Decree No. 466 / 2002 Coll.
Ordinance laying down more detailed rules on the organisation of the internal operation of a securities dealer and more detailed rules on the conduct of a securities dealer in relation to customers
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Effective from 01.01.2003
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01.01.2003
12.11.2002
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466
DECLARATION
of 24 October 2002
laying down more detailed rules for the organisation of the internal operation of a securities dealer and more detailed rules for the conduct of a securities dealer in relation to customers
The Securities Commission shall determine, pursuant to Articles 47a (2) and 47b (3) of Act No. 591 / 1992 Coll., on Securities, as amended by Act No. 15 / 1998 Coll., Act No. 362 / 2000 Coll. and Act No. 308 / 2002 Coll.:
DETAILED RULES FOR THE ORGANISATION OF THE INTERNAL TRADE OPERATIONS
(K § 47a of the Securities Act)
[K § 47a (1) (a) of the Securities Act]
Internal rules
(1) Securities dealer (1) and foreign securities dealer (1) providing investment services on the territory of the Czech Republic through a branch (2) (hereinafter referred to as "trader") shall issue internal rules governing administrative procedures within the framework of the internal operation of the trader, in particular:
(a) the organisational arrangements of the trader, the authorisation, duties and responsibilities of the manager of the trader and of the other employees of the trader;
(b) the procedure for adopting or amending internal rules;
(c) internal control system (Sections 3 to 5);
(d) the pursuit of the activities of a trader's employee in relation to the provision of investment services by the trader;
(e) the authorization of the trader's staff to approve and sign documents in the course of the trader's activities;
(f) the procedure for the creation, processing and handling, storage, data and documents of the trader; and
(g) the administration and operation of the information system operated by the trader.
(2) The trader is obliged to take consistently adequate measures to ensure compliance with the internal rules which he adopts under this decree.
Control and security measures for data processing and recording
(1) The trader shall accept at least one person as manager of the information system, telecommunications and recording equipment (hereinafter referred to as "controller") or enter into a contract with a third party to carry out the activity of the controller.
(2) In particular, the trader shall:
(a) conditions for staff access to the information system and data recorded therein, the scope of the access rights and the setting-up process, including how to decide on the scope of the access rights of individual staff members and decide on their changes;
(b) the conditions under which data obtained in connection with the performance of the trader's activities and changes thereto will be entered in the information system and the conditions for the handling of such data;
(c) a procedure for dealing with situations where the functions of the information system, telecommunications equipment or recording equipment used by the trader are malfunctioning, including the way in which the information system, telecommunications and recording equipment are replaced,
(d) measures to ensure regular backup and retention of data stored in the information system for at least 10 years;
(e) protection of the information system from entry and interference by unauthorised persons and from damage;
(f) the data reconstruction procedure in the event of unauthorised interference under (e) or damage to the information system;
(g) measures to ensure that employees use telecommunications equipment for which the trader ensures the acquisition of communications records when providing investment services pursuant to § 8 (2) (a) to (d) of the Securities Act to customers;
(h) the rules on the use of telecommunications equipment, at least the reservation of certain telephone lines and, where applicable, other telecommunications equipment for the purposes of carrying out investment services activities pursuant to § 8 (2) (a) to (d) of the Securities Act, and the recording of communications on such telephone lines and, where applicable, other telecommunications equipment and their retention for at least 10 years; (3) the record referred to in the first sentence shall contain at least the date and time of communication, the data identifying the consignor and the consignee, where available, and the content of the transmitted message; the trader shall ensure the possibility of obtaining complete records of communications on dedicated telephone lines and, where appropriate, other telecommunications equipment according to the first sentence and the possibility of obtaining an output from the recording equipment;
(i) arrangements to ensure that the management of the recording equipment used to record the communication referred to in (h) is carried out exclusively by the controller; and
(j) measures to ensure that the records of the communication referred to in point (h) cannot be subsequently altered in the recording equipment.
(3) Compliance with the obligations referred to in paragraph 2 (e) and (f) is ensured by the trader through the controller in particular:
(a) regular checks on the basic functions of the technical and programming means of the information system;
(b) adequate regular updates of the technical and programming means of the information system; and
(c) using means of security.
(4) The trader shall adjust the internal regulation or contract where the AIFM is a third party, in particular the obligation of the AIFM
(a) refuse unauthorised entry into the information system by a trader's staff or any other person;
(b) to take urgent measures in the event of unauthorised entry or intervention pursuant to paragraph 2 (e) or damage to the information system; and
(c) inform of the procedure referred to in (a) and (b) of the staff member responsible for compliance (§ 4) and of the relevant manager or member of the statutory body of the trader.
Internal control system
(1) The trader shall establish an internal control system proportionate to its size and to the extent and nature of the services provided and shall ensure that an organisational structure is established to enable the internal control system to operate effectively.
(2) The internal control system shall in particular:
(a) checks carried out by each member of staff in the course of the work;
(b) the check carried out by the lead employee in the course of the management activity;
(c) compliance activity; and
(d) internal audit activities (Section 5).
(3) The trader shall, by means of an internal regulation, lay down a system of internal control in particular:
(a) the obligation of the statutory authority of the trader to establish an internal control system, to monitor its functionality and to monitor regularly and to create conditions for independent and objective compliance and internal audit;
(b) an obligation on the supervisory authority to regularly evaluate the activities of the internal control system;
(c) the obligation on the staff member to carry out the check referred to in paragraph 2 (a);
(d) the obligation on the head of staff to carry out the check referred to in paragraph 2 (b);
(e) the obligations of the compliance officer;
(f) the duties of the person responsible for carrying out the internal audit; and
(g) procedures to address the failure of the internal control system.
Compliance
(1) The performance of compliance is provided by the trader through at least one employee of the trader. The statutory body of the trader shall decide on the delegation of the staff member to exercise compliance and the appeal from compliance and shall be informed by the supervisory authority of the trader; where the performance of compliance is provided by more than one employee, the statutory authority of the trader shall entrust and withdraw only their manager.
(2) The staff member responsible for compliance shall carry out this activity in person.
(3) The trader shall, by internal regulation, adjust the obligation of the compliance officer
(a) to carry out checks on compliance of internal legislation with legislation, in particular those concerning the provision of investment services and measures against the legalisation of proceeds from crime;
(b) coordinate the development of measures to ensure compliance of the trader's activities and internal legislation with legislation and to check compliance of the proposed measures with legislation;
(c) to check compliance with the rules on the transactions of employees of the trader entered into for their own account or for the account of persons close to them and to check transactions carried out for their own account and for customers in respect of compliance with the law, 4)
(d) to coordinate the development of corrective measures and to check compliance of the proposed measures with the legislation following complaints submitted to the trader and the results of their processing;
(e) keep records in accordance with Articles 6 (2), 13 (1) and 21 (1); the trader shall lay down the rules governing the keeping and checking of such records by internal rules;
(f) propose the manner in which the employees of the trader are regularly made aware of the internal rules, procedures and legislation governing, in particular, the provision of investment services and their changes and to check compliance with them;
(g) to check the arrangements for the use of confidential information obtained by the trader;
(h) coordinate communication with public authorities and other public authorities, where appropriate with other authorities;
(i) to take action against misuse of information, data and documents obtained by an unauthorised person in compliance;
(j) carry out the activities referred to in (a) to (i) professionally, independently, objectively and honestly; and
(k) maintain confidentiality of the facts which he has learned about during compliance.
(4) The trader shall, by means of an internal regulation, adjust the authorisation of the compliance officer
(a) passively enter and extract from the trader's information system the data necessary for compliance;
(b) enter the individual premises of the trader;
(c) require all employees of the trader to provide the information and documents necessary for compliance; in relation to a third party who, on a contractual basis, provides the trader with the activities referred to in Articles 2 (1), 10 (1) (e) and 10 (1) (f), the trader shall ensure that the authorisation of the employee responsible for compliance is adjusted contractually; and
(d) to report directly to the statutory authority and to the supervisory authority of the trader on the essential facts relating to compliance.
Internal audit
(1) The internal audit of the trader shall be carried out by the trader through at least one employee of the trader (the internal auditor). The statutory body of the trader shall decide on the delegation of the staff member to carry out the internal audit and the appeal from the internal audit and the supervisory body of the trader shall be informed; where the internal audit is carried out by more than one staff member, the statutory body of the trader shall delegate and withdraw only its head of staff. The first and second sentences shall not apply where the internal audit of the trader is carried out by an employee of the person forming a group with the trader, (5) unless the trader is a bank or branch of a foreign bank.
(2) The trader shall, by internal regulation, lay down the obligation for the internal auditor to verify and evaluate in particular:
(a) the functioning of the trader's management system;
(b) the effectiveness of the internal control system;
(c) a risk management system;
(d) keeping accounts in accordance with the Accounting Act;
(e) the completeness, evidence and accuracy of the keeping of the trader's records;
(f) truthfulness and credibility of accounting, statistical and operational information;
(g) the truthfulness and credibility of the information transmitted to the statutory authority and to the supervisory authority of the trader;
(h) compliance with obligations laid down by the trader's internal rules and regulations;
(i) compliance performance.
The internal auditor shall carry out verifications and evaluations within the time limits set by the internal regulation according to the risk profile of the areas verified and evaluated under points (a) to (i), but at least once a year.
(3) Furthermore, the trader shall, by internal regulation, lay down in particular the obligation of the internal auditor
(a) carry out monitoring, verification and evaluation of procedures for the performance of the individual activities of the trader and identify the risks arising therefrom (internal audit);
(b) to notify employees or third parties who, on a contractual basis, provide the trader with certain activities pursuant to Article 2 (1), Article 10 (1) (e) and (f), before carrying out an internal audit, of the commencement of the internal audit, provided that this does not jeopardise the purpose of the internal audit;
(c) to request written opinions on the outcome of the internal audit;
(d) draw up an internal auditor's report containing information on the internal audit carried out and a draft recommendation and submit it to the relevant management staff, statutory authority and supervisory authority of the trader;
(e) verify whether the measures taken on the basis of the proposed recommendations have been implemented within the deadlines and in what way;
(f) develop a methodology for carrying out internal audit and ensure its ongoing updating;
(g) draw up an internal auditor's activity plan for at least one calendar year;
(h) draw up at least once a calendar year a report on the activities of the internal auditor and submit it to the statutory authority and supervisory authority of the trader;
(i) notify the competent management staff member or, where appropriate, the statutory body of the trader of any facts which might raise doubts as to his unbiased nature;
(j) take action against misuse of information, data and documents obtained by an unauthorised person in the course of an internal audit;
(k) carry out the activities referred to in (a) to (j) professionally, independently, objectively and honestly; and
(l) maintain confidentiality regarding the facts of the internal audit.
(4) In particular, the trader shall lay down the internal rules governing the internal auditor's authorisation
(a) to enter the trader's information system passively and obtain from it the data necessary for the internal audit;
(b) enter the individual premises of the trader, if necessary for internal audit;
(c) require all employees of the trader to provide the information and documents necessary for carrying out the internal audit activity; in relation to a third party who, on a contractual basis, provides the trader with the activities referred to in Articles 2 (1), 10 (1) (e) and (f), the trader shall ensure that the internal auditor's authorisation is adjusted contractually,
(d) require traders' managers to report on the removal of deficiencies identified by the internal auditor; and
(e) to report directly to the statutory and supervisory bodies of the trader on the relevant facts relating to the internal audit.
Rules applicable to transactions concluded by staff
(1) The trader shall, by internal law, adjust the conditions under which a trader's employee may enter into trade in an investment instrument on his or her behalf or on the behalf of persons close to him.6) A trader who is a bank or branch of a foreign bank shall adjust the conditions under the first sentence only for employees of the organisational services involved in the provision of investment services.
(2) The internal regulation referred to in paragraph 1 shall at least adjust the manner and time limit for compliance with the obligation to report the subject-matter of the transaction to the member of staff responsible for compliance, its volume, price, place, time and manner of closure and settlement. A trader may make the conclusion of a transaction subject to prior consent, which may be granted by the staff member responsible for compliance under the conditions laid down in the internal rules. An employee in charge of compliance shall keep records of the transactions of employees with investment instruments, requests for consent and consent granted.
(3) In addition, the trader shall amend the internal rules on measures to prevent a trader's employee entering into a transaction for his own account or for the account of persons close to him with investment instruments in respect of which the customer has instructed the trader to close the transaction before that order is recorded in the trader's diary and irrevocable steps are taken to implement it.
(4) The provisions of paragraphs 1 to 3 apply mutatis mutandis to members of the statutory body and to the supervisory body of the trader; in the case of a trader who is a bank or branch of a foreign bank, paragraphs 1 to 3 shall apply to the person responsible for carrying out the activities of the trader (Section 46a (2) of the Securities Act).
Rules governing the management of customer funds
[K § 47a (1) (b) of the Securities Act]
(1) A trader who is not a bank or branch of a foreign bank shall keep customer funds in at least one of his bank accounts in which he does not keep his own funds (hereinafter the "customer bank account").
(2) A trader who is not a bank or branch of a foreign bank uses his own funds to settle transactions in investment instruments concluded for a customer and to settle transactions concluded on behalf of a trader.
(3) The trader pays interest on the customer's funds held in the trader's customer bank account at the time and in a manner agreed with the customer.
(4) Where a trader who is not a bank or branch of a foreign bank attaches the amount of any of the fees for the provision of investment services to the amount of the interest on the client's funds, he shall indicate this fact in the service price list and draw the customer's explicit attention to it.
(5) A trader who is not a bank or branch of a foreign bank shall, by internal regulation, provide for the separate treatment of customers' funds from the treatment of his own funds and the details of the rules referred to in paragraphs 1 to 3, in particular:
(a) designate the persons authorised to open a customer bank account;
(b) designate staff authorised to dispose of funds in a customer bank account, with at least two employees participating in each available and controlling execution; and
(c) determine the method of calculating the amount of interest due to individual customers in the event that more than one customer's funds are held in one customer's bank account and designate the person responsible for the accuracy of that calculation.
(6) The provisions of paragraphs 1, 2, 4 and 5 shall apply mutatis mutandis to a trader who is a bank or branch of a foreign bank.
Rules on accounting of client funds and investment instruments
[K § 47a (1) (c) of the Securities Act]
(1) A trader shall account for the funds and investment instruments of a client in accordance with the laws governing accounting procedures for traders.
(2) The trader uses for accounting a system of separate analytical accounts created to ensure:
(a) the separation of the records of transactions in investment instruments concluded for the customers of the trader and of investment instruments concluded for the trader's own account;
(b) the definition of the funds and investment instruments of individual customers of the trader; and
(c) the definition of the trader's claims and obligations relating to the provision of investment services to individual customers.
Measures against the misuse of entrusted funds and investment instruments for own account transactions
[K § 47a (1) (d) of the Securities Act]
(1) The trader prevents the misuse of funds and investment instruments for own-account transactions, in particular by:
(a) complies with the obligations relating to the management of customer funds and accounting rules (Sections 7 and 8);
(b) keep records of contracts concluded with customers, their supplements and their full powers,
(c) by internal regulation, it shall determine the manner and frequency of informing the customer of movements and stocks in the accounts of the funds and individual investment instruments of the customer;
(d) by an internal rule, designate an employee authorised on behalf of the trader to dispose of the client's investment instruments, with at least two employees participating in each available and controlling execution; and
(e) develop rules for the granting of loans for funds or investment instruments and rules for the granting of loans to customers in the framework of the provision of an investment service and rules for receiving loans for funds or investment instruments or loans from customers; the loans and loans granted and received in the framework of the provision of the investment service shall be kept by the trader on a record showing separately the remuneration for the granting and acceptance of the loan or loan.
(2) The trader shall, by means of an internal regulation, lay down the rules governing the keeping of records referred to in paragraph 1 (b) and (e) in the information system.
(3) A trader shall, by means of an internal regulation, lay down the means of checking compliance with the obligations referred to in paragraph 1, taking into account the possible misuse of the funds entrusted by the customer for transactions on his own account or for the account of a third party.
(4) In particular, the trader shall establish a method of checking the conformity of the data entered in the register of the trader with the actual status and the procedure for the removal of the identified irregularities (reclassification), proportionate to the scale and nature of the trader of the services provided, the number of customers and the volume of funds and investment instruments entrusted and its frequency, but not less than once a week, and shall establish a method of checking the fulfilment of these obligations.
Measures to avoid conflicts of interest
[K § 47a (1) (e) of the Securities Act]
(1) The trader shall entrust the staff to the extent of the investment services provided in accordance with the authorisation, in particular:
(a) by trading (front office) where it has been authorised to provide an investment service under § 8 (2) (a) and (b) or (c) of the Securities Act;
(b) the management of individual client portfolios, provided that it has been authorised to provide an investment service under Section 8 (2) (d) of the Securities Act;
(c) the conduct of an advisory activity where it has been authorised to provide an investment service under Article 8 (3) (d) or (f) of the Securities Act;
(d) settlement of transactions (back office),
(e) performance of the analytical activity, unless the analytical activity is carried out by a third party on a contractual basis; and
(f) the keeping of accounts, unless the keeping of accounts is provided by a third party on a contractual basis.
(2) In particular, the trader provides for the obligation of the agent responsible for the trade
(a) receive and transmit instructions from customers for their execution;
(b) to carry out instructions concerning investment instruments for a foreign account or to trade investment instruments for another trader's own account;
(c) to trade investment instruments for the trader's own account;
(d) comply with the limits and procedures set to limit the risk assumed;
(e) register the orders received and the transactions concluded on the basis of those instructions and transmit them in due time to the staff responsible for settling the transactions, including in the case of unexecuted or cancelled transactions; and
(f) cooperate with the settlement service to ensure settlement of transactions.
(3) A trader may entrust a staff member responsible for the settlement of transactions with the processing and dispatch of a notice of closed transactions to customers and a record keeping containing records of when the customer was informed and the identification of the person who provided the information to the customer. Furthermore, the trader shall provide for the obligation of the staff responsible for the settlement of transactions in particular:
(a) to process in due time and in due time all the data transmitted by the staff responsible for trade;
(b) to check compliance with the limits and procedures laid down to limit the size of the risk accepted by an employee in charge of trading, unless the activity is provided by another employee who is not in charge of trading or managing individual client portfolios;
(c) to settle transactions in investment instruments;
(d) ensure that the transfer of funds and investment instruments takes place on the same date; transactions where the transfer dates of funds and investment instruments differ, the trader shall keep records; and
(e) to carry on the activity referred to in Article 9 (4).
(4) The trader by internal rules provides for a prohibition on the employee of the trader
(a) at the same time, in charge of trading, he has traded on his own account and carried out orders on behalf of the customer, unless:
1. the receipt of a client's order for the conclusion of a transaction and its entry into the trading venue of the trader shall be entrusted to an employee other than that who ensures the execution of the order or trading on his own account;
2. the order is executed in a public market in a system controlled by quotes;
3. the closing of the trader's positions on the basis of the performance of the client's orders; or
4. trade on the trader's own account in the framework of the management of the assets and liabilities of the banking portfolio, 16) in the case of a trader who is a bank or branch of a foreign bank;
(b) in charge of trading, it is also responsible for the settlement of transactions or the management of individual client portfolios;
(c) in the case of a trader who is a bank or branch of a foreign bank or has been authorised to provide an investment service pursuant to Article 8 (2) (c) of the Securities Act, it has been entrusted with the management of financial risks at the same time;
(d) the management of the accounts has at the same time been entrusted with the management of individual client portfolios or the trading or settlement of transactions, unless the trader uses an automated trading system for the settlement of transactions which allows the effective exercise of the control of the staff responsible for accounting over the activities of the staff responsible for the settlement of transactions;
(e) entrusted with the management of the records of contracts concluded with customers, their addenda and full powers [Paragraph 9 (1) (b)] or the register of contracts concluded with institutional investors7) and other traders that are not customers that are related to the trading of investment instruments, their addenda and their full powers have been entrusted at the same time with the trading or management of individual client portfolios;
(f) the compliance authority carries out an activity directly related to the provision of investment services by the trader or has been a member of the statutory body of the trader, unless it is not directly responsible for the activities related to the provision of investment services; in the case of a trader who is a bank or branch of a foreign bank, the staff member responsible for compliance shall not carry out any activity under the first sentence or any other activity, unless it is an activity whose control is not entrusted in the course of compliance; and
(g) in charge of internal audit, the activity directly related to the provision of investment services has been carried out by the trader or has been a member of the statutory body of the trader; in the case of a trader who is a bank or branch of a foreign bank, the staff member responsible for carrying out the internal audit may not carry out any other activity the evaluation and verification of which is entrusted in the course of the internal audit.
(5) The trader shall ensure at least:
(a) setting of access rights to the information system for individual employees [Paragraph 2 (2) (a)] so that the activities prohibited under paragraph 4 cannot be cumulated;
(b) the physical separation of the workplaces of employees responsible for trading, settling transactions and managing individual client portfolios; and
(c) the distribution of the duties and powers of the staff responsible for carrying out the activities referred to in paragraph 1 (a), (b) and (d), their senior staff and members of the statutory body of the trader.
Material and personnel equipment of the trader
[K § 47a (1) (f) of the Securities Act]
(1) The trader shall provide the following material equipment in proportion to the scope of the services provided:
(a) technical and programming means for keeping the trader's diary and other records;
(b) direct or intermediate links with public market operators;
(c) direct or brokered links with persons handling investment instruments;
(d) systems for accounting and economic records,
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Regulation Information
| Citation | Decree No. 466 / 2002 Coll., laying down more detailed rules on the organisation of the internal operation of a securities dealer and more detailed rules on the conduct of a securities dealer in relation to customers |
|---|---|
| Regulation Type | Order |
| Author | - |
| Collection | Code of Laws |
| Date of Promulgation | 12.11.2002 |
|---|---|
| Effective from | 01.01.2003 |
| Effective until | - |
| Status | Valid |
The regulation text is for informational purposes only.
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