38. Which information a bank is to give to its customers to fulfill the rules of conduct?

Mentioned in the example above!

39. Explain the different customer definitions and explain the consequences of the customer classification in order to fulfill the rules of conduct!

· Retail Customer: all customers, who are not eligible counterparties and professional customers. It is also irrelevant if these persons are natural or legal persons

Consequence: have full protection

· Professional Customer: customers, who possess the experience, knowledge and expertise to make their own investment decision and properly assess the risks involved

Consequence: Bank has to make an abbreviated investor profile with investment goals and risk appetite, but the bank is not required to ask the customer if they understand the risks involved

· Eligible Counterparty: companies, who make activities in the financial services sector like credit institutions, investment firms, insurance companies, mutual fund companies, pension funds

Consequence: only limited investor protection and no investment advice is provided

40. For which customers a bank must prepare a customer profile? Which information does a bank employee need to prepare the customer profile? What are the consequences of a customer profile?

A customer profile has to be prepared for:

· Security depository holder (natural person)

· Signing authorized person (partner)

· Legal entities

· Persons authorized to sign or represent the legal entity

The Customer Profile is a Fit and Proper test including following information, to record the customer information, which has to be up-to-date (before next transaction if risk class will change or before next purchase transaction if it is older than 3 years):

· Financial knowledge and expertise

· Financial goals

· Financial situation

· Willingness to take risks

· Personal data like profession etc.

Consequences:

· No investment advisory without Fit and Proper Test

· Customer profile for any natural person, that can authorize a transaction

· has to be up-to-date, otherwise the transaction will not take place

41. Explain the differences of transactions requiring advisory/clarification and transactions without advisory/clarification!

• Basics

• Based on the customer profile, the bank advisor will determine whether the recommended financial instrument is right for the customer

• If the review shows that the financial instrument is not suitable or appropriate, the bank advisor will point this out to the customer, issue a warning, and refrain from making a recommendation

• If the customer nevertheless insists on concluding the transaction, the customer would have to do so without advice

• Advise-based transactions and independent transactions

• Advice-based transactions: investment decision of customer is based on a recommendation by the bank customer advisor

• Independent transactions are based on the customer´s own decision to acquire the financial instrument absent advice

• Advise-based transactions

• Advice-based transactions cover investment advice and asset management

• Investment advice: It is considered to be a recommendation when the bank proposes an investment product that is suitable and appropriate for the customer (e.g. buy, sell, hold, exercise rights, etc.)

• However, it is not considered to be a recommendation when the bank provides the customer with general information through public media about a type of security or about investment products

• Asset management means the management of a portfolio for an individual customer with discretionary latitude in connection with the customer mandate, provided such portfolio contains one or more investment products

• Independent transactions

• With independent transactions, the bank will review whether investment decision of the customer is appropriate.

• If the appropriateness review is negative, the customer will be warned by the bank in a standardized manner

• It is considered to be an independent transaction when

– customer made it explicitly clear that he/she wishes to make the investment

– the bank has made no personal recommendation

– the customer insists on execution of the order despite a negative suitability and/or appropriateness review

– A suitability or appropriateness review cannot be performed (e.g. when the customer fails to provide the necessary information for generating the customer profile)

– the customer executes the transactions on your own via internet banking