Rules of conduct
Rules of conduct and organisational requirements are especially important for investor protection and for properly functioning financial markets. Rules of conduct lay down minimum standards for investment services in order to avoid conflicts of interest between clients, investment services enterprises and their employees and to prevent investors from being put at a disadvantage as a result.
One example is the requirement that, before concluding any securities transaction, enterprises must inform their clients of its most important aspects, both in terms of the specific features of the transaction and the particular needs of the investor. The principle that applies is that the more speculative and risky the intended transaction and the more inexperienced the investor, the more detailed the information the client must be provided with. Enterprises must provide their services with due care, expertise and conscientiousness in the interests of their clients.
Client interests have top priority
In the event of any conflicts of interest, the interests of clients must, as a matter of principle, take precedence over those of the investment services enterprise. Enterprises must not make any investment recommendations that are not in the interests of the client or that primarily serve their own interests – for instance, in order to steer the price of a security or derivative in a particular direction. Cold calling (i.e. making unsolicited telephone calls to clients with whom a business relationship that extends to investment and ancillary services does not already exist) is also prohibited.
In accordance with their organisational requirements, investment services enterprises must organise their operations in such a way that the rules of conduct are complied with. For example, enterprises must implement appropriate internal controls and organise themselves in a way that will permit them to avoid conflicts of interest. One of the basic prerequisites for this is the principle of the separation of functions – i.e. the separation of trading, settlement and control. BaFin has annual checks or special inspections carried out in order to verify whether these rules are being observed.
updated on 01.04.2016