FIMM - Chapter 4

FIMM
CHAPTER 4
INDUSTRY CODE OFETHICS AND STANDARDS OF
PROFESSIONAL CONDUCT
LEARNING OBJECTIVES
At the end of this Chapter, you should:
. be aware of the need for a high standards of ethics and conduct amongst UTC in the unit trust
industry
. understand the need for compliance within your organisation and the importance of compliance and
procedures manuals
. be supportive of the role of your Compliance Officer
. understand your obligations under the codes of ethics and standards of conduct of both the SC and
the FIMM
appreciate how adherence to these codes of ethics and standards of conduct upholds the ultimate
protection of the investor.
I sECTroN 4.1 ovERVrEw
ln Chapter 2, we looked at how the unit trust industry is regulated by the SC. ln this Chapter, we will
look at several other constraints on the activities of UTC - what UTC can and cannot do. Knowledge and
understanding of these constraints will be of benefit to both the UTC and client, as well as being a condition
for continuing registration as UTC.
Compliance involves ensuring that the many and varied obligations that affect the unit trust industry and
those who work within it, are met. This Chapter introduces the subject of compliance, briefly describes the
compliance function within an organisation, and explains why compliance and the Compliance Officer are
important in the role of a UTC.
We include an extract of the FIMM'S Code of Ethics and Standards of Professional Conduct for the Unit
Trust lndustry (Appendix 1), which sets out the code of conduct for Ordinary Members, IUTA and UTC. Also
included is an extracl from the SC's Guidelines on Marketing and Distribution of Unit Trusts (Appendix 2),
namely the Code of Ethics and Standards of Professional Conduct, which sets out the minimum standards
of conduct for UTC. These, together with the UTMC/IUTAs internal code of conduct, those sections of
its compliance manual relating to the distribution of unit trusts, its procedures manuals and other internal
practices, will provide a series of 'rules'within which UTC must work.
We also examine some of the ethical requirements applicable to UTC. A proper appreciation of ethics is
important because not every situation faced by UTC will be, or can be, covered by regulations or rules. This
Chapter, therefore, provides a brief overview of the issue of ethics.
FTMM
I SECTION 4.2 BASIC PRINCIPLES
The unit trust industry is important to the Malaysian economy. The industry serves to mobilise the savings of
the average, small investor by funnelling these savings into areas where capital is required. Major problems
in the unit trust industry will have implications on Malaysian capital flows, as well as on the hard-earned
money of individual investors.
ln all investment-related industries, investors need to have confidence in the products that they are purchasing.
The unit trust industry is particularly vulnerable to the situation where investors can be encouraged to enter
into an investment with the promise of huge returns, only to be disappointed with the results. Thus, it is
essentialthat all parties involved in the sales and service areas act in an ethical and honest manner.
Recognising the importance of moral and ethical behaviour, the SC has produced its Guidelines on the
Marketing and Distribution of Unit Trusts. Schedule B of the SC's Guidelines, the Code of Ethics and Standards
of Professional Conduct, is a pre-emptive mechanism to standardise the actions and behaviours of UTC
according to best practices. More recently, the FIMM has developed its own Code of Ethics and Standards
of Professional Conduct for the Unit Trust lndustry. Part C covers the code of conduct of UTC.
A number of sources, therefore, determine the behaviour of UTC and their obligations to clients:
. the applicable laws and regulations (refer Chapter 2)
. the SC's Code of Ethics and Standards of Professional Conduct
. the FIMM Code of Ethics And Standards of Professional Conduct for the Unit Trust lndustry
. the UTMC's and IUTAs internal procedures and compliance manuals.
While we cannot cover in detail the UTMC's and IUTAs requirements of their UTC, we can introduce you
to the concept of 'compliance', which is the means by which a UTMC or IUTA ensures that UTC meet its
requirements and that of others.
I sECTION 4.3 wHAT IS 'coMPLIANCE'?
Compliance is an important aspect of the proper management and activities of UTMC and IUTA, and
incorporates the activities of UTC. lt is the discipline of ensuring that the laws, regulations, codes of conduct,
internal procedures and rules within which the organisation, its officers and UTC operate are complied
with.
Compliance is a relatively new term, although the need to work within the 'rules' is not. Fortunately, few
businesses in the past had aimed to openly flout the laws and regulations that applied to them. So why has
'compliance' suddenly assumed a greater prominence?
Compliance, as a management practice, has in recent years become better recognised within financial
services organisations, as regulators (including the SC) have promoted its value in achieving their objective
of protecting investors in the capital markets. As the unit trust industry in Malaysia is an integral part of the
capital markets and is oriented to generally less sophisticated investors, the SC has encouraged (in part
through a requirement under its Guidelines on Unit Trust Funds) the formalisation of the compliance function
within aUTMC. However, any reputable financialservices organisation willhave its compliance department
and compliance officers, so UTC can expect to become more familiar with compliance and its obligations.
FIIUtM
Compliance is now achieving the high profile it deserves: the age of compliance has arrived - and will not
go away!
But what exactly is'compliance'?
Compliance is often linked to another positive business practice, that of risk management. Most businesses
and individuals take out insurance cover to protect themselves from specific events, such as the risk of fire
or the consequences of death. lf you think of compliance in similar terms, it is a form of control or 'insurance'
against the risks and consequences of breaching the law or other internal and external obligations.
Some regard compliance as akin to quali$ control or best practice management. A car manufacturer will
aim to achieve a steady production of cars (i.e. its output)with ideally no defects and at a reasonable cost
through the introduction of quality control disciplines. The 'output' in the unit trust industry is ensuring that
all the obligations of the business are met, thus removing the potentially severe consequence of failing to
comply with those obligations (which include legaland regulatory requirements).
UTC may feel that compliance is not their responsibility. Nothing could be further from the truth! Compliance
is the responsibility of everyone in the organisation. UTC may feel that others, particularly those working as
lawyers and compliance officers in the compliance department, have more knowledge of the legalobligations
imposed upon UTMC, IUTA or UTC. Nevertheless, as you will learn, UTC have obligations to each client
and these must be complied with. Therefore, every UTC is part of the compliance function, ensuring that
the obligations to each client are met.
To ensure that their obligations to each client are met, UTC must work closely with the compliance department
of their organisation. The compliance department will provide UTC with some tools, such as checklists,
and effective and relevant training courses that will assist UTC in meeting their obligations to every client.
However, it is not the role of the compliance department to comply for UTC; only UTC can comply with their
obligations to clients. Hence, an understanding of the obligations of UTC to their clients, and to UTMC or
IUTA, is paramount.
4.3.1 HOW DO UTC BENEFIT FROM COMPLIANCE?
Some UTC may regard compliance as a nuisance, but this view is misguided.
UTC benefit in many ways from compliance, including:
. a reduction in client complaints and the costs of restitution (note: 'costs' include time in resolving
complaints and putting things right)
. a reduced risk of litigation by clients (with all its associated penalties and costs)
. an enhanced reputation - attracting clients and increasing business should become easier if potential
and existing clients can see that UTC operate within the 'rules', which will help reduce any fear or
unease a client may have in dealing with UTC and their organisation
. the opportunity for UTC to update their knowledge of legal and other obligations relevant to their
activities, further enhancing their reputation in the eyes of existing and potential clients
. the assurance of a continuing career in the fast-growing unit trust industry!
FIMM
I sECTIoN 4.4 wHAT Do wE MEAN By'ETHICS'?
Like compliance, the term'ethics'has achieved increasing prominence within the financial services industry
over recent years. One main reason is that government regulators are devolving some of their regulatory
responsibilities to industry participants, a principle or process known as 'self-regulation'. As capital markets
mature, it is common for government involvement in regulation to be reduced and this is increasingly the
case in Malaysia where the SC has, over a period of time, looked towards industry bodies to provide selfregulation.
Some areas of self-regulation covered by industry bodies are the following:
. introduction of business rules to prevent fraudulent and manipulative practices
. maintenance of standards of conduct and financial integrity among their members
. introduction of industry guidelines, by-laws and best practices
' investigation and enforcement of compliance by their members with relevant laws, regulations and rules
. imposition of appropriate sanctions for non-compliance.
'Ethics' represent a system of moral principles by which the actions of, in this context, UTC may be judged
good or bad, or right or wrong. ln essence it is, like compliance, a best practice concept.
Ethics are usually a matter of personal responsibility, integrity and conscience. ln the absence of some
other person to check their every action, UTC themselves must'police' their own actions. lt would be
impracticable for the multiple actions of every UTC to be checked; UTC would simply cease to function in
a mass of bureaucratic systems. Ethics, as expressed through a standard of conduct and a code of ethical
principles such as those produced by the FIMM and the SC, guide UTC to function in a busy world without
contravening laws and regulations.
I SECTION 4.5 FIMM CODE OF ETHICS AND
I STNNDARDS OF PROFESSIONAL CONDUCT FOR
I THN UNIT TRUST INDUSTRY
4.5.1 TNTRODUCTTON
ln 2001, the FIMM developed its Code of Ethics and Standards of Professional Conduct for the Unit Trust
lndustry (the'Code').
The Code sets out the general principles and minimum standards of good practice to be observed by any
person registered with the FIMM. lt is intended to guide the conduct of business affairs of the registrants "in
the best interests of unitholders and the unit trust industry." The FIMM also intends that the Code "encourage
and foster ... conduct, ethics and standards of practice that will best serye, maintain further and protect the
interests of unitholders and the unit trust industry."
The FIMM emphasises that the Code represents minimum standards and encourages the observation and
adoption of higher standards by all the organisations and UTC registered with it.
The Code augments the SC's Code of Ethics and Standards of Professional Conduct. While there is obviously
an overlap between the SC's Code of Ethics and Standards of Professional Conduct and the Code, UTC
need tobe familiar with both Codes.
The Code is in Appendix 1, while an extract of the SC's Code of Ethics and Standards of Professional
Conduct is in Appendix 2. Both should be read now.
FIMIU
4.5.2 THE FIMM CODE
The FIMM Code covers "any person registered with the FIMM.'
It is divided into three parts:
Part A
Code of Conduct for Ordinary Members of FIMM - an Ordinary Member of the FIMM is a corporation that is
a unit trust manager actively engaged in the unit trust industry (a UTMC). All UTMC incorporated in Malaysia
are Ordinary Members.
Part B
Code of Conduct for organisations registered as lnstitutional Unit Trust Agents (IUTA) under the FIMM's
Guidelines for Registration of lnstitutionalAdvisers for the Marketing and Distribution of Unit Trusts.
Part C
Code of Conduct for persons registered to deal in unit trusts as Unit Trust Consultants (UTC).
UTC need to comply with the minimum requirements set out in Part C. The UTMC or IUTA, to which UTC
belong, is required to meet the minimum standards set out in either Part A (UTMC) or Part B (IUTA). UTC
should nevertheless be familiar with their UTMC's or IUTAs obligations, so that they can appreciate the
importance of many of the internal rules imposed upon UTC by their UTMC or IUTA.
While there are some obvious similarities, there are also different requirements under Part A and Part B
reflecting the different business activities of a UTMC and an IUTA. You will be expected to be familiar with
the contents of each part of the Code.
The parts are divided into two sections:
. aCode of Ethics, and
. Standards of Professional Conduct.
4.5.3 THE UTMC AND IUTA CODE OF CONDUCT. PART AAND PART B OF THE CODE
We will now look briefly atthe key elements of the Code as it affects UTMC (PartA) and IUTA(Part B) before
looking in greater detail at Part C, which more directly relates to UTC. ln this section, we will emphasise
those elements of PartAand Part B that relate to the dayto-day roleof officers within UTMC and IUTA. You
will need to refer to Part A and Part B of the Code in Appendix 1 as you read this section.
1. CODE OF ETHICS
PROFESSIONALISM
UTMC and IUTA are required to ensure that their officers have thorough knowledge in all areas and
aspects of the unit trust industry in which they participate and that officers act in compliance with
sound business practices.
FIMIUI
INTEGRITY
UTMC and IUTA are required to ensure that, at all times, officers act with "all honesty and full integrity"
and "with the best interest of investors and clients in mind". This means that UTMC and IUTA must
ensure that each client's interests are placed ahead of the interest of themselves and their officers.
CONFIDENTIALITY
UTMC and IUTA must ensure that personal information relating to an investor or client is not disclosed
to others without the prior approval of the investor or client (unless disclosure is required by law).
DIGNITY
An officer of a UTMC or an IUTA must not make complaints or negative statements, or act in a way
that may damage the reputation of others in the industry. UTMC and IUTA must ensure that their
officers comply with this requirement.
CONFLICT OF INTEREST
An officer of a UTMC must avoid any transaction in which he or she faces a conflict of interest whether
real, potential or perceived. Officers, who become inadvertently or othenrvise involved in such a
transaction, are required to declare the conflict situation to the Trustee, Senior Compliance Officer
or Board of Directors and withdraw from the transaction. (Note that, in the first instance, you should
discuss any concerns you have with your supervisor or compliance department.)
A conflict of interest may arise in relation to the personal dealings or investments of an officer of a
UTMC. As such, UTMC are required to operate a supervisory and internalcontrol system to monitor
the personal dealings and investments of each officer. This is to avoid any suspicion that personal
dealings or investments are improperor based on'internal information'. The UTMC or lUTAwilladvise
their officers of their requirements and obligations. You should note that 'insider dealing' as defined
under the Securities lndustry Act, 1 983 is a serious offence and severe penalties (including hefty fines
and/or imprisonment) can be imposed.
Another aspect of conflict of interest occurs when ofiicers receive benefits or gifts from clients or
others, which may render them obligated to those clients or other parties, thereby placing the UTMC
or IUTA in a compromising position.
Officers should be aware of their UTMC's or IUTAs specific rules. Token gifts received from clients
may usually be accepted. Again, if in doubt, you should refer to your supervisor or compliance
department.
STANDARDS OF PROFESSIONAL CONDUCT
COMPLIANCE W|TH LAWS
UTMC and IUTA must ensure that their UTC and officers act in compliance with all laws, regulations,
guidelines, etc, issued by the SC, the FIMM and other relevant authorities.
UTMC and IUTA will provide UTC and officers with details of their requirements to ensure that the
activities of UTC and officers are compliant with the laws and other obligations (including the Code)
within which they must operate.
FIMM
BREACH OF LAWS
A breach of Part A or Part B of the Code by officers and UTC may be dealt with by the respective
UTMC's or IUTAs internaldisciplinary proceedings. However, depending upon its nature, the breach
may also invoke the FIMM's disciplinary proceedings (see section 4.6). Abreach of the Code may also
represent a breach of the law, in which case the UTMC or IUTA is required to advise the SC.
4.5.4 THE UTC CODE OF CONDUCT
An appreciation of the Codes of Conduct for UTMC and IUTA (outlined in section 4.5.3) should help your
understanding of the obligations of UTC under Part C of the Code. You should refer to Part C of Appendix
1 whilst studying this section.
UTC are also subjected to the SC's Code of Ethics and Standards of Professional Conduct (Appendix 2), in
addition to Part C of the Code. The SC's Code of Ethics and Standards of Professional Conduct and Part
C of the Code overlap, so we will consider them together.
1. CODE OF ETHICS
HONESTY, DIGNITY AND INTEGRITY
UTC are required to conduct their business activities with honesty, dignity and integrity, and market
and distribute unit trusts in a professional and ethical manner that will bring credit upon themselves,
fellow UTC and the unit trust industry. They should encourage other UTC to act in a similar manner.
A high standard of personal ethical behaviour is required, and UTC should not engage in any activity
that may bring discredit to the industry. Misrepresentation of the qualifications of UTC, the products of
the UTMC being marketed, or the characteristics and past investment performance of those products,
is a breach of the SC's Code of Ethics and Standards of Professional Conduct and the Code.
Note that omission of a material fact (such that the client is misled about the product) represents
dishonest conduct.
FAIR DEALING
UTC are required to transact business with a client on terms that are fair and reasonable to the client,
including disclosure of:
. the risks of the transaction . any conflicts of interest of the UTC, and . any other relevant information necessary to make the transaction fair to the client.
ln summary, 'fair dealing' is treating the client in the same manner as UTC would themselves want to
be treated and avoiding aggressive and offensive sales practices.
GOOD FAITH
UTC should act with good faith towards clients. Clients should be treated respectfully and be given
full disclosure of all the information relevant to the investment decision under consideration.
COMPETENCE
UTC should acquire the appropriate knowledge and skills in relation to their business activities, and
should ensure that their skills are maintained and improved in order to maintain proficiency. UTC
should encourage other UTC to achieve the same.
FIIUIM
CONFIDENTIALITY
Client information should be protected and kept confidential. Such information, collected from the
client by UTC, reflects the client's personal trust and confidence in UTC. lt should never be used for
the personal gain of the UTC, or for the gain of another. Disclosure of personal information should not
be made without prior written consent of the client (unless in response to legal process or to resolve
a dispute between the UTC and client).
PROFESSIONALISM
UTC are to act in a manner that brings credit to their profession, and are required to behave with
dignity and courtesy to clients, fellow UTC and other industry practitioners.
ACTTNG WITH DUE CARE, SKTLLAND DtLtcENCE
The Code requires UTC:
' to ensure that the proposed UTS meets the needs of the client and is within his or her financial
capacity
' to provide the client with sufficient information to assist him or her in making a balanced and
informed investment decision
' to provide information only within their level of competence and to seek or recommend specialist
advice where appropriate
' to make efforts to improve the amount and clarity of the information given so as to avoid confusion
or misunderstanding
' to explain clearly the differences between UTS when comparing UTS with different
characteristics.
Finally, the Code requires that UTC do not omit material facts or make exaggerated or misleading
claims or forecasts in relation to a UTS transaction or investment.
PROMPT, EFFICIENT AND CONTINUOUS SERVICE
UTC must provide a high level of continuous service to clients by answering queries prompfly and
efficiently. UTC should be able to answer a client's queries on the performance or management of his
or her investment in units. Advice on handling customer queries is given in Chapter 3.
STANDARDS OF PROFESSIONAL CONDUCT
UTC must meet the following standards of conduct:
COMPLIANCE WITH LAWS
UTC should maintain knowledge of and comply with all the laws, regulations and rules goveming
their business activities and the unit trust industry. From time to time, UTC may have to deal with the
SC, the FIMM or other regulatory authorities. UTC should dealwith such authorities in an open and
co-operative manner and disclose such information to them as is reasonable and appropriate.
2.
FIIUIM
USE OF AUTHORISATION CARD
When initiating contactwith a prospective client, UTC must advise the client that they are registered
to market and distribute'UTS and show a valid FIMM Authorisation Card. UTC may not use any other
card for this purpose.
UTC should ensure that the FIMM Authorisation Card issued is valid and r.enewed before expiry.
APPROPRLATE DESIGNATION OR TITLE
UTC can only use the title 'Unit Trust Consultant' (or any other appropriate designation permitted by
the Members or title conferred by an accreditation body or authority). Only this title, together with the
UTC Number, should be used on a business card. Other titles are not allowed.
MARKETING AND DISTRIBUTION WITH PROSPECTUS
UTC must market and distribute UTS only by using the prospectus of the UTS. The law prohibits
marketing or distribution without a prospectus.
ADEQUATE EXPLANATION OF THE NATURE AND CHARACTERISTICS OF A UTS
When explaining UTS to a client, UTC must describe clearly the major features, including:
. the investment objectives . all the fees involved and their breakdown . the prices of units and how these are worked out . the risks of investing in that UTS and in unit trusts generally . the minimum investment in the UTS . any special tax implications of investing.
UTC must also explain any unique features and/or restrictions of the UTS.
UTC should ensure that the client understands the commitment he or she is making, including those
risks relevant to the purchase of units through a loan facility (i.e. UTC must comply with the SC's
requirements relating to loan financing in the sale of units).
UTC should also draw the client's attention to the long-term nature of most investments in UTS, and
the risks of withdrawal from the UTS earlier than envisaged.
ADVERTISEMENTS AND PROMOTIONAL MATERIALS
UTC must only use advertisements and promotional materials that have been approved by a UTMC
and/or an IUTA. Such materials will have been subjected to a compliance process that should ensure
that they meet the law and the SC's Guidelines on Unit Trust Advertisements and Promotional
Materials.
UTC may not make any statement, publish information or advertise in any way that could be misleading,
false or deceptive.
APPOINTMENT OF QUALIFIED PERSONS
UTC can only be appointed by a UTMC or an IUTA, and only after meeting all the registration
requirements as prescribed by the SC and the FIMM.
FIMIUI
DUTY TO SUPERVISE AND MONITOR
Conduct of UTC is subject to the proper supervision of and monitoring by the respective UTMC or
|UTAto which the UTC belongs. UTMC and lUTAwill not accept or condone any conduct that violates
the Code.
KEEPING ABREAST WITH THE UNIT TRUST INDUSTRY
UTC must ensure that they keep up-to-date with developments within the unit trust industry.
DISCIPLINARY PROCEEDINGS
UTC should be aware that if they breach the Code, they will be subjected to disciplinary proceedings.
This is to encourage the maintenance of high standards of professional conduct amongst UTC.
I sncrloN 4.6 FIMM DTScIPLINARv
I nnocEEDrNGS
The FIMM's disciplinary proceedings apply to UTMC and IUTA. A complaint against an employee or agent or
a UTC is regarded as a complaint against the UTMC or IUTA. Complaints against UTC are normally handled
in the first instance by the UTMC or IUTA but may be referred to the FIMM for disciplinary proceedings by
the aggrieved person.
A complaint to be dealt with by the FIMM must be in writing, and may be made by any pers;on, another FIMM
member, or the public.
Complaints may relate to any breach of the Articles of Association of the FIMM, the Code, any Guidelines
issued by the SC, and/or the laws relating to the unit trust industry.
A complaint may be referred by the FIMM's Executive Director to the FIMM Council. The Council may within
14 business days refer the complaint to an appointed lnvestigating Committee to ascertain if the complaint
is valid or has any substance. The lnvestigating Committee comprises five members:
. an independent Council Member . a Compliance Officer from among its members . a CEOofa UTMC
' a representative from the Trustee of the UTMC against whom the complaint is raised . a representative of FIMM.
Once the lnvestigating Committee is appointed, the FIMM's Executive Director will give the UTMC or IUTA
(against whom the complaint is raised) a written notice of the complaint, setting out the general nature of
the allegation(s) made against it, and:
. provide the UTMC or IUTA a copy of the written complaint . notify the UTMC or IUTA of the formation of the lnvestigating Committee . notify the UTMC or IUTA of the inquiry to be held into the complaint . request the UTMC or IUTA to submit a written explanation of or defence to the complaint made against
it within seven business days from the date of receipt of the notice issued by the FIMM's Executive
Director.
FIMM
Upon expiry of the period given to the UTMC or IUTA above, the lnvestigating Committee holds an inquiry
into the complaint, at which the complainant and the UTMC or IUTA (and their employees and agents) may
attend and speak. The complaint may then be
. dismissed as being without merit . dismissed with a letter of caution recommending remedial action or . referred to the Council if the lnvestigating Committee is of the view that the complaint has substance or
merit together with a written report of the lnvestigating Committee's findings and recommendations.
Following the receipt of the lnvestigating Committee's report that the complaint has substance or merit,
the Council must within 14 business days appoint a Disciplinary Committee to administer an appropriate
punishment. The Disciplinary Committee comprises five members:
. an independent Council Member . an Authorised Representative of the UTMC or IUTA . a Council memberfrom theAssociation of Trust Companies, Malaysia . a Vice-President from FIMM . a representative from FIMM.
Once the Disciplinary Committee is appointed, the FIMM's Executive Directorwillwrite to all parties concerned
and:
. enclose a copy of the minutes of the inquiry and the findings and recommendation of the lnvestigating
Committee . inform them of the appointment of the Disciplinary Committee . request the UTMC or |UTAcomplained against to notify the FIMM's Executive Director in writing within
14 business days on whether it intends to appeal against the findings of the lnvestigative Committee,
failing which, the Disciplinary Committee will proceed to consider the punishment to be meted out.
The Disciplinary Committee may:
. privately censure the UTMC or IUTA . publicly censure the UTMC or IUTA . suspend membership of the UTMC in the FIMM for up to one year . terminate membership of the UTMC in the FIMM.
Where a UTMC is involved, the Disciplinary Committee may also recommend to the SC the suspension or
termination of membership in the FIMM and the SC may decide on the method of punishment.
After the punishment has been decided upon, the FIMM's Executive Director will inform the UTMC or IUTA
concerned in writing of the decision, specifying the period of suspension of membership or when termination
of its membership willtake effect, as the case may be.
The UTMC or IUTA concerned may appeal against the findings of the lnvestigating Committee and/or the
decision of the Disciplinary Committee in writing within 14 days of the receipt of notice of the decision. An
Appeal Committee willthen be formed comprising five members:
. an independent Council Member . an Authorised Representative from among members . a Chairman from theAssociation of Trust Companies, Malaysia . a President from the FIMM . a representative from the FIMM.
FIIUIilI
The Appeal Committee may:
' allowthe appeal againstthe decision of the lnvestigating Committee and determine thatthe complaint
was without merit, or
' with regard to the decision of the lnvestigating Committee, dismiss the complaintwith a letterof caution
to the UTMC or IUTA, recommending remedial action, sr
'. reduce or enhance the punishment meted out by the Disciplinary Committee, or uphold the decision appealed against.
A flowchart of the structure of proceedings is provided as Appendix 3.
I sECTroN 4.? suMMARy
The FIMM's and the SC's codes of ethics and standards of professionalconduct provide a clear understanding
of the qualitative aspects required to market unit trusts. ln summary:
. all persons are to act with due diligence, skill and care
.' adequate explanations of the products and the relevant risks need to be given a high level of competency is expected . prompt and efficient service is to be provided
'. all information relating to clients are to be kept stricfly confidential all persons are to act with honesty and integrity.
An appreciation of ethics, and an understanding of the need for compliance, will help uTC to apply these
codes of conduct in upholding the best business practices of the unit trust industry.
The FIMM's and the SC's codes of ethics and standards of professional conduct are required reading for
everyone involved in the unit trust industry. UTC should take the time to read and understand the contents of
each code. ln practising the codes and upholding a high standard, all those involved in the unit trust industry
will benefit. ln particular, investors will be satisfied with the quality and service of UTS products, which will
stimulate further growth in the industry.
FIIf,M
SELF.Tnsr OuBSTroNs ON CHeprun 4
1. List the sources of the various 'rules' that govern the behaviour of UTC.
2. What do you understand by the term'compliance'?
3. What do you understand by the term 'ethics'? Why is it important, given the existence of regulations
and rules?
4. How can UTC benefit from a strong compliance function within their organisation?
5. What designation or title can UTC use?
6. Why is it important to disclose the risks associated with an investment in a UTS in terms the client
can understand?
7. When should an FIMM Authorisation Card be presented to a client?
\-/ 8. Can UTC update the promotional material issued by UTMC or IUTA? Give reasons.
9. List five ways UTC can 'keep abreast'of developments in the unit trust industry.
10. Explain briefly the FIMM's disciplinary process.
FIMM
APPENDIX 1:
FIMM CODE OF ETHICS AND STANDARDS OF
PROFESSIONAL CONDUCT FOR THE UNIT TRUST
INDUSTRY
,1. INTRODUGTION
The unit trust industry is centrally premised on the concepts of trust and faith. lt is important for an
industry, which deals with the public's money to be operated and administered with the highest degree
of ethics and professionalism.
This Code of Ethics and Standards of Professional Conduct ("Code") sets out the general principles
and minimum standards of good practices to be observed by any person registered with the Federation
of lnvestment Managers Malaysia.This Code is intended to guide the conduct of business affairs in
the best interests of unitholders and the unit trust industry and to encourage and foster among its
registrants conduct, ethics and standards of practice that will best serve, maintain further and protect
the interests of unitholders and the unit trust industry. Any person may observe or adopt higher
standards, if they so desire.
The Code is as set out below and shall come into force on the 1 day of September 2001. The Code
can be amended from time to time by the Council pursuant to Article 63(9) of the Articles of Association
of the Federation of lnvestment Managers Malaysia.
1A COMPOSTTTON
The Code consists of the following three parts:-
with each part comprising of the Code of Ethics and Standards of Professional Conduct.
1B DEFINITIONS
ln the Code, unless the context otherwise requires, the following words and expressions when used
shall have the meanings set against them: -
"the Council" means the Council of FIMM for the time being constituted.
FIMM
"Gode" means this Code of Ethics and Standards of Professional Conduct for the Unit Trust lndustry
which has been drawn up by the Council and approved by the Securities Commission.
'FIMM* means The Federation of lnvestment Managers Malaysia [Company No. 272577-Pl
incorporated as a Company limited by Guarantee under the Companies Act 1965.
"Guidelines" means the Guidelines on Unit Trust Funds issued by the Securities Commission.
"lnvestment Gommittee" rneans the Committee appointed by any Ordinary Member in accordance
with the Guidelines.
"investors" or "clients" means the existing or prospective investor(s) of any fund which is being
managed by an Ordinary Member and includes any other person who has appointed the Ordinary
Member to act for that person in its professional capacity or to whom,the Ordinary Member owes a
fiduciary duty.
"lUTAs" means lnstitutional UnitTrustAdvisers approved bythe Securities Commission and registered
with FIMM to market and distribute unit trust funds and "IUTA" shall mean any one of them.
"Members" means any person registered in the Register of Members of FIMM and includes an
Ordinary Member, Associate Member and Honorary Member.
"officers" in relation to a corporation includes any directors, secretary oremployee of such corporation
and shall include any lnvestment Committee member of any Member.
"Ordinary Members" means those persons registered as an Ordinary Member in the Register of
FIMM as Ordinary Members.
"person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated
association, company, corporation, entity or governmental.
"related" of any particular person shall mean any other person directly or indirectly controlling,
controlled by or under direct or indirect common control with such person. For purposes of this
definition, a person shall be deemed to be in "control" if such person possesses, directly or indirectly,
the power to direct or cause the direction of the management or policies of the person in question,
whether through the ownership of voting securities, by contract or othenrvise.
"relevant authorities" means governmental and/or statutory departments, agencies or bodies having
jurisdiction over matters relating to unit trusts, FIMM or its Members and "relevant authority" shall
mean any one of them.
"the Act" means the Securities Commission Act 1993.
"Trustee" means the Trustee of a unit trust fund.
"UTC' means the Unit Trust Consultants who are registered with and authorized by FIMM to market
and/or distribute unit trusts and "UTC" shall mean any one of them.
References in this Code to any laws, ordinance, guidelines, regulation or other enactment shall include
any statutory modification, extension, reenactment or replacement thereof.
References in this Code to words importing the masculine gender only shall include the feminine and
neuter genders and vice versa and references to words in the singular number only shall include the
plural number and vice versa.
FTilIM
PART A
Gode of Conduct for any Organization Registered as an Ordinary Member in the
Register of Members of FIMM
CODE OF ETHICS
2. The part of the Code is applicable to all Ordinary Members of FIMM.
A. PROFESSIONALISM
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Ordinary Members shall conduct their business in a professional manner ensuring that
they themselves and officers are thoroughly knowledgeable in all areas and aspects of
the unit trust industry in which they participate and that they are acting in compliance
with sound business practices.
Ordinary Members shall show respect for other participants in the industry by engaging
in fair and equitable competitive practices.
Ordinary Members shall not make any statement that they are supported by any person.
However it is acceptable for an Ordinary Member to issue a statement of fact to specify
that it is a subsidiary of another entity or that it has been assessed or rated to be of
a certain standard by any reputable agency or person recognized or accredited by
FlMM.
INTEGRITY
i. Ordinary Members shall always act in a manner which recognizes that integrity and
responsibility are essential to win and maintain the confidence of the investing public in
all aspects of the unit trust industry.
ii. Ordinary Members shall at all times act to safeguard the integrity and credibility of the
unit trust industry and refrain from any act or omission which may damage the integrity
of the unit trust industry or bring the industry into disrepute.
iii. ln dealing with investors and clients, Ordinary Members and their officers shall at all times
act with all honesty and full integrity and shall ensure that all transactions are made with
the best interest of investors and clients in mind. lntegrity demands honesty which must
not be subordinated to personal gain and advantage.
iv. Ordinary Members and their otficers shall not give the impression that they are
representing the views or opinions of the FIMM or any other group unless that they have
been authorized to do so.
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D.
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FIIUM
c. CONFIDENTIALITY
Ordinary Members shall respect and preserve the confidentiality of their investors and
clients.
ii. Ordinary Members shall and shall ensure that their officers do not disclose to any person
any personal or financial information relating to the investors or clients save and except
where such disclosure has been expressly authorized in writing by such investors or
clients orwhere such disclosure is required to be made to any relevant authority pursuant
to any relevant law or legal process.
iii. Ordinary Members shall establish appropriate controls within their respective work
environments to prevent any unauthorized disclosure of confidential information.
CONSISTENCY
To avoid public confusion and uncertainty, Ordinary Members should approach significant
issues or matters which affect the unit trust industry consistently and avoid adopting significanfly
different practices or approaches in respect thereof.
DIGNITY
i. Ordinary Members shall uphold the dignity of and maintain the highest respect for the
unit trust industry. Ordinary Members shall and shall ensure that their officers refrain from
making complaints or making negative statements, or allow any action to be interpreted
in any way to cause hurt to the reputation of others in the industry.
ii. Ordinary Members shall and shall ensure that their officers do not publicly complain
against or negatively criticize other Members, the FIMM, the Securities Commission
and any other relevant authority. Ordinary Members shall not make any defamatory
derogatory or disparaging statements against the unit trust funds, ofiicers or practices
of other Members.
iii. Complaints and criticism shall instead be channeled to the Securities Commission, FIMM
and/or any other relevant authority in a professional manner.
CONFLICT OF INTEREST
Disclose Conflict Of lnterest
Ordinary Members must and shall ensure that their officers avoid transactions in which they
face a conflict of interest whether real, potential or perceived. ln the event any Ordinary
Members or their officers are involved inadvertently or otherwise in any transaction in
which they face a conflict of interest, whether real, potential or perceived, they should
immediately declare the circumstances of the conflict to the Trustee and their senior
compliance officer and their Board of Directors and withdraw from such transaction.
Personal Dealings and lnvestments
To allay any suspicion that personal dealings or investments of the officers of Ordinary
Members may be improper or that such dealings or investments may have been made
on the basis of information obtained, relating to the investment of the unit trust funds by
such persons in the course of official business giving such persons an unfair advantage
("internal information"), Ordinary Members should have in place their own supervisory
and internal control system to monitor such personal dealings and investments.
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ln particulat Ordinary Members shall request their officers who possess or may reasonably
be expected to possess internal information:-
(a) not to use internal information whether for their own or any other parties benefit;
(b) to disclose all personal dealings and investments to be made or made by them
whether directly or indirectly, where the Ordinary Member has reason to suspect
or believe that such persons have been improperly using internal infonnation;
(c) to inform in writing to the management before personal dealing and investment
transactions are entered into; and
(d) to take note of the relevant laws prohibiting insider trading such as the Securities
lndustryAct 1983 and the severe penalties imposed for breach of such laws (which
include hefty fines and/or imprisonment) and acknowledge in writing that they have
been given a copy of this Code and that they have taken note of the same.
Benefits and Gifts
Ordinary Members shall and shall ensure that their officers do not accept any benefits,
rebates, commissions or gifts of significant value, loans, fees, rewards, shares, securities
of any kind, offices, employment, contract of services and favour from any parties which
are intended orwill tend to renderthem obligated to such parties and thereby place them
and/or the unit trust funds they are managing in a compromising manner.
Token gifts however may be accepted or offered during festive seasons or when
recreational events are organized by the Ordinary Members, if the acceptance or ofier
of such gifts does not put the recipient in a compromising position.
Guide as to what constitutes conflict situations
As a general guide, a transaction in which there can be a conflict of interest includes, but
is not limited to, a transaction in which:-
(a) the interests of investors or clients may be prejudiced by the relationship of
the Ordinary Members or their officers with the other party or parties to the
transaction;
(b) the interests of investors or clients compete with the interests of the Ordinary
Members or their officers; or
(c) the other party or parties to the transaction is a related party or their officers have
a financial interest.
FAIR AND EQUITABLE TREATMENT
Ordinary Members shall ensure that all transactions entered into with third parties are on an
arm's length basis and on terms which are the best available for investors or clients. Ordinary
Members should also ensure that the Guidelines relating to rebates and soft commissions are
strictly adhered to.
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G.
3.
FIMIUI
STANDARDS OF PROFESSIONAL CONDUCT
Ordinary Members must observe the following standards of conduct:-
A. COMPLIANCE WITH LAWS
i. Ordinary Members shall and shall ensure that their officers act in compliance and
conformity (with the letter and in the spirit) with the Act, all laws, guidelines, orders,
directives and policies (including this Code) issued, drawn up or imposed by any relevant
authority including, but not limited to the Securities Commission and FIMM.
ii. Ordinary Members shall establish and maintain written policies and procedures for the
effective control and conduct of its business and the activities of their officers to ensure
compliance with the Act, the Code and all other relevant laws.
CO.OPERATION WITH GOVERNMENTAL BODIES
Ordinary Members shall co-operate with the relevant authorities to achieve the objectives of
FIMM in the conduct of their own business.
COMPLIANCE WITH ARTICLES OF ASSOCIATION
Ordinary Members shall be bound by FIMM's Articles of Association and shall comply with all
the directions and rulings on ethics and standards issued by the FIMM from time to time.
ADVERTISEMENTS AND PROMOTIONAL MATERIALS
i. ln addition to rules relating to advertising and promotional materials contained in the
Guidelines, Ordinary Members when advertising or promoting their unit trust funds should
not be deceptive, ambiguous or make false or misleading statements. The principle of
honesty and greatest accuracy must underlie all promotional statements.
ii. A promotional statement should be clearly distinguishable as a statement issued with the
intent of promoting the investment, service or firm to which it relates. Published information
in advertisements and promotional materials must be substantiated.
iii. To avoid misleading advertisements and promotional materials on performance of unit
trust funds only performance data, which has been awarded or issued by a reputable
agency or person approved or accredited by FIMM may be published in an advertisement.
The performance data used must be current and should only be used in advertisements
if awarded or issued within the last twelve calendar months.
iv. The publication of performance data must be in accordance with criteria prescribed in
the advertising and promotional materials contained in the Guidelines. Personalopinions
shall be clearly identified as such.
v. Before the views or activities of parties other than the issuer of the promotional statement
are used, referred to or quoted in a promotional statement in a manner which implies
support for the product being promoted, the permission of those concerned must first be
obtained, if necessary. This includes a reference in promotional statement to a sponsor
or an affiliated person.
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FIIUIM
E. APPOINTMENT OF QUALIFIED PERSONS
ln marketing and distributing unit tr:ust funds, Ordinary Members shall only engage person(s)
who:-
. possess the qualifications prescribed by the Securities Commission; and
. have been duly registered with and authorized by FIMM for the purpose of dealing in unit
trust funds.
F. DUTYTO SUPERVISEAND MONITOR
Ordinary Members shall properly supervise and monitor the conduct and practices of the UTC
who represent them and they shall take all reasonable steps to ensure that such UTC does not
violate any provisions of the Code. ln the event that any such UTC is found to be in breach of
this Code, Ordinary Members should take appropriate action against the relevant UTC which
commensurate with the degree of breach of the Code. ln addition, if the breach is one which
contravenes any applicable law, the Ordinary Member should make a report of such breach to
the Securities Commission and or any other relevant authority.
G. REPORTSANDINFORMATION
i. Ordinary Members shall supply and deliver to FIMM upon request with copies of:
(a) all audited accounts and reports to investors and clients of all unit trusts funds of
which they are the manager;
(b) all audited accounts of the Member;
(c) any deed by or pursuant to which the member is appointed the manager of a unit
trust fund; and
(d) any prospectus or supplementary prospectus issued by them or in respect of the
unit trust fund of which they are the manager of the unit trust fund.
ii. Ordinary Members shall also provide FIMM such information which may be reasonably
requested for from time to time provided that: -
(a) the provision of such information will not cause the Ordinary Member to breach its
duty of confidence towards its investors or clients without the written authorization
of its investors or clients;
(b) the information requested for is not sensitive in the nature of the ordinary business
of the Ordinary Member; and
(c) the provision of such information will not cause any commercial disadvantage to
the Ordinary Member.
H. REFERENGE TO FIMM LOGOAND MEMBERSHTP
Ordinary Members may disclose membership with FIMM and display or use FIMM's logo in
all materials such as prospectus, accounts, unitholders' reports or other communication and . advertising. FIMM's logo must not be used without a statement of affiliation to FIMM. lf Ordinary
Members wish to use FIMM's logo for other purposes, prior approval must be obtained from
FIMM.
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FITIM
BREACH OF LAWS
ln the event that the officers are found to be in breach of this Code, Ordinary Members should
take appropriate disciplinary action against its officers which commensurate with the degree
of breach of the Code. ln addition if the breach is one which contravenes any applicable law,
the Ordinary Member should make a report of such breach to the Securities Commission and
or any other relevant authority.
DISCIPLINARY PROCEEDINGS
Adherence to the Code is mandatory for all Ordinary Members and their officers and its provisions
will be strictly enforced by FIMM. The By-Laws Relating To The Procedure For Disciplinary
Proceedings is as set out in FIMM's Guidelines Manual. ln order to maintain high standards of
professional conduct, Ordinary Members or their officers who have breached provisions of the
Code shall be subject to the appropriate disciplinary proceedings.
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4.
FIMM
PART B
Code of Conduct Forany Organization Registered as an lnstitutional Unit Trust
Advisers under the Guidelines for Registration of lnstitutionalAdvisers for the
Marketing and Distribution of Unit Trust Funds ("lUTAs")
CODE OF ETHICS
This part of the Code is applicable to IUTAs and to a limited extent, Ordinary Members.
A. PROFESSIONALISM
il.
IUTAs shall conduct their business in a professional manner ensuring that they themselves
and their officers are thoroughly knowledgeable in all areas and aspects of the unit trust
industry in which they participate and that they are acting in compliance with sound
business practices.
IUTAs shall show respect for other participants in the industry by engaging in fair and
equitable competitive practices.
IUTAs shall not misrepresent their authority as representatives of the unit trust
management company or as fund managers of the unit trust funds whose funds they
market and distribute.
INTEGRITY
L IUTAs shall always act in a manner which recognizes that integrity and responsibility are
essential to win and maintain confidence of the investing public in all aspects of the unit
trust industry.
IUTAs shall at all times act to safeguard the integrity and credibility of the unit trust industry
and refrain from any act or omission which may damage the integrity of the unit trust
industry or bring the industry into disrepute.
IUTAs and their officers shall not give the impression that they are representing the views
or opinions of the FIMM or any other group unless that they have been authorized to do
so.
c. CONFIDENTIALITY
t. IUTAs shall respect and preserve the confidentiality of their investors and clients whom
they may be acting on behalf of.
IUTAs shall respect and preserve the confidentiality of the arrangement or agreement
contractually entered with the different unit trust management companies. However in
the event where any relevant authority requests the arrangement to be disclosed, the
parties may do so.
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FIMM
iii. IUTAs shall and shall ensure that their officers do not disclose to any person any personal
or financial information relating to the investors or clients save and except where such
disclosure has been expressly authorised in writing by such investors and clients or
where such disclosure is required to be made to any relevant authority pursuant to any
relevant law or legal process.
iv. IUTAs shall establish appropriate controls within their respective work environments to
prevent any unauthorized disclosure of confidential information.
D. FIDUCIARY DUTIES
IUTAs who take custody of all or any part of an investor's assets for investment purposes, shall
do so with the degree of care required of a fiduciary.
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E. OBJEC{V|rY
t. IUTAs shall take necessary steps to ensure that UTC acting on their behalf exercise
reasonable and prudent professionaljudgement in providing professional services.
IUTAs shall be objective in providing advice to investors and clients on the unit trust
funds. Objectivity requires honesty and impartiality. IUTAs shall not denigrate any unit
trust funds directly or by implications.
IUTAs shall ensure that adequate information is provided to the investors or clients to
enable such investor or client to make informed decisions before investing in the unit
trust fund of their choice.
DIGNITY
i. IUTAs shall uphold the dignity of and maintain the highest respect for the unit trust inctustry.
IUTAs shall and shall ensure that their officers refrain from making complaints or making
negative statements, or allow any action to be interpreted in any way to cause hurt to
the reputation of others in the industry.
ii. IUTAs shall and shall ensure that their officers do not publicly complain against or criticize
other Members, the FIMM, the Securities Commission, other IUTAs and any other relevant
authority. IUTAs shall not make any defamatory, derogatory or disparaging statements
against the unit trust funds, officers or practices of other Members or other lUTAs.
Complaints and criticism shall instead be channeled to the Securities Commission, FIMM and/or
any other relevant authority.
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STANDARDS OF PROFESSIONAL CONDUCT
IUTAs must observe the following standards of conduct:-
A. COMPLIANCE WITH LAWS
L IUTAs shall and shall ensure that their UTC act in compliance and conformity (by the
letter and in the spirit) with the Act, all laws, guidelines, orders, directives and policies
(including this Code) issued, drawn up or imposed by any relevant authority including,
but not limited to, the Securities Commission and FIMM.
IUTAs shall establish and maintain written policies and procedures for the effective
control and conduct of its business and the activities of their UTC and officers to ensure
compliance with the Act and the relevant laws. ln addition IUTAs are responsible to
ensure that their UTC and other officers who are involved in the unit trust operation are
also aware of the compliance with the Act and other relevant laws.
IUTAs shall obtain and at all times maintain all authorization, licenses and registrations
necessary for the purposes of marketing and distribution of unit trusts.
IUTAs must ensure that:-
(a) their IUTA status; and
(b) the registered status of the UTC acting on their behalf
are valid at alltimes and renewed before they expire.
FAIR AND EQUITABLE TREATMENT
IUTAs who are unit trust management companies should ensure that fair and equitable
commissions are paid to UTC who market and distribute third party unit trust funds for the
lUTAs.
DEALING WITH UNIT TRUST MANAGEMENT COMPANIES
i. Written communication
All communication between IUTAs and the unit trust management company relating to the
marketing and distribution of unit trust funds must be in writing or properly documented
so as to avoid any confusion or conflict.
Benefit and gifts
IUTAs shall not accept any benefits or gifts of significant value, fees and rewards from any
unit trust management company that are intended or will tend to render them obligated to
such unit trust management company and not in the interest of the investors or clients.
Rebates and Price Discount
IUTAs shall not give any rebates or any form of price discount to the investors or clients
in respect of the sales of the unit trust funds, unless prior consent has been obtained
from the relevant unit trust management company or the terms for the rebate have been
stipulated in the agreement relating to the IUTAs appointment by the relevant unit trust
management company.
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FTMilI
o. ADVERTISEMENTS AND PROMOTIONAL MATERIALS
t. IUTAs must only use advertisement and/or promotional materials in accordance with the
requirements of the existing Guidelines. Where the name of any unit trust management
company or any unit trust fund is specifled in any advertisement and/or promotional
material, the IUTAs must inform in writing in advance, the relevant unit trust management
companies of such specification.
IUTAs shall ensure that a copy of the latest prospectus of the unit trust funds of which
they are marketing or distributing be made available to their investors or clients.
IUTAs shall not make any forecasts or representations in relation to any unit trust funds
other than those set out in the latest prospectus and materials supplied by the unit trust
management companies.
APPOINTMENT OF QUALIFIED PERSONS
ln marketing and distributing unit trust funds, IUTAs shall only engage person(s) who:-
. possess the qualifications prescribed by the Securities Commission; and
. have been duly registered with and authorized by FIMM
for the purpose of dealing in unit trust funds.
DUTY TO SUPERVISE AND MONITOR
IUTAs shall properly supervise and monitor the conduct and practices of the UTC who represent
them and they shall take all reasonable steps to ensure that such UTC does not violate any
provisions of the Code. ln the event that any such UTC is found to be in breach of this Code,
IUTAs should take appropriate action against the relevant UTC which commensurate with the
degree of breach of the Code. ln addition if the breach is one which contravenes any applicable
law, the IUTA should make a report of such breach to the Securities Commission and or any
other relevant authority.
IUTAS WHOARE NOTASSOCIATE MEMBERS
With regard to IUTAs who are not Associate Members of FIMM but who have obtained their
registration as IUTAs by virtue of the fact that they are related to Ordinary Members, such
Ordinary Members shall:-
be responsible for and shall ensure that such IUTAs comply strictly with the Act, the
laws, guidelines, orders, directives and policies (including this Code) issued, drawn up or
imposed by any relevant authority including, without limitation, the Securities Commission
and FIMM;and
ensure that the IUTAs are kept abreast with the development and progress of the unit
trust industry.
BREACH OF LAWS
ln the event that the officers of IUTAs are found to be in breach of this Code, IUTAs should take
appropriate disciplinary action which commensurate with the degree of breach of the Code. ln
addition, if the breach is one which contravenes any applicable law, the IUTA should make a
report of such breach to the Securities Commission and or any other relevant authority.
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FIMM
DISCIPLINARY PROCEEDINGS
Adherence to the Code is mandatory for all IUTAs and their officers and its provisions will be
strictly enforced by FIMM. The Bytaws Relating To The Procedure For Disciplinary Proceedings
are as set out in FIMM's Guidelines Manual. ln order to maintain high standards of professional
conduct, IUTAs or their officers who have breached provisions in the Code shall be subject to
the appropriate disciplinary proceedings.
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FIIUIM
PART C
Code Of Conduct For Any Person Registered To Deal ln Unit Trusts under the
Registration of Unit Trust Consultants ('.UTC").
CODE OF ETHICS
6. in addition to the rules relating to Guidelines For Marketing and Distribution of Unit Trust issued by
the Securities Commission, this part of the Code shall be applicable to all UTC.
A. HONESTY, DIGNITYAND INTEGRITY
A UTC should at all times act with honesty, dignity and integrity. He should conduct himself and
should encourage others to market and distribute units in a professional and ethical manner
that will bring credit to himself, his fellow UTC and the industry. A UTC shall maintain a high
standard of personal ethical behaviour, present himself professionally in appearance and not
engage in activity that may bring discredit to the industry.
ln particular, the UTC must not misrepresent or recklessly represent: -
i. his qualifications or that of the management company he represents;
ii. the products and/or its characteristics offered bythe management company he represents;
and
iii. the past investment performances of the unit trust fund he is marketing.
Conduct which is dishonest would include any omission of a material fact. A material fact includes
a fact, which if made known to a client, will cause that client to appreciate that the unit trust
fund is materially different from what was represented to him.
B. FAIR DEALING
i. lf a UTC enters into a business transaction with a client, the transaction shall be on terms
which are fair and reasonable to the client and the UTC shall disclose to such client or
potential client the risks of the transaction, any conflicts of interest or potential conflicts
interest of the UTC, the fees and charges levied on the investment made or which may
be made and other relevant information, if any, necessary to make the transaction fair
to the client.
ii. Fair dealing requires impartiality, intellectual honesty, and disclosure of conflicts of
interest. lt involves a subordination of one's own feelings, prejudices, and desires so as
to achieve a proper balance of conflicting interests. Fair dealing is treating others in the
same fashion that you would want to be treated.
iii. Aggressive and offensive sales practices should be avoided.
GOOD FAITH
A UTC should always act in good faith and with the best of intentions. The investor is to be treated
with respect and should be given full disclosure of all information pertinent to his investment
decision.
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FIMIUI
COMPETENCE
A UTC shall provide services to clients competently and maintain the necessary knowledge
and skillto continue do so in the areas in which he/she is engaged.
A UTC should act with proflciency and strive to maintain and improve his competency and that
of his fellow UTC.
CONFIDENTIALITY
i. Aclient, by seeking the services of a UTC, is creating a relationship of personal trust and
confidence with the UTC. ln order to provide the services effectively and to protect the
client's privacy, the UTC shall take every precaution to protect, safe-guard and preserve
the confidentiality of the elient's information communicated to him in the course of
marketing and distributing unit trust funds. He must not in any way use such information
for his personal or any other person's gain.
ii. A UTC shall not disclose any of his clients or prospective clients information which can
reasonably be said to be confidential without the specific consent in writing of the client
unless in response to proper legal process, to defend against charges of wrongdoing by
the UTC or in connection with a civil dispute between the UTC and client.
PROFESSIONALISM
A UTC's conduct in the course of dealing in unit trusts shall bring credit to the profession.
Because of the importance of the professional services rendered by UTCs, they are to behave
with dignity and courtesy to all those persons whom they c,ome into contact with in the course
of rendering their service, including but not limited to their clients, fellow UTC, the relevant
authorities and other persons in the unit trust industry
ACTING WITH DUE CARE, SKILLAND DILIGENCE
A UTC should conduct all his dealings with every care, skill and diligence. ln this regard, the
UTC mustensure
as far as possible that the unit trust fund proposed is suitable to the needs and not
beyond the resources of the prospective investor as'disclosed to him by the prospective
investor;
take all reasonable steps to give the prospective investor information in a comprehensive,
full and fair manner to assist him in making balanced and informed decisions;
provide information only on those matters in which he is competent to deal with and seek
or recommend other specialist advice where appropriate;
FIMT
iv- when conveying information to a prospective investor, bear in mind the overall context in
which the statements are made and the investor himself as different persons may require
differing levels of detail and explanation. Efforts should be made to improve the amount
and clarity of the information given. Brief or overly technical explanations may tend to
create confusion and misunderstanding;
v. in making comparlsons with other unit trust schemes, make clear the different
characteristics of each scheme; and
vi not omit any material facts, nor make exaggerated, unwarranted, misleading statements
or claims, or forecasts or future events.
PROMPT, EFFICIENT AND CONTINUOUS SERVICE
A UTC should endeavour to provide his client with prompt, efficient and continuous service.
ln particular, he should always be ready to answer 3ny queries his client may have on the
performance or management of his units.
STANDARDS OF PROFESSIONAL CONDUCT
7. The UTC must observe the follorying standards of condugt:-
A. COMPLIANCE WITH LAWS
B.
A UTC should maintain knowledge of, and comply with, the Act, all laws and rules governing
the unit trust industry, including Part C of this Code. Further the UTC should deal with the
relevant authority in an open and cpopergtiye manner, and shor.rld disclose such information
as is reasonable and appropriate.
USE OF AUTHORIZATION CARD
A UTC'must, on contact wiin a prospective investor or client, disdose that he is a person
registered to market and distribute unit trust funds and thereafter produce his Authorization
Card issued by FIMM to identifo himself. Thg use of crther cards (not issued by the FIMM) is
strictly prohibited.
A UTC rnust ensure that the Authorization Card is valid and renewed before it expires.
APPROPRIATE DESIGNATION OR TITLE
l. UTC should only use "Unit Trust Consultant" or any other appropriate designation
permitted by the Mernbers or title accredited by an accreditation body or authority.
Ordinary Members aiO tutns must ensure that their UTQ do not mislead the investors
or unitholders by using inappropriate designation or title.
UTC when printing their names on their business cards shall use appropriate titles and
their UTC Number to identify their registration with FIMM.
Some of the designations or titles that are not appropriate to be used are "lnvestment
Adviso/', "lnvestment Consultant", and "FinancialAdviso/'. This list is not exhaustive.
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FIMM
D. MARKETING AND DISTRIBUTION WITH PROSPECTUS
ln the course of marketing and/or distributing unit trust funds, the UTC must provide their client
with the prospectus or such other relevant disclosure document relating to the relevant unit trust
funds as may be prescribed by law. The marketing or distribution of units without the prospectus
is strictly prohibited by law.
ADEQUATE EXPLANATION OF THE NATURE AND CHARACTERISTICS OF UNIT
TRUST FUNDS
A UTC should adequately explain the nature and characteristics of the funds for which he is
recommending. Towards this end, he must:-
i. make clear all the essential attributes of the fund, including:-
(a) the investment objectives of the fund; (b) the fees chargeable(including a breakdown of the fees involved); (c) the prices of units and how the units are priced;
(d) the risks of investing in the particular funds and in unit trusts, generally;
(e) the minimum allowable purchases in the fund; and
(f) the special tax implications of the scheme (if any);
ii. ensure as far as possible that the prospective investor understands what he is committing
himself to;
draw attention to any unique features and/or restrictions applicable to the fund;
if loan financing is to be used, draw attention to the risks of purchasing units via loan
facilities (as contained in the unit trust loan financing risk disclosure statement); and
draw attention to the long term nature of the scheme and the risks of early withdrawal
from the scheme.
ADVERTISEMENTS AND PROMOTIONAL MATERIALS
i. A UTC must only use advertisements and/or promotional materials that have been
approved by the unit trust management companies and IUTAs and in accordance with
the Guidelines when marketing and distributing unit trust funds.
ii. A UTC should not make any statement, publish any information or engage in any
advertisement that may be construed as misleading, false or deceptive.
KEEPING ABREAST WITH THE UNIT TRUST INDUSTRY
All UTC should ensure that they possess the necessary skills and expertise to provide prompt,
efficient and competent service to their clients and in that regard shall keep abreast with the
development and progress of the unit trust industry.
DISCIPLINARY PROCEEDINGS
ln order to maintain high standards of professional conduct, UTC who have breached provisions
of the Code shall be subject to appropriate disciplinary proceedings.
Adherence to the Code is mandatory for all UTC and its provisions will be strictly enforced by
FIMM. The By-Laws Relating To The Procedure For Disciplinary Proceedings is as set out in
FIMM's Guidelines Manual.
tv.
V.
FIMM
APPENDIX 2:
SC'S GUIDELINES ON MARKETING AND
DISTRIBUTION OF UNIT TRUSTS
CODE OF ETHICS AND STANDARDS OF PROFESSIONAL CONDUCT
OBJECTIVES
The unit trust industry is centrally premised on the concepts of trust and faith. lt is imperative that an
industry which deals with the public's savings be operated and administered with the highest degree
of ethics and professionalism.
Registered persons must therefore possess a sense of responsibility, integrity and professionalism
in marketing and distributing units.
To promote and maintain the highest of ethical and professional standards, the SC has set out this
Code of Ethics and Standards of Professional Conduct to guide and aid registered persons in the
marketing and distribution of units.
The Code of Ethics and Standards of Professional Conduct form the minimum standards of conduct
expected of registered persons and are intended to be a guide to ascertaining whether a registered
person is acting in a manner which continues to satisfy the Minimum Standards for Registration of
Persons Dealing in Unit Trusts.
The Code of Ethics and Standards of Professional Conduct are intended to support management
companies in their efforts to uphold proper standards and do not in any way restrict the companies
from formulating more comprehensive sets of rules in maintaining ethical and professional standards
if they so desire.
CODE OF ETHICS
Registered persons are to be guided in their conduct by the general principles as follows:
(A) HONESry DTGNTTYAND TNTEGRTTY
A registered person should at all times strive to act with honesty, dignity and integrity. He should
conduct himself and should encourage others to market and distribute units in a professional and
ethical manner that will reflect credit on him, fellow registered persons and the industry.
ln particular, the registered person must not misrepresent or recklessly represent :
(i) his qualifications or that of the management company he represents;
products and/or its characteristics offered by the management company he represents;
(iii) the past investment performances of the unit trust scheme he is marketing.
Conduct which is dishonest would include any omission of a material fact. A material fact may be
defined as one which would cause the customer to appreciate that the scheme is different from that
actually represented to him.
1.
4.
5.
(ii) the
and
FIilIM
(B) FA|R DEALTNG
A registered person should at all times deal in a fair and equitable manner. Aggressive and offensive
sales practices should be avoided.
(c) GooD FA|TH
A registered person should always deal with good faith and with the best of intentions. The investor
is to be treated with respect and should be given full disclosure of all information pertinent to his
investment decision.
STANDART}S OF PROFESSIONAL CONDUCT
Registered persons must observe the following standards of conduct:
(A) COMPLTANCE WITH RULES AND REGULATTONS
A registered person should maintain knowledge of, and comply with, all applicable laws, rules and
regulations governing the unit trust industry including this Code Of Ethics and Standards Of Professional
Conduct. Further, the registered person should deal with the regulatory authorities in an open and
co-operative manner, and should disclose such information as is reasonable and appropriate.
(B) USE OF AUTHORTSATTON CARD
A registered person must, on contact with a prospective investor, disclose that he is a person registered
to market and distribute units and thereafter produce his Authorisation Card issued by the Federation
of lnvestment Managers Malaysia (FIMM) to identify himself. The use of other cards (not issued by
the FIMM) is.strictly prohibited.
(c) MARKETTNG AND DISTR|BUT|ON W|TH PROSPECTUS
A registered person must market and/or distribute units with the prospectus of the unit trust fund.
Marketing or distribution of units without a prospectus is prohibited by the Securities Commission Act
1993 (the Act).
(D) ACTTNG W|TH DUE CARE, SKTLLAND DtLtcENCE
A registered person should conduct all his dealings with every c€rre, skill and diligence. ln this regard,
the registered person must:
(i) ensure as far as possible that the unit trust scheme proposed is suitable to the needs and not
beyond the resources of the prospective investor;
(ii) take all reasonable steps to give the prospective investor information in a comprehensible, full
and fair manner to assist him in making a balanced and informed decision;
(iii) provide information only on those matters in which he is competent to deal with and seek or
recommend other specialist advice where appropriate;
(iv) when conveying information to a prospective investor, bear in mind the overallcontext in which
the statements are made and the investor himself, as different persons may require differing
levels of detail and explanation. Efforts should be made to improve the amount and clarity
. of the information given; brief or overly technical explanations tend to create confusion and
misunderstanding;
FIM]UI
(v) when making comparisons with other funds, make clear the different characteristics of each
fund; and
(vi) not omit a material fact, or make exaggerated, unwarranted, misleading statements or claims,
or forecasts of future events.
(E} ADEQUATE EXPLANATION OF THE NATURE AND CHARACTERISTICS OF THE UNIT TRUST
SCHEME
A registered person should adequately explain the nature and characteristics of the scheme for which
he is recommending. Towards this end, he must:
(i) make clear all the essential attributes of the fund, including :
. the investment objectives of the fund;
. the fees chargeable (including a breakdown of the fees involved);
. the prices of units and how the prices are calculated;
. the risks of investing in the particular fund, and in unit trusts, generally;
. the minimum allowable purchases in the fund; and
. the special tax implications of the fund (if any);
(ii) ensure as far as possible that the prospective investor understands what he is committing
himself to; and
(iii) draw attention to any unique features and/or restrictions applicable to the fund;
. if loan financing is to be used, draw attention to the risks of purchasing units via loan
facilities (as contained in the unit trust loan financing disclosure statement); and
' draw attention to the long{erm nature of the fund and the risks of early withdrawal from
the fund.
(F) USE OF ADVERTTSEmENTS AND PROMOTTONAL MATERTALS
A registered person must only use advertisements and/or promotional materials that comply with the
requirements of the Guidelines on Unit Trust Advertisements and Promotional Materials.
(G) CONFTDENTTAL|TY OF COMMUNTCATTONS AND TRANSACTTONS
A registered person should take every precaution to protect and preserve the confidentiality of investor
information communicated to him in the course of marketing and distributing units. He must not in any
way use such information for personal or another person's gain.
(H) COMPETENCY
A registered person should act with proficiency and strive to maintain and improve his competency
and that of fellow registered persons.
FIMM
PROMPT EFFICIENT AND CONTINUOUS SERVIGE
A registered person should endeavour to provide his investor with prompt, efficient and continuous
service. ln particular, he should always be ready to answer any queries his investor may have on the
performance or management of his units.
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FIIUIM
APPENDIX 3:
FIMM FLOWCHART SHOWING STRUCTURE FOR
DISCIPLINARY PROCEEDING S
START OF PROCEEDINGS
lnvestigating Committee consists of /?ve members:
One lndependent Council Member; One Compliance Officerfrom Members
One CEA hom the Ordinary Members, One representative from the Trustee
One representative of FIMM
FIMM
Disciplinary Committee consist of five members:
Ong lndependent Council Member, One Authoised Representative of the Ordinary Member
One Council Member of Association of Trust Companies Malaysia
One Vice-President and One representative from the FIMM
FIMM
FIMIUI
END OF PROCEEDINGS
' Apryal Committee cpnsisfs of five members
One lndependent Council Member ,One Authorised Representative of the Members
One Chairman of Association Trust Companies Malaysia
One Prcsident and One reprcsentative from the FIMM
Note: At the hearing of the various lnquiries, the normal rules relating to lntemat tnquiies wilt be applied.