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Standard 2 .1

Code of conduct for the provis ion of f inancia l serv ices

Regulations and guidelines

How to read a standard

A standard is a collection of subject-specific regulations and guidelines which both obliges and guides

supervised entities and other financial market participants, indicates the quality level expected by the

supervisor, sets out the supervisor’s key principles of good practice and provides justification for

regulation.

Each paragraph in a standard is furnished with a particular margin note:

Norm: A reference to a current legal or regulatory provision.

Binding: A FIN-FSA regulation that is legally binding on supervised entities or other financial

market participants, issued by the FIN-FSA by virtue of its regulatory power based in Finnish

law.

Recommendation: FIN-FSA recommendatory guidance to supervised entities or other financial

market participants.

Application guideline/example: A practical application guideline or example related to a

norm, binding regulation or recommendation. A reference to a FIN-FSA standard or a particular

point in the standard.

Justifications: An explanation of the background, purpose and objectives of a regulation or

standard.

FIN-FSA standards may be accessed from www.fin-fsa.fi/eng

THE FINANCIAL SUPERVISION AUTHORITY Issued on 16 June 2006

2 Code of condact Valid from 31 December 2010 until further notice

2.1 Code of condact for the provision of financial services

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TABLE OF CONTENTS

1 Application ________________ Virhe. Kirjanmerkkiä ei ole määritetty.

2 Objectives _________________ Virhe. Kirjanmerkkiä ei ole määritetty.

3 International framework _____ Virhe. Kirjanmerkkiä ei ole määritetty.

4 Legal basis ________________ Virhe. Kirjanmerkkiä ei ole määritetty.

5 Liquidity strategy ___________ Virhe. Kirjanmerkkiä ei ole määritetty.

5.1 Liquidity strategy _______ Virhe. Kirjanmerkkiä ei ole määritetty.

5.2 Diversified funding base __ Virhe. Kirjanmerkkiä ei ole määritetty.

6 Establishment and maintenance of liquidity risk management and

control ___________________ Virhe. Kirjanmerkkiä ei ole määritetty.

6.1 Responsibilities of the BoardVirhe. Kirjanmerkkiä ei ole määritetty.

6.2 Responsibilities of the managing director and other senior

management ___________ Virhe. Kirjanmerkkiä ei ole määritetty.

6.3 Establishment and maintenance of liquidity risk management at

group level ____________ Virhe. Kirjanmerkkiä ei ole määritetty.

7 Liquidity risk management proceduresVirhe. Kirjanmerkkiä ei ole määritetty.

7.1 Risk identification _______ Virhe. Kirjanmerkkiä ei ole määritetty.

7.1.1 Cash flows related to balance sheet assets and liabilitiesVirhe. Kirjanmerkkiä ei ole määritetty.

7.1.2 Liquidity risk related to off-balance sheet itemsVirhe. Kirjanmerkkiä ei ole määritetty.

7.1.3 Foreign currency activitiesVirhe. Kirjanmerkkiä ei ole määritetty.

7.2 Measurement methodologiesVirhe. Kirjanmerkkiä ei ole määritetty.

7.3 Risk mitigation _________ Virhe. Kirjanmerkkiä ei ole määritetty.




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7.4 Monitoring systems ______ Virhe. Kirjanmerkkiä ei ole määritetty.

7.5 Management of intraday liquidity riskVirhe. Kirjanmerkkiä ei ole määritetty.

8 Liquidity buffer _____________ Virhe. Kirjanmerkkiä ei ole määritetty.

8.1 General _______________ Virhe. Kirjanmerkkiä ei ole määritetty.

8.2 Stress tests ____________ Virhe. Kirjanmerkkiä ei ole määritetty.

8.3 Liquidity buffer compositionVirhe. Kirjanmerkkiä ei ole määritetty.

8.4 Management of collateral _ Virhe. Kirjanmerkkiä ei ole määritetty.

9 Contingency arrangements ___ Virhe. Kirjanmerkkiä ei ole määritetty.

9.1 Future scenarios ________ Virhe. Kirjanmerkkiä ei ole määritetty.

9.1.1 Stress testing ______ Virhe. Kirjanmerkkiä ei ole määritetty.

9.1.2 Scenarios and assumptionsVirhe. Kirjanmerkkiä ei ole määritetty.

9.1.3 Use of test results in managementVirhe. Kirjanmerkkiä ei ole määritetty.

9.2 Contingency funding plan _ Virhe. Kirjanmerkkiä ei ole määritetty.

9.2.1 Structure of the plan and specification of authorityVirhe. Kirjanmerkkiä ei ole määritetty.

9.2.2 Information _______ Virhe. Kirjanmerkkiä ei ole määritetty.

9.2.3 Preparation of the contingency funding planVirhe. Kirjanmerkkiä ei ole määritetty.

9.2.4 Testing and maintenance of the planVirhe. Kirjanmerkkiä ei ole määritetty.

10 Disclosure of information _____ Virhe. Kirjanmerkkiä ei ole määritetty.

11 Reporting to FIN-FSA ________ Virhe. Kirjanmerkkiä ei ole määritetty.

12 Further information _________ Virhe. Kirjanmerkkiä ei ole määritetty.




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1 APPLICATION

Issued on 26 October 2007

Valid from 1 November 2007

(1) This standard shall be applied to the following supervised entities referred

to in section 5 of the Act on the Financial Supervision Authority (587/2003):

credit institutions

investment firms

fund management companies providing investment services (portfolio

management)

Finnish branches of foreign credit and financial institutions

Finnish branches of foreign investment firms

Finnish branches of foreign fund management companies providing

investment services (portfolio management).



(2) The rules on credit institution services shall be applied to credit

institutions' customer relations where the customer is a consumer or, as

applicable, to customer relations where the customer is a small company

comparable to a consumer.


Valid from 1 November 2007 (3) The standard is not applicable to services provided to eligible

counterparties as defined in the Securities Markets Act.1


Valid from 1 November 2007 (4) The standard shall also be applied to Finnish supervised entities providing

financial services cross-border from Finland to another country.

Issued on 16 June 2006

Valid from 1 August 2006

(5) The general expression “supervised entity” refers in the standard to all

companies covered by the standard, if not otherwise specified.



(6) Supervised entities using agents to provide financial services are

responsible for ensuring that their agents act in compliance with this

standard.

1 See chapter 1, section 4 b of the Securities Markets Act.




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(7) Standard 5.2a on securities offerings and listings deals with the code of

conduct for underwriting and placing of financial instruments.

http://www.finanssivalvonta.fi/se/Regelverk/Foreskriftssamling/Finanssektorn/5_Informationsgivning/Pages/5_2a.aspx




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2 OBJECTIVES



(1) The objective of the code of conduct for supervised entities in their

customer relations is to promote proper practice and thus increase customers'

confidence in the entities' operations and in the financial markets. The main

purpose of the code of conduct is to ensure that customers of supervised

entities can make decisions concerning financial services based on adequate

and material information and that the supervised entities take into account

the interests of their customers when they provide the services.



(2) The objectives of the standard are to

present the code of conduct for the provision of financial services in a

clear and concise manner

induce supervised entities to take customer interests into account in

all circumstances and to act in accordance with proper practice

provide guidance on the obligation to obtain and provide information

and on other conduct where such guidance is not adequately provided

in the legislation.




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3 INTERNATIONAL FRAMEWORK

AND FINANCIAL SECTOR SELF-

REGULATION



(1) In the standard, account has been taken of the following international

recommendations and financial sector self-regulation:

The Committee of European Securities Regulators (CESR):

Inducements under MiFID, CESR/07-228b

The Committee of European Securities Regulators: Best Execution

under MiFID, Questions and Answers, CESR/07-320

The International Organization of Securities Commissions (IOSCO):

Objectives and Principles of Securities Regulation, 2003 (particularly

section 12.5 on market intermediaries' obligation to obtain and

provide information)

The Finnish Bankers’ Association: Rules on good banking practice,

2004.




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4 LEGAL BASIS



(1) In preparing the standard, the following Directives and Regulation have

been taken into account:

Directive 2006/48/EC of the European Parliament and of the Council

relating to the taking up and pursuit of the business of credit

institutions (32006L0048; OJ L 177, 30.06.2006, p. 1)

Directive 2004/39/EC of the European Parliament and of the Council

on markets in financial instruments amending Council Directives

85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European

Parliament and of the Council and repealing Council Directive

93/22/EEC (32004L0039; OJ L 145, 30.04.2004, p. 1)

Council Directive 85/611/EEC on the coordination of laws, regulations

and administrative provisions relating to undertakings for collective

investment in transferable securities (UCITS) (31985L0611; OJ L 375,

31.12.1985, p. 3)

Commission Directive 2006/73/EC implementing Directive

2004/39/EC of the European Parliament and of the Council as regards

organisational requirements and operating conditions for investment

firms and defined terms for the purposes of that Directive

(32006L0073; OJ L 241, p. 26) (below the Commission Directive)

Commission Regulation (EC) No 1287/2006 implementing Directive

2004/39/EC of the European Parliament and of the Council as regards

record-keeping obligations for investment firms, transaction

reporting, market transparency, admission of financial instruments to

trading, and defined terms for the purposes of that Directive

(32006L1287; OJ L 241, p. 1) (below the Commission Regulation).



(2) The related national regulation is based on the following legislation:

Credit Institutions Act (121/2007)

Consumer Protection Act (38/1978)

Act on Provision of Information Society Services (458/2002)

Act on Guarantees and Third-Party Pledges (361/1999)

Commercial Code (3/1734)




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Act on Credit Transfers (821/1999)

Securities Markets Act (495/1989)

Mutual Funds Act (48/1999)

Investment Firms Act (922/2007)

Act on Foreign Investment Firms' Right to Provide Investment

Services in Finland (580/1996)

Act on Foreign Fund Management Companies in Finland (225/2004)

Act on Foreign Credit and Financial Institutions in Finland

(1608/1993).



(3) The Finnish Financial Supervision Authority's (FIN-FSA) power to issue

binding regulations in this area is based on the following provisions:

chapter 4, section 1, subsection 3, section 3, subsection 4, section 4,

subsection 7, section 5, subsection 5, section 6, subsection 3 and

chapter 10, sections 1, 1 a and 1 b of the Securities Market Act.

Issued on 16 June 2006 Valid from 1 August 2006

(4) One of the tasks of FIN-FSA is to guide financial market participants in

applying proper practice in their operations. FIN-FSA's general power to

provide such guidance is included in this task.




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5 GENERAL PRINCIPLES FOR THE

PROVISION OF FINANCIAL

SERVICES

5.1 General

Justifications



(1) In the regulation of credit institution and investment services, the

requirements concerning the code of conduct for providers are presented

differently depending on the financial service or financial instrument provided.

This is reflected, for instance, in the terminology used in the legislation,

depending on whether the rules concern marketing, the obligation to provide

information or both. The EU legislation also varies among others as to

requirements on the degree of detailed information the service provider shall

make available to the customer regarding different financial services and

instruments.

Norm

Issued on 26 October 2007 Valid from 1 November 2007

(2) Credit institutions' marketing and contents thereof are regulated in section

125 of the Credit Institutions Act. In addition to the marketing of services, the

section also contains provisions on the obligation to provide information.

Section 134 regulates customers' right to basic banking services.

Norm



(3) Chapter 4 of the Securities Markets Act contains rules on proper practice

in securities trading and in provision of investment and ancillary services. The

chapter prohibits improper or otherwise inappropriate practice in the provision

of investment and ancillary services as well as untruthful and misleading

marketing of the services. The chapter also regulates the obligation to obtain

and provide information, the obligation of best execution of customer orders,

and the handling of those orders. Chapter 1 lays down that some obligations

concerning the provision of investment services are not applicable when the

customer is an eligible counterparty as defined in the Act.




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Norm



(4) The supervised entities shall not only comply with the provisions in the

financial market legislation but they shall also take into account other legal

requirements, such as the provisions in the Consumer Protection Act on

consumer credit and the information to be disclosed in distance selling of

financial services. The obligation to provide information is also regulated, for

instance, in the Act on Provision of Information Society Services, the Act on

Guarantees and Third-Party Pledges and the Commercial Code.

5.2 Proper practice in the provision of financial services

Recommendation



(5) Supervised entities shall apply proper practice in their provision of

financial services.

Justifications



(6) Proper practice maintains and furthers confidence in the financial markets

and in their functionality, transparency and impartiality.

Application guideline



(7) Proper practice means that supervised entities

act honestly, impartially, professionally, and in their customers'

interests, so as to maintain confidence in the financial markets

request, if necessary, that customers provide adequate information

on their financial position and financial service objectives

provide customers with material information in support of their

decision-making, such as information on provider, content, costs or

basis of charging for financial services, and on material risks related

to financial services

comply with all regulations applicable to their business operations and

act in accordance with principles inherent in those regulations.




(8) In applying the above-mentioned principles, account shall be taken of the

nature of the relevant financial service, the financial instrument to which it

relates, and the customer's knowledge of the financial markets.

Recommendation



(9) Development of financial services and technology requires that supervised

entities continually evaluate and develop their practices to ensure conformity

with the above-mentioned principles.




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6 PROPER CONDUCT IN THE

PROVISION OF CREDIT

INSTITUTION SERVICES

6.1 Loans

6.1.1 Obligation to provide information

Recommendation



(1) FIN-FSA recommends that supervised entities provide their customers with

adequate information on loan alternatives, key loan terms and loan-related

expenses.

Recommendation



(2) Prior to entering into the loan contract, the customer should be adequately

informed on the relevant details of the loan. Depending on the loan type, at

least the following information should be provided:

interest rate alternatives and interest rate structure

bilateral contract termination clauses, including particular terms and

charges for premature termination or repayment of loan

all costs arising from withdrawal and servicing of the loan (eg interest

rate, service fees, notification costs)

estimated loan management costs

risks arising from economic variables affecting the loan maturity (eg

risks related to long-term variable rate housing loans)

key taxation effects (eg interest tax deductibility, position of first-time

house buyers) and available government assistance (eg government

guarantee)

legal meaning of possible loan collateral.

Norm



(3) Consumer customers shall also be informed in accord with the Consumer

Protection Act, eg as to the true annual rate of interest.




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6.1.2 Obligation to obtain information

Recommendation



(4) Prior to granting a loan, the supervised entity shall obtain adequate

information on the customer in order to assess its solvency (obligation to

obtain information).

Justifications



(5) The purpose of the obligation to obtain information is not only to manage

credit risk but also to take account of the customer's financial security, in

order to ensure that the customer can repay the loan.

Application example Issued on 26 October 2007


(6) As to the type and size of loan, the supervised entity shall aim to ensure

that the loan management costs do not grow out of proportion as a result of

changing conditions (eg due to changes in customer's financial position or

loan reference rate).

Binding



(7) In addition, the supervised entity shall comply with standard 4.4a on

management of credit risk and standard 2.4 on customer identification and

customer due diligence.

6.2 Collateral

General

Recommendation



(8) In entering into collateral contracts, the supervised entity should take

account of the financial security of the collateral provider.

Recommendation



(9) Third-party collateral commitments in particular should, as a rule, be

specific. However, good cause may justify general collateral commitments.

Recommendation



(10) The collateral provider should be able to influence the choice of specific

or general collateral.

Recommendation



(11) If general collateral is used, the provider of collateral should be informed

particularly as to the legal meaning of the collateral and the obligations

associated with the general collateral. In addition, providers of third-party

collateral should be informed particularly of their right to limit their

responsibility.

Norm



(12) In addition, other legally required information shall be disclosed to the

provider of collateral according to the Act on Guarantees and Third-Party

Pledges and the Commercial Code.

http://www.finanssivalvonta.fi/en/Regulation/Standards/Financial_sector/4_Capital_adequacy_and_risk_management/Pages/4_4a.aspx

http://www.finanssivalvonta.fi/en/Regulation/Standards/Financial_sector/2_Code_of_conduct/Pages/2_4.aspx




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Realisation of collateral and collection of payment from guarantor

Recommendation


(13) If the supervised entity must realise collateral provided or collect

payment from a guarantor, this should be done as expediently and harmlessly

as possible vis-à-vis the parties involved.




(14) As a rule, the following principles can be followed, if this does not

jeopardise the position of the collateral holder:

if both debtor assets and external collateral/guarantees are as

collateral, the collateral provided by the debtor shall be realised first

if it is intended to use pledges or guarantees from several parties as

collateral for the loan, it may be agreed when the collateral is

provided that the realisation procedure is decided by way of

settlement; if the matter cannot be settled, the collateral holder may

decide the order of realisation, unless otherwise provided in the

legislation

in realisation, account should be taken of the size of the claim as

compared to the value of the provided collateral, in order to avoid

realisation of valuable collateral for a small claim

securities provided as collateral shall, if possible, be realised in public

or multilateral trading or in similar trading in another country

in the realisation of collateral, especially securities, possible customer

requests concerning the order of realisation should be observed.

6.3 Deposits

6.3.1 Obligation to provide information

Recommendation



(15) FIN-FSA recommends that deposit banks provide their customers with

adequate information on deposit alternatives, key deposit terms and deposit-

related expenses.

Recommendation



(16) Prior to entering into a deposit contract, the customer should be

adequately informed of the relevant details of the deposit. At least the

following information should be provided:

interest rate alternatives and interest rate structure:

if the deposit return or interest rate is tied to another

instrument, such as a share basket or share index, the

customer should be informed of how the return or interest

rate is determined

if the contract includes maximum or minimum interest rate

clauses, the customer should be informed of their meaning

bilateral contract termination clauses and, in the case of a fixed term

deposit, whether it is possible to terminate the contract before




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maturity and what fees and other expenses the customer would then

incur

all costs resulting from the contract

taxation effects of the contract (eg taxation of interest or return)

possible withdrawal or other limits on use of the account.

Norm



(17) The deposit bank shall inform its customers of the Deposit Guarantee

Fund's protection of their assets, of other corresponding protection, and of

changes in information provided earlier.2

Recommendation



(18) FIN-FSA recommends that an account statement be provided free of

charge to the account holder once per calendar year, if not otherwise agreed.

The account statement should provide information on all transactions

completed since the previous statement.

6.3.2 Customers' right to basic banking services

Norm



(19) Deposit bank customers are entitled to basic banking services according

to section 134 of the Credit Institutions Act.




(20) Deposit accounts and means of using them, and payment transfers are

typical basic banking services. Among other things, a deposit bank is obliged

to offer conventional deposit accounts for general payment transfers. A

deposit bank can refuse to offer basic banking services only on legally

defensible grounds. The basis for refusal shall be disclosed to the customer

unless otherwise provided in the legislation.




(21) A deposit bank is obliged to grant its customers only such means of using

an account which do not allow overdrawing (eg ATM or online payment cards).

The bank is not obliged to grant its customers bank cards, because the bank,

under the “bank card guarantee”, is responsible to retailers for its customers'

use of bank cards.

Recommendation



(22) The customer's right to basic banking services should not be undermined

in practice through unreasonable and discriminating pricing or the like.

6.3.3 Means of account usage

Recommendation



(23) As regards account usage, deposit banks should particularly draw

customers' attention to security matters.

Recommendation



(24) Customers should be able, for example, to set daily withdrawal limits in

accord with their own needs.

2 See section 108 of the Credit Institutions Act.




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Recommendation



(25) It is important to emphasise the customer's need to be careful with

means of account usage and his responsibility in case online banking codes or

bank and credit cards disappear or are misused.

6.3.4 Cancellation of payments from deposit accounts

Norm



(26) A deposit bank can cancel a payment order at the payer's request

according to the Act on Credit Transfers.

Recommendation



(27) Should a payment, due to payer errors, be credited to the wrong account

and no longer be revocable as referred to in the Act on Credit Transfers, FIN-

FSA recommends that the receiving bank negotiates with the recipient on

revocation of the payment. If the recipient refuses to reverse the payment,

the receiving bank may, notwithstanding banking secrecy, disclose the

recipient's contact information to the payer's bank, which may forward it to

the payer.

Recommendation



(28) The bank may correct its own spelling and calculation errors and other

technically incorrect entries in a payment transfer even if the recipient's

account has already been credited. The correction should be made as soon as

possible after the mistake has been detected. The account holder should be

informed of all errors and corrections without delay. An error may not be

corrected via an overdraft without the customer's consent.




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7 PROPER CONDUCT IN THE

PROVISION OF INVESTMENT

SERVICES

7.1 Inducements

Norm



(1) Chapter 4, section 1, subsection 1 of the Securities Markets Act prohibits

improper or otherwise inappropriate practices in the provision of investment

and ancillary services. According to subsection 3, FIN-FSA shall, in order to

implement the Commission Directive, issue the necessary detailed regulations

on fees and other rewards (so-called inducements) paid to or received from a

third party in connection with the provision of investment or ancillary services.

Binding



(2) It is not proper practice for supervised entities, in connection with

provision of investment or ancillary services, to pay fees or commissions to a

third party or its representative or to receive fees or commissions from a third

party or its representative, unless

comprehensive and clear information has been given to the customer

on the character and amount or charging basis of the fee or

commission before providing the investment or ancillary service

the purpose of the fee or commission is to enhance the quality of the

service provided to the customer, and such payment is not contrary

to the best interest of the customer.




(3) Also a company within the same group as the supervised entity is

considered a third party as referred to in the previous paragraph.3

Application guideline/

-example


(4) If a supervised entity receives a commission from a third party (eg a fund

management company) in connection with provision of investment advice or

general investment recommendations, the quality of the service provided to

3 See the CESR recommendation Inducements under MiFID (CESR/07-228b), p. 6.




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the customer can be considered enhanced if such receipt does not lead to

biased advice or general recommendations.4 The other conditions in

paragraph 2 must also be fulfilled before the commission can be accepted.5

Binding



(5) Paragraph 2 does not apply to customary fees for provision of services,

such as exchange fees, custody and settlement fees, or to fees based on

legislation, none of which, by their nature, can lead to conflicts of interest.

Binding



(6) A supervised entity may provide customers with summary information on

such fees or commissions paid to or received from a third party as are

referred to in paragraph 2. On request, supervised entities must provide

customers with additional information on such fees or commissions.



(7) Such summary information should be sufficiently extensive and clear to

enable the customer to relate it to a particular investment or ancillary service

or financial instrument and thus to make an informed decision. A mere

statement that the supervised entity receives or pays fees or commissions is

not sufficient.6

Binding



(8) Paragraphs 2–7 also pertain to non-monetary benefits provided to or

received from a third party or its representative in connection with the

provision of investment and ancillary services.


-example



(9) In a recommendation issued to its members (Inducements under MiFID),

CESR gives its views on the contents of the regulations on inducements and

some examples to illustrate the purpose of those regulations. FIN-FSA

considers the CESR recommendations as the basis for its supervision.

Binding



(10) How to manage conflicts of interest in the operations of the supervised

entities is also dealt with in standard 1.3 on internal governance and

organisation of activities.

7.2 Obligation to provide information

7.2.1 General requirements on the appropriateness of information

provided to non-professional customers

Norm



(11) According to chapter 4, section 1, subsection 2 of the Securities Markets

Act, investment and ancillary services must not be marketed on the basis of

untruthful or misleading information. The commercial purpose of the

4 See recital 39 in the Commission Directive. 5 See the CESR recommendation Inducements under MiFID (CESR/07-228b), p. 10. 6 See the CESR recommendation Inducements under MiFID (CESR/07-228b), p. 11.

http://www.finanssivalvonta.fi/en/Regulation/Standards/Financial_sector/1_Corporate_governance_and_business_activity/Pages/1_3.aspx




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marketing shall be indicated. According to subsection 3, FIN-FSA shall, in

order to implement the Commission Directive, issue the necessary detailed

regulations on the information to be provided to the customers.

Binding



(12) The supervised entities shall see to it that all information (advertising

and other marketing included) provided to non-professional customers, or

information whose probable receivers are non-professional customers, fulfils

the applicable requirements in paragraphs 14–23.

Application guideline/ -example



(13) In applying the standard, the supervised entities may, among other

things, take account of the special characteristics of the relevant marketing

measure. A single advertisement does not, for example, have to fulfil all

requirements in paragraphs 14–23.

Binding



(14) The information shall include the name of the supervised entity.

Binding



(15) The information must be correct and must not emphasise any potential

benefits of an investment service or a financial instrument without at the

same time providing an appropriate and clear notification of relevant risks.

Binding



(16) Adequate information shall be provided in such manner as is likely to be

understood by a prudent person in the group to whom it is directed or by

whom it is likely to be received.

Binding



(17) Important items, statements or warnings included in the information

must not be disguised or understated.

Binding



(18) If the information refers to a particular tax treatment, it must at the

same time be pointed out that the tax treatment depends on the individual

circumstances of the customer and that the treatment may change in the

future.

Binding Issued on 26 October 2007


(19) The name of FIN-FSA or some other supervisory authority may not be

used in the information in such a way that would indicate or suggest that such

authority has approved the products or services provided by the supervised

entity.




(20) That stated in the previous paragraph shall not apply to situations where

FIN-FSA approves prospectuses on securities according to chapter 2 of the

Securities Markets Act or fund rules according to the Mutual Funds Act.

Binding



(21) Supervised entities shall see to it that information used in their

marketing is consistent with the information given to customers in providing

investment and ancillary services.




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Binding



(22) If a supervised entity markets a financial instrument, an investment

service or ancillary service by

offering to enter into an agreement on these with any person who

responds to the advertising or inviting any person who responds to

the advertising to offer to enter into such an agreement, and by

specifying in the advertisement a manner of response that directly

results in conclusion of an agreement,

the advertisement shall, as applicable, include such information as referred to

in section 7.2.3 that is relevant to the offer or invitation.

Binding



(23) However, paragraph 22 shall not apply, if the person must refer to other

documents containing the relevant information in order to respond to the offer

or invitation.



(24) Marketing of investment and ancillary services and financial instruments

is also dealt with in standard 2.2 on marketing of financial services and

financial instruments.

7.2.2 General

Norm



(25) Chapter 4, section 4 and chapter 10 of the Securities Markets Act

comprise provisions on the supervised entities' general obligation to provide

information. There is also a disclosure obligation concerning, among other

things, categorisation of customers (chapter 1, section 4 a) and a policy for

best execution of customer orders (chapter 4, section 5).

Norm Issued on 26 October 2007



Act, the supervised entity shall, in good time before a non-professional

customer concludes an agreement on investment or ancillary services, provide

the customer with the terms of agreement and adequate information on the

supervised entity and the services provided. According to subsection 2 and

chapter 10, the supervised entity shall also, in good time before an

investment or ancillary service is provided, give a non-professional customer

adequate information on the supervised entity and the services it provides,

the financial instruments related to the services and the related risks, the

holding of customer assets and the expenses and commissions related to the

services. According to subsection 7, FIN-FSA shall, in order to implement the

Commission Directive, issue the necessary detailed regulations on the

information to be given to non-professional customers, the code of conduct

for the provision of that information and supervised entities' obligation to

provide information to professional customers.





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(27) The information should be provided in good time, so as to enable the

customer to study and understand the special characteristics of the

investment services and financial instruments provided.7

Binding



(28) Section 7.2.3 specifies the obligation to provide information laid out in

paragraph 26 concerning non-professional customers. Section 7.2.4 specifies

the obligation to provide information when the supervised entity's customer is

a professional.

7.2.3 Information to be provided to non-professional customers

Information on the supervised entity and the services it provides

Binding



(29) As applicable, the supervised entities shall provide the following general

information to non-professional customers:

a) name, address and other contact information of the supervised entity

b) languages in which the customer can communicate with the

supervised entity and in which it can receive documents and other

information

c) methods of communication between supervised entity and customer,

including, where relevant, methods for sending and receiving orders

d) statement that the supervised entity is authorised and name and

address of the competent authority that has authorised it

e) where the supervised entity is acting through a tied agent,

specification of the member state in which that agent is registered

f) nature, frequency and timing of reports on the relevant services to be

provided by the supervised entity to the customer

g) if the supervised entity holds customer financial instruments or

customer funds, a summary of its procedure for handling them,

including details on any investor compensation or deposit guarantee

scheme which applies to the entity

h) a summary description of the policy, as referred to in section 5.9 of

standard 1.3 on internal governance and organisation of activities, which

the supervised entity applies in handling conflicts of interest.




(30) The provisions on tied agents in the Directive on Markets in Financial

Instruments do not apply to fund management companies providing

investment services, and thus item 29 e is not applicable to those companies.

Binding



(31) On request, the supervised entity must provide additional information to

non-professional customers on the policy referred to in item 29 h.

Binding



(32) If the supervised entity proposes to provide portfolio management as an

investment service to non-professional customers, it must provide the

7 See Government Bill 43/2007, p. 93 and recital 48 in the Commission Directive.




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following information in addition to the information referred to in paragraphs

29 and 31:

a) information on the method and frequency of valuation of financial

instruments in the customer's portfolio

b) information on possible outsourcing (delegation) of the discretionary

management of all or part of the financial instruments or funds in the

customer's portfolio

c) a specification of any benchmark against which the performance of

the customer's portfolio will be compared

d) the types of financial instruments that may be included in the

customer's portfolio and types of transactions that may be carried out in

such instruments (including any limits)

e) the management objectives, the level of risk to be reflected in the

manager's exercise of discretion, and any specific constraints on that

discretion.



(33) Supervised entities that provide portfolio management as an investment

service to non-professional customers shall establish an appropriate method

of evaluation and comparison (such as a benchmark), based on the

customer's investment objectives and the financial instruments included in the

customer's portfolio, so as to enable the customer to assess the entity's

portfolio management performance.

Information on financial instruments and related risks

Binding



(34) Supervised entities shall provide non-professional customers with a

general description of the nature of the financial instruments entailed in the

service and the risks involved. The description shall explain in appropriate

detail the nature of each type of financial instrument and the typical risks

involved, so that the customer is able to make investment decisions on an

informed basis.

Binding



(35) Depending on the characteristics of the type of financial instrument and

the expertise and investment experience of the customer, the description of

risks pertaining to a financial instrument shall comprise the following:

a) risks associated with the type of financial instrument, including an

explanation of leverage and its effects and the risk of losing the entire

investment

b) price volatility for that type of financial instrument and any possible

liquidity limitations

c) information on whether the customer could, as a result of

transactions in that type of financial instruments, face other financial

commitments or obligations than the cost of acquiring the relevant

financial instrument

d) any margin requirements or similar obligations applicable to that type

of financial instrument.




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Binding



(36) Where the risks associated with a financial instrument composed of two

or more different financial instruments or services are likely to be greater than

the risks associated with any one of the components, the supervised entity

shall provide an adequate description of the components of that instrument

and the way in which their interaction increases the risks.

Binding



(37) If a supervised entity provides a non-professional customer information

on a financial instrument which is the subject of a current offer to the public

and concerning which a prospectus has been published according to chapter 2

of the Securities Markets Act or a corresponding prospectus approved in

another member state of the European Economic Area, the entity shall inform

the customer of where that prospectus is made available to the public.

Binding



(38) In the case of financial instruments that incorporate a guarantee by a

third party, the supervised entity shall provide a non-professional customer

adequate information on the guarantor and the guarantee to enable the

customer to assess the significance of the guarantee.

Binding



(39) If the financial instrument is a fund unit or a unit in a foreign collective

investment undertaking as referred to in the UCITS directive (85/611/EEC), a

simplified prospectus as referred to in that directive is considered adequate

information on the financial instrument and the risks it involves.

Information on safeguarding of customer assets

Binding



(40) If the supervised entity holds a non-professional customer's financial

instruments or funds, the information in paragraphs 41–46 shall be provided

to the customer as applicable.

Binding



(41) If a non-professional customer's financial instruments or funds may be

held by a third party on behalf of the supervised entity, the entity shall inform

the customer of this. The customer shall also be informed of the supervised

entity's responsibility under the applicable law for any acts or omissions of the

third party. In addition, the customer shall be informed of the consequences

for the customer of the insolvency of the third party.

Binding



(42) If a non-professional customer's financial instruments may be held in an

omnibus account, the supervised entity shall inform the customer of this and

of the related risks.

Binding



(43) If it is not possible under the applicable law for a non-professional

customer's financial instruments held with a third party to be identifiable

separately from the proprietary financial instruments of that third party or of

the supervised entity (eg in a separate account), the entity shall inform the

customer of this and of the typical related risks.




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Binding



(44) If accounts that contain a non-professional customer's financial

instruments or funds are subject to a jurisdiction other than that of a member

state of the European Economic Area, the supervised entity shall inform the

customer of this and shall indicate that the rights of the customer relating to

those financial instruments or funds may differ accordingly.

Binding



(45) The supervised entity shall inform a non-professional customer of the

existence and the terms of any security interest (such as lien or right of

retention) which the entity has vis-à-vis the customer's financial instruments

or funds or any right of set-off it holds in relation to those instruments or

funds. Where applicable, it shall also inform the customer that a depository of

the financial instruments or funds may have a security interest over, or right

of set-off in relation to, those instruments or funds.

Binding



(46) If the supervised entity, in connection with financial instruments held by

it on behalf of a non-professional customer, is to enter into securities

financing transactions (such as securities lending or repurchase transactions)

as referred to in article 2 of the Commission Regulation (EC) No 1287/2006 or

otherwise uses the non-professional customer's financial instruments for its

own account or the account of another customer, the entity shall in good time

before carrying out such transactions provide the customer, in writing or other

durable medium, clear and full information on

the obligations and responsibilities of the supervised entity with

respect to those transactions, including the terms for restitution of

the customer's financial instruments

the risks involved in those transactions.

Binding



(47) Safeguarding of customer assets is also dealt with in standard 1.3 on

internal governance and organisation of activities.

Information on expenses and commissions

Binding



(48) As applicable, the supervised entities shall provide the following

information to non-professional customers on expenses and commissions:

a) a) the total price to be paid by the customer in connection with

the financial instrument or the investment service or ancillary service,

including all related fees, commissions and other expenses, and all

taxes payable via the supervised entity or, if an exact price cannot be

given, the basis for calculating it

b) b) if any part of the total price charged to the customer is paid in

foreign currency or represents an amount of foreign currency, a

notice of the currency involved and the applicable foreign currency

conversion rates and costs

c) c) notice of the possibility that the customer could encounter

other costs, including taxes, related to transactions in connection with




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the financial instruments or investment service, and not paid via the

supervised entity or imposed by it

d) d) the arrangements for payment or other performance (eg

delivery of financial instruments).

Binding



(49) Fees and commissions charged to the customer according to paragraph

48 a shall always be specified.

Binding



(50) If the financial instrument related to the service is a fund unit or a unit in

a foreign collective investment undertaking as referred to in the UCITS

directive (85/611/EEC), the simplified prospectus as referred to in that

directive is considered adequate information on expenses and commissions for

the instrument as regards costs and associated charges in relation to the

mutual fund or collective investment undertaking itself (eg entry and exit

commissions).

7.2.4 Information to be provided to professional customers

Binding


(51) Supervised entities shall provide professional customers with a general

description of the nature of the financial instruments related to the service

and the typical risks involved, if it is appropriate with regard to the customer's

investment experience. The description shall comprise the information in

paragraphs 34–35 as applicable.

Binding



(52) If the supervised entity holds a professional customer's financial

instruments or funds, the information in paragraphs 44–45 shall be provided

to the customer as applicable.

7.3 Obligation to obtain information

7.3.1 Investment advice and portfolio management

Norm



(53) According to chapter 4, section 3, subsection 1 and chapter 10 of the

Securities Markets Act, supervised entities that provide investment advice or

portfolio management as investment services shall, before providing such

services, obtain adequate information on the customer's financial situation,

experience and knowledge related to the relevant investment service or

financial instrument, and investment objectives in order to be able to

recommend financial instruments and services suitable to the customer.

According to subsection 4, FIN-FSA shall, in order to implement the

Commission Directive, issue necessary detailed regulations on the information

to be obtained from the customer and the code of conduct for obtaining that

information.




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Binding



(54) The supervised entity shall obtain from the customer such information as

is necessary for the entity to understand the essential facts about the

customer and to have a reasonable basis for believing, given due

consideration to the nature and extent of the service provided, that the

specific transaction to be entered into in the course of providing the

investment advice or portfolio management service, satisfies the following

criteria:

a) the transaction meets the investment objectives of the customer

b) the transaction is such that the customer is able to financially bear

any related investment risks that are consistent with his investment

objectives

c) the transaction is such that the customer has the necessary

investment experience and/or knowledge to understand the risks

involved in the transaction or in the management of his investment

portfolio.



(55) However, the supervised entity need not obtain information on the

customer's investment experience and knowledge of such financial

instruments and services, for which the customer is categorised as a

professional customer.

Binding



(56) If the supervised entity provides investment advice as an investment

service to professional customers as referred to in chapter 1, section 4,

subsection 4, paragraphs 1–5 of the Securities Markets Act, the entity may

assume that the customer is able to financially bear such investment risks

related to the recommended transaction that are consistent with his

investment objectives.

Binding



(57) The information on the customer's financial position shall as applicable

include the following:

a) source and extent of the customer's regular income

b) customer's assets, such as liquid assets, investments and real

property

c) regular financial commitments of the customer.

Binding



(58) The information on the customer's investment objectives shall as

applicable include the following:

a) information on the length of time for which the customer wishes to

hold the investment

b) the customer's preferences regarding risk taking and his risk profile

c) purposes of the investment.

Binding



(59) The information regarding the customer's experience and knowledge in

the investment field shall, to the extent appropriate to the expertise of the

customer, the nature and extent of the investment service to be provided and




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the type of financial instrument or transaction envisaged (including the

complexity and risks involved), include the following:

a) the types of service, transaction and financial instrument with which

the customer is familiar

b) the nature, volume and frequency of the customer's transactions in

financial instruments and the period over which they have been carried

out

c) the level of education and profession (or relevant former profession)

of the customer.

Binding



(60) If the supervised entity cannot obtain sufficient information from the

customer according to paragraph 53, it may not recommend the investment

service or financial instrument in question to the customer.


Valid from 21 December 2012 (61) Repealed with regulations and guidelines 11/2012 "Rahoitusvälineiden

markkinoista annetun direktiivin (MiFID) soveltuvuusvaatimuksista eräiltä

osin".

Binding



(62) The supervised entity may not encourage a customer not to provide the

information referred to above.

Binding



(63) The supervised entity shall be entitled to rely on the information provided

by its customers unless it is aware or ought to be aware that the information

is manifestly out of date, inaccurate or incomplete.

Binding



(64) In addition, the supervised entity shall follow standard 2.4 on customer

identification and customer due diligence.

7.3.2 Other investment services

Norm




Securities Markets Act, supervised entities that provide investment services

other than investment advice or portfolio management shall, prior to

providing such services, obtain information of the customer's investment

experience and knowledge relating to the relevant financial instrument or

investment service to be able to assess whether the financial instrument or

service is appropriate to the customer. If the supervised entity, based on the

information obtained, concludes that the financial instrument or service is not

appropriate to the customer, it shall inform the customer of this. If the

customer declines to provide the requested information, the supervised entity

shall inform that it cannot assess the appropriateness of the financial

instrument or service to the customer. According to subsection 4, FIN-FSA

shall, in order to implement the Commission Directive, issue the necessary

detailed regulations on the information to be obtained from the customer and





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the code of conduct for obtaining that information.

Norm



Securities Markets Act, the obligation in paragraph 65 does not, however,

apply to execution or transmission of orders on the customer's initiative, if the

service is related to so-called non-complex financial instruments specified in

the subsection and the customer has been informed that the supervised

entity, in providing the service, is not obliged to assess the appropriateness of

the service or instrument to the customer.

Binding



(67) When the supervised entity assesses, according to paragraph 65,

whether the financial instrument or investment service is appropriate to the

customer, it shall ascertain whether the customer has the necessary

investment experience and/or knowledge to understand the risks related to

the relevant financial instrument or investment service.

Binding



(68) However, the supervised entity need not obtain information on the

customer's investment experience and knowledge of such financial

instruments and services, for which the customer is categorised as a

professional customer.

Binding



(69) Paragraphs 59, 62 and 63 shall also apply to the assessment referred to

in paragraph 65.

Binding



(70) In addition, the supervised entity shall observe standard 2.4 on customer

identification and customer due diligence.

7.4 Reporting to customers

7.4.1 General

Norm




Securities Markets Act, supervised entities shall provide to non-professional

customers adequate information on the services provided, such as information

on transactions and services carried out on behalf of the customer, expenses

involved and information on customer funds and other assets held by the

entity. According to subsection 7, FIN-FSA shall, in order to implement the

Commission Directive, issue the necessary detailed regulations on the

information to be provided to non-professional customers, the code of conduct

for the provision of such information and the supervised entities' obligation to

provide information to professional customers.





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Binding



(72) Sections 7.4.2–7.4.5 specify the contents of the reporting obligation in

connection with execution of customer orders, portfolio management and

holding of customer assets and the particular reporting obligation concerning

non-professional customers.

7.4.2 Execution of orders (other than for portfolio management)

Binding



(73) When a customer order has been carried out, the supervised entity shall

without delay provide the essential information concerning the execution to

the customer in writing or other durable medium.

Binding



(74) In the case of a non-professional customer, the supervised entity must

send the customer a notice confirming execution of the order as soon as

possible and no later than the first business day following execution or, if the

confirmation is received by the entity from a third party, no later than the first

business day following receipt of confirmation from the third party.



(75) Paragraph 74 shall not apply if the confirmation would contain the same

information as a confirmation that is promptly dispatched to the customer by

another person.

Binding


(76) Paragraphs 73–74 shall not apply if orders executed on behalf of

customers relate to bonds funding mortgage loan agreements with the

customers in question. The report to the customer on such a transaction shall

occur when the customer is informed on the terms of the mortgage loan, but

no later than one month after execution of the order.

Binding



(77) In the case of orders from non-professional customers concerning units

or shares in mutual funds or foreign collective investment undertakings which

are executed periodically, supervised entities shall

either take the action specified in paragraphs 74–75 or

provide the customer, at least once every six months, with the

information listed in paragraph 78 in respect of those orders, except if

someone else provides the customer the same information.



(78) The notice to non-professional customers referred to in paragraph 74

above shall contain the following information as is applicable and and, where

relevant, in accordance with table 1 in the Commission Regulation (EC) No

1287/2006:

a) reporting entity identification

b) customer name or other designation

c) trading day

d) trading time

e) type of order (eg limit order or market order)

f) venue identification




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g) instrument identification

h) information on whether the transaction was a buy or a sell (buy/sell

indicator)

i) nature of the order if other than buy or sell (eg subscription or

exercise of an option)

j) quantity

k) unit price

l) total consideration

m) total sum of commissions and expenses charged and, if the non-

professional customer so requests, an itemised breakdown

n) customer responsibilities related to the settlement of the transaction,

such as time limit for payment or instrument delivery as well as

appropriate account details, if the customer has not previously been

informed of these responsibilities and details

o) if the customer's counterparty was the supervised entity, any person

within the same group as the entity or another customer of the entity,

the fact that this was the case unless the order was executed through a

trading system that facilitates anonymous trading.

Binding



(79) If the order of a non-professional customer is executed in tranches, the

supervised entity may, as regards the unit price referred to in paragraph 78 k,

provide information on the price of each tranche or the average price. If the

average price is provided, the entity shall give the customer information on

the price of each tranche upon request.

Binding



(80) The supervised entity may provide the customer with the information

referred to in paragraph 78 using standard codes, if it also provides an

explanation of the codes used.

Binding



(81) Supervised entities shall on request provide the customer with

information on the status of the execution of his order.

7.4.3 Portfolio management

Binding




service shall provide each customer with a periodic statement (report) in

writing or other durable medium of the portfolio management activities

carried out on behalf of that customer, unless such a statement is provided by

another person.

Binding



(83) In the case of non-professional customers, the report shall include the

following information:

a) name of the supervised entity

b) name or other designation of the customer portfolio (account)

c) statement of the contents and the valuation for the portfolio,




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including details of each financial instrument held, its market value, or

fair value if market value is unavailable, the cash balance at the

beginning and end of the reporting period, and the performance of the

portfolio during the reporting period

d) total amount of fees and expenses during the reporting period,

itemising at least total management fees and total costs associated with

execution, and including, where relevant, a statement that a more

detailed breakdown will be provided to the customer on request

e) comparison of the performance during the period covered by the

statement with the performance benchmark (if any) agreed between

supervised entity and customer

f) total amount of dividends, interest and other payments received

during the reporting period in relation to the customer's portfolio

g) information on other corporate actions giving rights related to

financial instruments in the portfolio

h) for each transaction executed during the period, the information

referred to in paragraph 78 c–l where relevant, unless the customer

elects to receive information on executed transactions on a transaction-

by-transaction basis, in which case paragraphs 88–90 shall apply.

Binding


(84) In the case of non-professional customers, the report shall be provided

once every six months, except in the following cases:

a) the customer requests that the report must be provided every three

months

b) if the customer elects to receive information on executed transactions

on a transaction-by-transaction basis, the report must be provided at

least once every 12 months

c) if the portfolio management agreement authorises a leveraged

portfolio, the report must be provided at least once a month.

Binding



(85) The supervised entity must inform non-professional customers that they

are entitled to make such request as referred to in paragraph 84 a.

Binding



(86) The exception in paragraph 84 b cannot be applied to transactions in

financial instruments as referred to in section 4, subsection 1, paragraphs 2–8

of the Investment Firms Act or article 4(1)(18)(c) of Directive 2004/39/EC on

Markets in Financial Instruments.




(87) Paragraph 86 refers to financial instruments such as

various derivatives

securities that entitle the holder to buy or sell other securities (eg

warrants and convertibles)

securities that entitle the holder to receive a cash settlement

determined in reference eg to other securities, indices, currencies,

interest rates or commodities.




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Binding



(88) If the customer selects to receive the information about executed

transactions on a transaction-by-transaction basis, the supervised entity must

provide the customer the essential information on the transactions in writing

or other durable medium without delay once the portfolio manager has

executed the transaction.

Binding



(89) If the customer referred to in paragraph 88 is a non-professional

customer, the supervised entity must, no later than the first business day

following execution of the transaction, send the customer a notice confirming

that the transaction has been carried out and containing the information

specified in paragraph 78. If the supervised entity receives confirmation of

execution from a third party, the notice must be sent no later than the first

business day following receipt of the relevant confirmation.

Binding



(90) However, paragraph 89 shall not apply if the confirmation would contain

the same information as a confirmation that is promptly dispatched to the

customer by another person.

7.4.4 Special reporting obligation concerning non-professional

customers

Binding



(91) If the supervised entity

executes portfolio management transactions on behalf of a non-

professional customer or

operates accounts for non-professional customers that include an

uncovered position in a contingent liability transaction (ie a

transaction where the transaction involves any actual or potential

liability for the customer that exceeds the cost of acquiring the

financial instrument)

the entity has a special reporting obligation according to paragraph 93.

Application example


(92) The reporting obligation concerns eg supervised entities whose

customers trade in derivatives, and where the customer must supply

additional collateral to cover its derivative position.

Binding



(93) Supervised entities shall report to non-professional customers any losses

exceeding a predetermined threshold agreed between the customer and the

entity. The report shall be issued no later than the end of the business day in

which the threshold was exceeded or, if the threshold was exceeded on a non-

business day, at the close of the next business day.




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7.4.5 Holding of customer assets

Binding



(94) Supervised entities that hold customer financial instruments or customer

funds shall at least once a year send to each customer a statement in writing

or other durable medium on such financial instruments or funds, unless such a

statement has been provided in some other periodic statement.

Binding



(95) The obligation stated in paragraph 94 does not apply to credit institutions

in respect of deposits held by that institution.

Binding


(96) The statement referred to in paragraph 94 shall include

a) details of all financial instruments or funds held by the supervised

entity at the end of the period covered by the statement

b) the extent to which any customer financial instruments or funds have

been the object of securities financing transactions (such as securities

lending and repurchase transactions) as referred to in article 2 of the

Commission Regulation (EC) No 1287/2006

c) the extent of any benefit that has accrued to the customer by virtue

of participation in any securities financing transactions as referred to in

point b, and the basis on which that benefit has accrued.

Binding



(97) In cases where a costumer's portfolio includes the proceeds of one or

more unsettled transactions, the information referred to in paragraph 96 a

may be based on either the trade date or settlement date, provided that the

same basis is applied consistently to all such information in the statement.

Binding




service and hold customer financial instruments and customer funds can

include the statement on customer assets referred to in this section in the

report referred to in section 7.4.3.

7.5 Best execution

7.5.1 Execution of orders

General

Norm



Act, supervised entities that provide execution of orders as an investment

service shall take all reasonable steps to obtain the best possible result for the

customer, taking into account the factors essential to the execution. If the

customer has provided specific instructions on the execution of the order, the

supervised entity shall observe these. According to subsection 5, FIN-FSA

shall, in order to implement the Commission Directive, issue the necessary




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detailed regulations on methods of executing orders.



(100) Factors essential to the execution of customer orders include price of

financial instrument, costs of execution, speed, likelihood of execution and

settlement, size and nature of the order and any other consideration relevant

to the execution of the order.8

Binding



(101) When executing customer orders, supervised entities shall apply the

following criteria for determining the relative importance of the factors

involved:

a) characteristics of the customer, including his categorisation as non-

professional or professional

b) characteristics of the customer order

c) characteristics of the financial instruments involved in the order

d) characteristics of execution venues to which the order can be

directed.

Binding



(102) For the purposes of this section, “execution venue” means

a) public trading, multilateral trading or similar trading in another

country within the European Economic Area

b) a systematic internaliser

c) a market maker or other liquidity provider

d) a market or entity similar to those in points a–c above in a country

outside the European Economic Area.

Binding



(103) A supervised entity can be considered to satisfy its obligation under

chapter 4, section 5 of the Securities Markets Act of best execution to the

extent that it executes an order or a specific part of an order by following the

customer's specific instructions regarding the order or part thereof.

Binding



(104) If the supervised entity executes an order on behalf of a non-

professional customer, the best possible result shall be determined in terms of

the total consideration. The total consideration comprises the price of the

financial instrument and the costs related to execution, which include all

expenses to the customer which are directly related to the execution of the

order, including execution venue fees, clearing and settlement fees and any

other fees paid to third parties involved in the execution of the order.


-example Issued on 26 October 2007


(105) In addition to the price of the financial instrument and the costs directly

related to the execution of orders, the supervised entity may take the other

factors in paragraph 100 into account, which may indirectly influence the total

consideration (eg execution of an order concerning an illiquid share).9

8 See Government Bill 43/2007, p. 95. 9 See recital 67 in the Commission Directive.




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Binding



(106) If orders of non-professional customers can be executed on several

execution venues listed in the execution policy referred to in paragraph 108,

the supervised entity shall, in calculating the total consideration of paragraph

104, consider its own commissions and fees for executing the order on each

of those venues.

Binding



(107) Supervised entities may not structure or charge their commissions in

such a way as to discriminate unfairly between execution venues.

Execution policy

Norm Issued on 26 October 2007



Act, supervised entities shall have an execution policy that identifies the

execution venues where the entity executes orders and discloses the factors

influencing the choice of execution venues. The supervised entities shall

monitor the appropriateness of the policy. According to subsection 3, the

supervised entity shall provide the customer with adequate information on the

policy before providing investment services. The entity shall also disclose to

its customers all material changes in the policy. According to subsection 5,

FIN-FSA shall in order to implement the Commission Directive issue necessary

detailed regulations on the methods for the execution of orders.

Application guideline Issued on 26 October 2007


(109) The policy should include the execution venues that enable the

supervised entity to obtain, on a consistent basis, the best possible result for

the execution of customer orders.10




(110) It is possible that according to the execution policy customer orders can

only be executed on one execution venue (eg orders regarding certain

financial instruments). But also in such a case the supervised entity must

ensure that it on a consistent basis obtains the best possible result for its

customer.11

Binding



(111) The supervised entity shall annually review its execution policy and the

appropriateness of its order execution arrangements. Such a review shall also

be carried out whenever a material change occurs that affects the entity's

ability to continue to obtain, on a consistent basis, the best possible results in

executing its customer orders using the venues included in its execution

policy.

Binding



(112) Supervised entities shall provide non-professional customers with the

following details on their execution policy in good time prior to provision of a

service:

10 See Government Bill 43/2007, p. 95. 11 See the CESR document Best Execution under MiFID, p. 7.




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a) an account of the relative importance the supervised entity assigns,

in accordance with the criteria specified in paragraph 101, to the factors

referred to in paragraph 100 or the process by which the entity

determines the relative importance of those factors

b) a list of the execution venues on which the supervised entity places

significant reliance in meeting its obligation to obtain, on a consistent

basis, the best possible results in executing its customer orders

c) a clear notice that any specific instructions from a customer may in

respect of the elements covered by those instructions prevent the

supervised entity from taking the steps in its execution policy designed

to obtain the best possible result for the customer.

Binding



(113) The information in paragraph 112 shall be provided in writing or other

durable medium or on the website of the supervised entity.




(114) Issues regarding best execution are dealt with in general terms in the

CESR document Best Execution under MiFID.

7.5.2 Portfolio management and transmission of orders

Norm



Act, FIN-FSA shall, in order to implement the Commission Directive, issue

necessary detailed regulations on how supervised entities that provide

portfolio management or transmission of orders as investment services shall

act when carrying out customer orders.

Binding



(116) This section deals with supervised entities that provide portfolio

management or transmission of orders as investment services.

Binding



(117) But if a supervised entity that provides portfolio management as an

investment service itself executes a transaction for the account of a customer,

section 7.5.1 shall apply.12

Binding



(118) A supervised entity that provides portfolio management as an

investment service shall apply proper practice when placing an order with

another entity for execution based on a decision by the supervised entity to

deal in financial instruments on behalf of its customer.

Binding



(119) A supervised entity that provides transmission of orders as an

investment service shall apply proper practice when transmitting a customer

order with another entity for execution.

12 See article 32.7 of the Commission Directive and the CESR document Best Execution under MiFID.




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Binding



(120) Supervised entities according to paragraphs 118–119 shall take all

reasonable steps to obtain the best possible result for their customers, taking

into account the essential factors referred to in chapter 4, section 5,

subsection 1 of the Securities Markets Act (see paragraph 100). The entities

shall determine the relative importance of those factors according to the

criteria in paragraph 101 and in the case of non-professional customers

according to paragraphs 104 and 106.

Binding



(121) A supervised entity can be considered to satisfy its obligation under

paragraph 118 or 119, and as a result need not comply with paragraph 120,

to the extent that it executes specific instructions from the customer when

placing orders with or transmitting orders to other entities for execution.

Binding


(122) A supervised entity shall establish and implement a policy that enables

it to comply with the obligation in paragraph 120. The policy shall identify, in

respect of each type of instrument, the entities with which orders may be

placed or to which orders may be transmitted for execution. Those entities

shall have order execution arrangements that enable the supervised entity to

fulfil its obligations as referred to in this section.




(123) It is possible that according to the execution policy customer orders can

only be placed with or transmitted to one entity for execution (eg orders

regarding certain financial instruments). But also in such a case the

supervised entity must ensure that it obtains the best possible result for its

customer.13

Binding



(124) Supervised entities shall provide adequate information to their

customers on the policy referred to in the previous paragraph.

Binding



(125) Supervised entities shall on a regular basis monitor the effectiveness of

the policy and, in particular, the execution quality of the entities identified in

the policy and, if necessary, correct any deficiencies. In addition, the entities

shall annually review the appropriateness of their policy. Such a review shall

also be carried out whenever a material change occurs that affects the entity's

ability to continue to obtain the best possible result for its customers.




(126) Issues regarding portfolio management and transmission of orders are

dealt with in general terms in the CESR document Best Execution under

MiFID.

13 See the CESR document Best Execution under MiFID, p. 8.




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7.6 Handling of customer orders

7.6.1 General

Norm




Act, supervised entities that provide execution of orders as an investment

service shall execute customer orders without undue delay. The entity may

not allow the interests of another customer or its own interest to affect the

handling of a customer order. According to subsection 2, the entity shall

execute customer orders sequentially, taking into account the volume of the

order, the price limits set by the customer or other terms of the order as well

as the way in which the order has been placed. According to subsection 3,

FIN-FSA shall, in order to implement the Commission Directive, issue

necessary detailed regulations on the methods for execution of orders and on

how supervised entities that provide portfolio management or transmission of

orders as investment services shall act when handling customer orders.

Application guideline Issued on 26 October 2007


(128) Paragraphs 129–132 and section 7.6.2 shall be applied to supervised

entities that provide execution of orders, transmission of orders or portfolio

management as investment services.

Binding


(129) In their execution of orders, the supervised entities shall fulfil the

following requirements:

a) ensure that orders executed on behalf of customers are promptly and

accurately recorded and allocated

b) carry out otherwise comparable customer orders sequentially and

promptly unless the characteristics of the order or prevailing market

conditions make this impracticable, or the interests of the customer

require otherwise

c) inform a non-professional customer about any material difficulty

relevant to the execution of orders promptly upon becoming aware of

the difficulty.

Binding



(130) Where a supervised entity is responsible for overseeing or arranging the

settlement of an executed order, it shall take all reasonable steps to ensure

that any customer financial instruments or customer funds received in

settlement of that executed order are promptly delivered to the account of the

appropriate customer.

Binding


(131) A supervised entity shall not misuse information relating to pending

customer orders. The entity shall take all reasonable steps to prevent the

misuse of such information by any relevant persons as referred to in section

34 of the Investment Firms Act.14

14 See also section 2 of the Credit Institutions Act and section 5 of the Mutual Funds Act.




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Binding



(132) Personal transactions by persons as referred to in the previous

paragraph are also dealt with in standard 1.3 on internal governance and

organisation of activities.

7.6.2 Aggregation and allocation of orders

Binding



(133) Supervised entities may neither execute a customer order aggregated

with the order of another customer nor execute an order of its own

aggregated with a customer order unless the following conditions are met:

a) it must be unlikely that the aggregation of orders or transactions will

overall work to the disadvantage of any customer whose order is to be

aggregated

b) it must be disclosed to each customer that the effect of aggregation

may work to its disadvantage in relation to a particular order

c) the entity must have an order allocation policy established, providing

in sufficiently precise terms for the fair allocation of aggregated orders

and transactions (including how the volume and price of orders

determine allocations and the treatment of partial executions).

Binding



(134) If the supervised entity aggregates an order with one or more other

customer orders and the aggregated order is partially executed, the related

trades shall be allocated in accordance with its allocation policy.

Binding



(135) If supervised entities aggregate transactions for own account with one

or more customer orders, they must not allocate the related trades in a way

that is detrimental to a customer.

Binding



(136) If a supervised entity aggregates a customer order with a transaction

for own account and the aggregated order is partially executed, the related

trades shall be allocated to favour the customer over the entity. But if the

entity is able to demonstrate on reasonable grounds that without the

aggregation it would not have been able to carry out the order on such

advantageous terms, or at all, it may allocate the related trades proportionally

to itself and its customer in accordance with its order allocation policy.



(137) As part of its order allocation policy, a supervised entity shall put in

place procedures designed to prevent reallocation, in a way that is detrimental

to the customer, of transactions for own account which are executed in

aggregation with customer orders.

http://www.finanssivalvonta.fi/en/Regulation/Standards/Financial_sector/1_Corporate_governance_and_business_activity/Pages/1_3.aspx




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8 REPORTING TO FIN-FSA



(1) The standard requires no regular reporting to FIN-FSA.




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9 DEFINITIONS



Financial services refer to credit institution services and investment

and ancillary services.

Credit institution services refer to products offered by credit

institutions and other services than investment and ancillary services

(eg loans, deposits and payment transfers).

Investment services refer to the services mentioned in section 5 of

the Investment Firms Act.

Ancillary services refer to the services mentioned in section 15 of the

Investment Firms Act.

Financial instruments refer to the instruments mentioned in section 4

of the Investment Firms Act (such as securities and derivatives).

Investment advice refers to personal recommendations to a customer

in respect of transactions relating to certain financial instruments.

Portfolio management refers to managing financial instruments in

accordance with mandates given by customers on a fully or partly

discretionary basis.

Execution of orders refers to executing transactions relating to

financial instruments for the account of customers.

Transmission of orders refers to reception and transmission of orders

relating to financial instruments.

Professional customer refers to customers as referred to in chapter 1,

section 4, subsection 4 of the Securities Markets Act.

Non-professional customer refers to other than professional

customers ('retail customer').




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10 FURTHER DETAILS

Please find the necessary contact information in the list of Persons in charge

provided on the FSA website. For further information, please contact:

Conduct of Business, tel. +358 10 831 5336.

http://www.finanssivalvonta.fi/en/Regulation/Standards/Financial_sector/Persons_in_charge/Pages/Default.aspx




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11 REVISION HISTORY

When the standard entered into force, it repealed FIN-FSA guideline 102.4 on

the cancellation of payments from customers' accounts.

The standard has been revised as follows:

Revision date 26 October 2007: Updating of the standard according

to the amendments in chapters 4 and 10 of the Securities Markets

Act and introduction of new margin texts

o When the revision entered into force, it repealed FIN-FSA

guideline 201.7 on practices to be applied in the provision of

investment services.

o Issued on 25 October 2012, valid from 21 December 2012:

paragraph 61 in Section 7.3.1 was made obsolete.

All versions of the standard are included under Regulation/FSA standards on

FIN-FSA's website.

standard 2.1 code of conduct for the provision of ... · pdf file2 code of condact valid from...

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