obtain information According to the Finnish Securities Markets Act, securities dealers are required to inform their clients about the clients classification into retail clients, professional clients and eligible counterparties. Client classification affects the extent of investor protection and the code of conduct to be applied. Nordea informs all its customers with investments of their classification by 31 January Professional clients are required to inform their service provider of any changes that may have an impact on their classification. Application for reclassification A customer is entitled to ask the securities dealer to change his or her classification. The application for such a change must be made in writing. Reclassification may have an effect on both investor protection and on how the code of conduct is applied. A professional client may on application be treated as a retail client or an eligible counterparty. Correspondingly, a customer classified as a retail client may on application be treated as a professional client. A customer classified as an eligible counterparty may on application be treated as a professional or a retail client. The service provider considers the applications individually in order to decide whether to accept or reject the application. A professional client is obliged to ask for non-professional treatment if the client considers that he or she does not have adequate experience and knowledge to evaluate or manage the risks involved in a service or transaction. How classification impacts investor protection According to Finnish legislation, retail clients are covered by the protection provided by the Investor Compensation Fund. The Fund compensates investors for losses incurred in situations where a member of the Fund has failed to settle the clear and undisputed claims of investors protected by the Fund as agreed. The amount of compensation payable to a single investor equals nine-tenths of the amount of the claim that the investor has on one single investment firm; however, not more than EUR 20,000. The Fund does not compensate losses arising from falling share prices or wrong investment decisions; ie, the customer is always responsible for his or her investment decisions. The retail clients of branches of foreign service providers are principally covered by investor protection provided in the service provider s domicile. How classification impacts application of code of conduct Retail clients Information on the service provided Service providers are required to give retail clients the following information, as applicable, on the service provided: general description of the service or the nature of the financial instruments that are the subject of the service description of the risks typically involved in the investment service/financial instrument description of the proposed investment strategies and the risks involved in them list of execution venues details of the custody of the client s assets specification of the costs arising from the service provided details of the reports to be provided on the service and their frequency and timing in addition, providers of asset management services are required to give the following information, as applicable: o information on the method and frequency of valuation of the financial instruments included in the client s portfolio o information on possible outsourcing of the management of all or part of the client s portfolio of financial instruments or cash funds o information on any benchmark against which the performance of the client s portfolio is compared

2 o details of the types of financial instruments that may be included in the client s portfolio and the types of transactions that may be carried out in such instruments, including any limits o details of the objectives of portfolio management, the level of risk to be reflected in the manager s exercise of discretion and any specific constraints on that discretion. Assessment of appropriateness When providing the service of transmitting orders for a retail client, the service provider is required to ask the client for information on his or her investment experience and knowledge of the financial instrument or investment service concerned in order to be able to assess whether the financial instrument or service is appropriate for the client. For the purpose of assessing appropriateness, the service provider is required to ask for information on: the types of services, transactions and financial instruments familiar to the client the nature, volume and frequency of the client s trading in financial instruments the client s education and previous occupation, if that can be considered to have an impact on the assessment. If the service provider considers that a financial instrument or service is not appropriate for the client, the service provider must inform the client accordingly. The service provider is also required to inform the client if it is unable to assess the appropriateness of the financial instrument or service because the client has not provided all information necessary for making the assessment. If the client wants to place an order for a non-complex instrument as referred to in the law, there is no need to make an assessment in order to execute or transmit the order. Assessment of suitability Prior to providing an investment service, providers of investment advice and asset management services are required to obtain adequate information on the client s financial position, experience and knowledge of the investment service or financial instrument concerned and on the client s investment objectives in order to be able to recommend financial instruments or services suitable for the client. In order to be able to assess the suitability of financial instruments or services, the service provider is required to obtain the following information, as applicable: information on the client s financial position o source and amount of the client s regular income o the client s assets o the client s regular financial commitments the client s investment objectives o the client s investment horizon o the client s risk appetite and risk profile o purpose of the client s investment the client s investment experience and knowledge o the types of services, transactions and financial instruments familiar to the client o the nature, volume and frequency of the customer s trading in financial instruments o the client s education and previous occupation, if that can be considered to have an impact on the assessment. Professional clients Service providers are required to give professional clients a general description of the nature of the financial instruments that are the subject of the service and of the risks typically involved in them, if necessary in view of the client s investment experience. Assessment of suitability Prior to providing an investment service, providers of investment advice and asset management services are required to obtain adequate information on the client s financial position and investment objectives in order to be able to recommend financial instruments or services suitable for the client. In order to be able to assess the suitability of financial instruments or services, the service provider is required to obtain the following information, as applicable: information on the client s financial position o source and amount of the client s regular income o the client s assets o the client s regular financial commitments the client s investment objectives o the client s investment horizon o the client's risk appetite and risk profile o purpose of the client s investment.

3 Eligible counterparties An eligible counterparty may request the service provider in writing that the code of conduct designed for the protection of investors is applied to all or individual transactions entered into with the eligible counterparty concerned. The service provider considers case by case whether to accept the request. The code of conduct or investor protection is not applied to eligible counterparties in any other cases. Client classification criteria Retail client Other than a professional client or an eligible counterparty. Professional client 1. Entities Entities which are required to be authorised or regulated to operate in the financial markets and comparable foreign entities supervised by authorities: investment firms credit institutions fund management companies options corporations stock exchanges clearing corporations central securities depositories insurance companies as referred to in the Finnish Insurance Companies Act pension insurance companies, pension foundations and pension funds entities as referred to in paragraphs 6 and 7 of section 1(3) of the Finnish Act on Investment Firms commodity and commodity derivatives dealers other institutional investors. 2. Large undertakings Undertakings meeting at least two of the following three criteria on the basis of their financial statements concerning the last full financial year: balance sheet total is at least EUR 20,000,000 net turnover is at least EUR 40,000,000 own funds are at least EUR 2,000, State, municipality and their units the state of Finland the State Treasury and state-owned enterprises Finnish municipalities and municipal federations the province of Åland foreign states bodies that manage public debt regional administrative units of foreign states. 4. Central banks the European Central Bank the Bank of Finland foreign central banks the International Monetary Fund, the World Bank and other similar international entities or organisations. 5. Institutional investors Institutional investors whose main activity is to invest in financial instruments. 6. On the basis of a client s own application 6.1. Client makes a written application Client meets at least two of the following criteria: the client has carried out transactions, in significant size, on the relevant market at an average frequency of 10 per quarter over the previous four quarters the size of the client s investment portfolio exceeds EUR 500,000 the client works or has worked in the financial sector in a professional position for at least one year.

4 6.3. The securities dealer has assessed that the client is capable of making his or her own investment decisions and understanding the risks involved, and the securities dealer accepts the client's application The securities dealer notifies the client in writing that the client is not protected by the entire code of conduct laid down in chapter 4 of the Finnish Securities Markets Act or by the Investor Compensation Fund The client informs the securities dealer in writing of being aware of the loss of the protection provided by the code of conduct and Investor Compensation Fund. Eligible counterparty 1. Entities Entities which are required to be authorised or regulated to operate in the financial markets and comparable foreign entities supervised by authorities: investment firms credit institutions fund management companies options corporations stock exchanges clearing corporations central securities depositories insurance companies as referred to in the Finnish Insurance Companies Act pension insurance companies, pension foundations and pension funds entities as referred to in paragraphs 6 and 7 of section 1(3) of the Finnish Act on Investment Firms commodity and commodity derivatives dealers other institutional investors. 2. Large undertakings Undertakings which 2.1. meet at least two of the following three criteria on the basis of their financial statements concerning the last full financial year: balance sheet total is at least EUR 20,000,000 net turnover is at least EUR 40,000,000 own funds are at least EUR 2,000,000 and 2.2 give their explicit consent for treatment as an eligible counterparty. 3. State, municipality and their units the state of Finland the State Treasury and state-owned enterprises Finnish municipalities and municipal federations the province of Åland foreign states bodies that manage public debt regional administrative units of foreign states. 4. Central banks the European Central Bank the Bank of Finland foreign central banks the International Monetary Fund, the World Bank and other similar international entities or organisations. 5. Application of a customer classified as an eligible counterparty to be treated as a professional client 5.1. An eligible counterparty as referred to in sections 1, 3 and 4 above requests in writing that the code of conduct is applied to all or individual transactions entered into with the eligible counterparty concerned The securities dealer accepts the customer s application. 6. Application of a customer classified as an eligible counterparty to be treated as a retail client 6.1. An eligible counterparty as referred to in sections 1, 3 and 4 above requests in writing that the code of conduct is applied to all or individual transactions entered into with the eligible counterparty concerned The securities dealer accepts the customer s application A written agreement is concluded on the treatment of the customer as a retail client. The agreement specifies to which service(s) or transaction(s) or type(s) of securities or transactions it is applied.

5 7. An application of a customer classified on application as a professional client to be treated as an eligible counterparty 7.1. Customer makes a written application Customer meets at least two of the following criteria: the customer has carried out transactions, in significant size, on the relevant market at an average frequency of 10 per quarter over the previous four quarters the size of the customer s investment portfolio exceeds EUR 500,000 the customer works or has worked in the financial sector in a professional position for at least one year The securities dealer has assessed that the customer is capable of making his or her own investment decisions and understanding the risks involved, and the securities dealer accepts the customer's application The securities dealer notifies the customer in writing that the customer is not protected by the entire code of conduct laid down in chapter 4 of the Finnish Securities Markets Act or by the Investor Compensation Fund The customer informs the securities dealer in writing of being aware of the loss of the protection provided by the code of conduct and Investor Compensation Fund.