Investment advisory services: law and responsibility

Source: Central Bank of the Russian Federation in English

Investment advisory services will be regulated by the law becoming effective on 21 December. A mature investment adviser institute will help protect private investor rights, aiding in the expansion of private players’ operations in the financial market.
Market participants acting as individual investment advisers in respect of securities, securities transactions, or on matters concerning derivative contracts are now obliged to meet a number of requirements including a mandatory entry in the Bank of Russia’s unified register of investment advisers.
Under the law, investment advisory services shall be provided on the basis of a contract and customer investment profile. This suggests the need to take into account the customer’s investment experience, targets and risk appetite. A conflict of interest will not preclude an investment adviser’ right to deliver advisory services. Such a conflict may be faced by a broker, for instance, requiring them to make a number of steps: approving a conflict of interest settlement policy, ensuring that conflicting duties are performed by different employees, notifying the customer of the overall nature and sources of the conflict of interest, etc.
The law stipulates a broker’s responsibility for unfair business practices. Should the broker’s failure to carry out their obligations result in loss incurred by the customer, the latter may demand reimbursement. No specific reimbursement mechanism for investment advisers’ customers is set forth in the law. An investment adviser made accountable under civil law shall be liable to the full extent of their assets.
‘We believe investment advisory services will prove a popular choice, as retail investors are becoming increasingly interested in financial instruments in the context of low bank deposit rates’, notes Larisa Selyutina, Director, the Securities Market and Commodity Market Department. ‘Regulation of investment advisers will help boost the appeal of this institution, reducing the risks of professional market participants’ misconduct’.
21 December 2018

MIL OSI