Summary of Inducements Policy

Transcription

1 1 Summary of 1. Introduction to inducement Inducements are payments and other benefits provided to, or by, third parties, other than the client, in the context of providing investment and ancillary services. Inducements can be monetary (e.g. in the form of fees, commissions, rebates, discounts and other monetary benefits) or non-monetary (e.g. in the form of gifts, entertainment, research, access to IT software and other non-monetary benefits). The business of ABN AMRO Bank (Luxembourg) S.A. may not be regarded as fulfilling its obligation to act honestly, fairly and professionally in accordance with the best interest of its client if it provides or receives inducements in the course of its investment or ancillary service activities. In other words, inducements are forbidden unless they meet certain requirements, which make it acceptable to provide or receive such benefits. We elaborate on this further in this policy. As a general rule, a monetary or non-monetary benefit may only be accepted and retained if it: Certain payments and non-monetary benefits do not constitute inducements and as such they are not in scope of this policy. These are: payments provided to, or received from, the client or any party acting on behalf of the client; proper fees: payments or non-monetary benefits, which enable or are necessary for the provision of investment services, such as custody costs, settlement and exchange fees, regulatory levies or legal fees, and which by its nature cannot give rise to conflicts with the investment firm s duties to act honestly, fairly and professionally in accordance with the best interests of its clients. There are stricter inducement requirements in respect to independent investment advice and portfolio management, as well as specific requirements in respect to research. 2. Inducements related to investment advice and portfolio management is designed to enhance the quality of the relevant service to the client; does not distort or create biases in the service provided to the client; does not impair compliance with the business duty to act honestly, fairly and professionally in accordance with the best interest of its clients; is clearly disclosed to the client prior to the provision of the relevant investment or ancillary service. This is only possible if it can be clearly established in regard to what type of service the benefit is being provided, as there are different rules applicable to the different types of services, such as independent advice, portfolio management, execution only or nonindependent advice. The following rules apply in regard to receiving inducements from third-parties in relation to the provision of independent investment advice and portfolio management. Monetary benefits The business may not accept and retain any monetary benefits (such as fees and commissions). The business strives to block or prevent the receipt of such monetary benefits where possible. If the measures to block the monetary benefit are insufficient, and such a benefit is received nevertheless, the monetary benefit must be passed to the client in full as soon as possible after receipt and in principle one month after the benefit. The business informs the client of such payments through periodic reporting statements.

2 2 Non-monetary benefits The business may not accept any non-monetary benefits except for a number of minor non-monetary benefits, which qualify as acceptable. The business has processes in place to block the receipt of nonmonetary benefits, for example through contracts with suppliers. ABN AMRO Bank (Luxembourg) S.A. does not provide independent advice, but non-independent advice. However, the Bank decided to stricter apply the rules governing the inducements under the independent advice and portfolio management, and as such, to pass the inducements in relation to non-independent advice into the client. 3. Acceptable minor nonmonetary benefits the material is available to any other investment firm or to the general public. This includes information material from a third party that is commissioned by the issuer on an ad-hoc basis or contracted to produce such material on an ongoing basis; participation in conferences, seminars and other training events on the benefits and features of a specific financial instrument or an investment service; hospitality of a reasonable de minimis value, such as food and drink during a business meeting or a conference, seminar or other training events. 4. Research as a non-monetary inducement As a general rule, minor non-monetary benefits may only be accepted and retained if: they are capable of enhancing the quality of the service provided to a client; they are of such a scale (on a cumulative basis where necessary) and nature that they are unlikely to interfere with the duty of the business to act in the best interest of the client; they are clearly disclosed to the client before the provision of the relevant service. Such disclosure may be generic in nature. Minor non-monetary benefits may only be accepted if they qualify as acceptable. Such minor non-monetary benefits qualify as acceptable only if they are: information or documentation relating to a financial instrument or the investment service being provided, which is generic in nature or personalised to reflect the circumstances of the individual client; information material from a third party commissioned and paid for by a (potential) corporate issuer to promote a new issuance, provided that the relationship is clearly disclosed in the material and Research in this context is defined as material or services, which suggest or recommend an investment strategy, explicitly or implicitly, and provide a substantiated opinion as to the present or future value or price related to: one or more financial instruments or other assets; or the (potential) issuers of financial instruments; or a specific industry or market such that it informs views on financial instruments, assets or issuers within that sector. Material that does not explicitly appear to be suggesting an investment strategy may still amount to a research (implicitly) if it contains analysis and original insights from which a reasonable investor may deduce an investment strategy. For example, if an investor can make an investment decision based on a macroeconomic analysis, then such analysis is considered research. However, if such macro-economic analysis is very generic in nature and openly available then it may be considered a minor non-monetary benefit. Third party research, in the context of inducements, is seen as a non-monetary inducement and as such providing or receiving research is subject to the rules on inducements.

3 3 5. Identifying and recording inducements Qualification process The first step in identifying inducements is the identification of all proposed or ongoing third-party payments (to and from third-parties) in regard to investment and ancillary services provided to clients. Such third-party payments and benefits are detected and recorded by a designated business department. To determine which benefits may constitute inducements they have to be split into three categories: Third-party benefits To establish whether inducements, monetary or nonmonetary, are permitted the business department responsible must first determine and record: In respect of which category client is the inducement being paid or provided (private client, professional or Eligible Counterparty); The country in which the client is based and the service takes place; The nature of the service being offered to the client (independent advice, portfolio management, nonindependent advice, execution only, etc.); 1. Payments to or from clients or parties acting on behalf of clients; 2. Proper fees; 3. Third party benefits: a. Monetary (e.g. fees, commissions, discounts, rebates, etc.); b. Non-monetary benefits i. Minor non-monetary benefits Payments to or from clients Payments to or from clients, or parties acting on their behalf, are per definition not inducements when they are directly related to the provision of services to these clients. As such there is no further action required in regard to these payments. Benefits from noninvestment firm clients may fall under the Gifts Policy. Proper fees Proper fees are not subject to the inducement rules. But classifying a fee as a proper fee requires some justification. In general custody costs, settlement and exchange fees, regulatory levies or legal fees are considered to be proper fees. In any case, to be considered a proper fee the business must record how that fee is necessary for the service considered and does not conflict with the business duty to act honestly, fairly and professionally in accordance with the best interest of its clients. The type of inducement (monetary, non-monetary, minor non-monetary); Whether the inducement can be directly attributed to a particular service or not; Whether the inducement meets the quality enhancement criteria and the general impairment criteria in paragraph 2. The quality enhancement criteria is described in detail in paragraph 6. Together with the general criteria in paragraph 1 it is used to determine whether an inducement may be accepted and retained. It is client and service specific and is performed only for inducements directly attributed to a particular service. If an inducement cannot not be attributed directly to a particular service then the business is not allowed to accept this inducement unless it falls in the category of acceptable minor non-monetary benefits. The business may not receive or provide small gifts from or to third parties. 6. Quality enhancement criteria In the event that the business has opted for assessing an inducement rather than blocking it, such an inducement must be assessed according to the quality enhancement criteria as mentioned earlier.

4 4 In the course of providing investment services other than investment advice or portfolio management, monetary or non-monetary inducements may be accepted and retained if they meet the quality enhancement criteria. This means that such benefits are allowed to be provided to, or accepted and retained if they are designed to enhance the quality of the relevant service provided to the client. A monetary or a non-monetary benefit is considered to be designed to enhance the quality of the relevant service to the client when all of the following conditions are met: it is justified by the provision of an additional or higher level of service to the relevant client, proportional to the level of inducement received, such as: the provision of access, at a competitive price, to a wide range of financial instruments that are likely to meet the needs of the client, including an appropriate number of instruments from third-party product providers having no close links to the bank, together with either the provision of added-value tools, such as objective information tools helping the relevant client to take investment decisions or enabling the relevant client to monitor, model and adjust the range of financial instruments in which they have invested, or providing periodic reports of the performance and costs and charges associated with the financial instruments; it does not directly benefit the bank, its shareholders or employees without tangible benefit to the relevant client; judged on a case-by-case basis to determine whether the inducement is proportional to the increase in the level of the specific service provided to a specific client or a group of clients. Among others, the Bank considers the following factors when determining whether an arrangement may be deemed to have been designed to enhance the quality of the service provided to the client and does not impair the duty of the business to act in the best interests of the client. These are: the type of the investment or ancillary service provided to the client, and any other specific duties it owes to the client pursuant to that type of service, including those under a client agreement; the expected benefit to the client including the nature and extent of that benefit, vis-à-vis any expected benefit to the investment firm. The analysis about the expected benefit, can be performed at the level of the service to the relevant client or clients; whether there will be an incentive for the business to act other than in the best interests of the client and whether the incentive is likely to change the business behaviour; the relationship between the business and the third party which is receiving or providing the benefit (although the mere fact that a group relationship exists is not by itself a relevant consideration); the nature of the benefit, the circumstances in which it is paid or provided and whether any conditions attach to it. 7. Disclosure to clients in relation to an ongoing inducement, it is justified by the provision of an on-going benefit to the relevant client. The key word here is proportional. In essence the benefit provided or received is transferred to the client in the form of higher or additional level of service. Proportionality also means that the business may not rely on a set list of approved monetary and nonmonetary benefits since their acceptability has to be Once inducements have been qualified as acceptable and registered in the third-party inducements register then they can be received or provided from or to third parties. However, they need to be disclosed to the client before the provision of any investment or ancillary services. Proper fees do not need to be disclosed as an inducement.

5 5 In relation to any third-party inducement, paid or received, the business must disclose to the client, in a comprehensive, accurate and understandable manner, before the provision of services: For monetary inducements Information about the existence, nature and amount of the inducement, or where the amount cannot be ascertained ex-ante, the method of calculating the amount; Where a method of calculating an amount was disclosed prior to the provision of services, the business must disclose the actual amount of the inducement, once received or provided, after the provision of services; For minor non-monetary inducements Information about the existence and nature of minor non-monetary benefits. The disclosure requirements in regard to thirdparty inducements, as listed above, form part of an overarching detailed set of requirements on disclosing information to clients on all costs and charges related to investment and ancillary services. These requirements include, for example, the disclosure of the cost of advice, where relevant, the cost of the financial instruments recommended to the client, and any third-party payments, such as proper fees or inducements (whether provided or received). In relation to ongoing inducements the business must inform each client individually, at least once a year, about the actual amount of inducements received or paid. Where monetary benefits are transferred to clients (in the case of investment advice or portfolio management) the business must inform the clients about these monetary benefits transferred to them. For non-monetary inducements Information about the existence and nature of nonmonetary benefits. The business must price such benefits and disclose them individually to each client; In relation to ongoing non-monetary inducements the business must inform each client individually, at least once a year, about the nature of such inducements received or provided.