Includes: receiving orders, executing transactions in securities, financial instruments for banking corporation customers, as intermediaries and by trading for own account.
Directive is intended to protect customers, ensure best execution of transactions for customers, while maintaining professionalism and integrity of the financial systems.
Directive also regulates principles for risk management and particularly operational risks, deriving from the banking corporation’s activities as a broker dealer.
Aims to ensure a fair market, high quality in transaction executions, transparency.
Will assist in protecting investing customers, will enhance confidence in the market.
Protection of customers aims to reduce structural gaps between them and the banking corporations on level of knowledge and expertise, as well as the concern of conflict of interest deriving from banking corporations’ operations in a range of activities.
A banking corporation must implement principles of operational risk management.
Implementation of such processes in securities and foreign exchange activities has to be done carefully, while making special adjustments in line with scope, complexity of activity, exposure to a range of operational risks, including information systems risk.
Includes establishing an organizational structure, policy, and procedures for executing transactions, providing control over them, and preventing conflicts of interest.
Also, adopting code of conduct for acting with integrity, fairness and professionalism on behalf of customers' interests, including customers' securities activities.
Must align customers’ activity in securities and financial instruments with their level of knowledge or experience, including alerting customers if they ask to execute a transaction that in banking corporation view is not in line with knowledge, experience.
Must establish procedures to carry out fair, rapid execution of customer instructions.
Must adopt all reasonable means to achieve best execution result for the customers.
In addition, must integrate adequate information systems in order to ensure a high level of protection from the realization of operating risks and cyber risk.
Documentation of each activity related to the transaction must be maintained.
A tool needs to be developed for identification of suspicious or anomalous activities.
FAQ
FAQ include queries on how banking corporations balance between setting profitability targets and meeting operational risk tolerance at the various levels of the hierarchy.
Also, what is meant by identifying circumstances in which there is a conflict of interest during the banking corporation's activity between one customer and another.
Whether information required that has already been provided needs to be sent again.
In addition, there is request for detail on how to understand the requirement in section 28(a) to take all reasonable measures to obtain the best deal for the customer.
Effectiveness
Banking corporations given until Jan. 2025 to prepare for implementation of directive.
In Jan. 2024, ISR CB consulted on prolonging the implementation date, see #197934.
