I - DEFINITION OF CONDUCT OF BUSINESS PRINCIPLES

Conduct of business principles can be defined as those principles of conduct which govern the activities of those who provide financial services and which have the objective of protecting the interests of their customers and the integrity of the markets.

These principles are distinct from financial adequacy principles designed to ensure market security. In fact, the two sets of principles complement each other to promote the confidence of investors and the smooth operation of the market.

II - IMPACT OF THE PRINCIPLES PROPOSED BY THE WORKING PARTY

The working party proposes that the Technical Committee establish a set of principles which IOSCO would recommend to be recognised by each member as expressing basic standards of business conduct for financial services firms.

Such recognition would commit the IOSCO member to implement the principles through its regulatory structures and effective supervisory arrangements, and to promote the principles throughout its own country. The member can decide whether to implement them in the form stated by IOSCO or to reflect them in its own principles, adapted to local circumstances.

These principles can also facilitate mutual cooperation in enforcement.

III- PERSONS TO WHOM THE PRINCIPLES APPLY

The proposed principles apply to those firms and their employees and representatives which deal or advise in securities and all kinds of derivative instruments (futures, options, etc).

IV - INTERNATIONAL CONDUCT OF BUSINESS PRINCIPLES

A limited number of comments have been added to individual principles, where the working party believed that it would be useful to illustrate the principle by reference to some rules or obligations which might fall within its boundaries.

1 - HONESTY AND FAIRNESS

In conducting its business activities, a firm should act honestly and fairly in the best interests of Its customers and the integrity of the market.

Comment:

This principle includes any obligation to avoid misleading and deceptive acts or representations.

2 - DILIGENCE

In conducting its business activities, a firm should act with due skill, care and diligence, in the best interests of its customers and the integrity of the market.

Comment:

This principle includes any duty of best execution.

3 - CAPABILITIES

A firm should have and employ effectively the resources and procedures which are needed for the proper performance of its business activities.

Comment:

This principle includes any obligation for the firm to have and implement effectively rules and internal procedures for its employees and representatives to make sure that they comply with these principles, including staff dealing rules.

4 - INFORMATION ABOUT CUSTOMERS

A firm should seek from its customers information about their financial situation, investment experience and investment objectives relevant to the services to be provided.

Comments:

This principle includes any obligation to "know one's customer".

This principle is a necessary element in enabling the firm to fulfill any suitability requirements.

5 - INFORMATION FOR CUSTOMERS

A firm should make adequate disclosure of relevant material Information in its dealings with its customers.

Comments:

This principle includes any obligation of the firm

• to acquire and provide information, including information about risks, needed by the customer to make informed investment decisions;
  
• to provide timely and accurate reports to the customer about business undertaken for or with the customer.
  

6 - CONFLICTS OF INTEREST

A firm should try to avoid conflicts of interest, and when they cannot be avoided, should ensure that its customers are fairly treated.

Comment:

This principle recognizes that conflicts of interest may be managed, and that proper management to ensure fair treatment of customers may require disclosure, internal rules of confidentiality, or other appropriate methods or combinations of methods.

7 - COMPLIANCE

A firm should comply with all regulatory requirements applicable to the conduct of its business activities so as to promote the best interests of customers and the integrity of the market.