Long title: Verordnung über die Prüfung der Wertpapierdienstleistungsunternehmen nach § 36 des Wertpapierhandelsgesetzes
As promulgated on 6 January 1999 Federal Law Gazette I p. 4
Table of Contents
Section 1 Scope
Section 2 Timing of and period to be covered by the examination
Section 3 Nature and scope of the examination
Section 4 General requirements for the examination report
Section 5 Specific requirements for the examination report
Section 6 Effective date
Annex Questionnaire pursuant to Section 4 paragraph (6) WpDPV
Under Section 36 paragraph (5) of the Securities Trading Act as announced on 9 September 1998 (Federal Law Gazette I p. 2708) in conjunction with Section 1 of the Ordinance on the Delegation of Powers to Issue Ordinances to the Federal Securities Supervisory Office of 3 March 1998 (Federal Law Gazette I p. 406), the Federal Securities Supervisory Office issues the following Ordinance:
This Ordinance shall apply to the examination of compliance by investment services enterprises with the reporting requirements pursuant to Section 9 of the Securities Trading Act (reporting requirements) and the duties regulated in Part 5 of the Securities Trading Act (rules of conduct).
(1) The auditor shall set the time for the start of the examination, provided the Federal Supervisory Office does not set another time for the start of the examination within one week after receipt of the notification pursuant to Section 36 paragraph (3) sentence 5 of the Securities Trading Act. The auditor shall inform the Federal Supervisory Office in case the investment services enterprise to be examined repeatedly requests to postpone the examination.
(2) In exercising due discretion, the auditor shall set the date of the examination. The period to be covered by the first examination shall be the period between the commencement of operations as an investment services enterprise and the date of the first examination. The period to be covered by all subsequent examinations shall be the period between the date of the previous examination and the date of the following examination.
(1) The examination shall include compliance with the reporting requirements and the rules of conduct regarding all parts of investment services and non-core investment services. In accordance with the provisions made by the Federal Supervisory Office relating to the content of the examination pursuant to Section 36 paragraph (3) sentences 1 and 2 of the Securities Trading Act, the auditor may, in exercising due discretion, determine main points of emphasis of the examination, provided thorough examination of all parts of the services within an appropriate period of time is ensured. Parts of the services in respect of which there is evidence indicating changes in relation to the previous examination or indicating shortcomings, or in respect of which shortcomings were revealed in the previous examination, shall always be thoroughly examined.
(2) In exercising due discretion, the auditor may confine himself to system checks by means of functional tests and to spot checks in individual cases, unless it is necessary in particular cases to conduct a complete examination. If there is evidence indicating shortcomings regarding compliance with the reporting requirements or the rules of conduct, the examination shall be carried on until the auditor believes that such shortcomings occur only occasionally or are irrelevant. If there are doubts about whether or not shortcomings occur occasionally or are irrelevant, the Federal Supervisory Office shall be informed immediately.
(3) Where investment services enterprises have branches executing material parts of investment services or non-core investment services, these branches shall also be examined. In exercising due discretion, the auditor shall decide to which extent the branches must be examined on site. He may refrain from examining individual branches, especially if the parts executed by them are insignificant and if the investment services enterprise proves that all branches are subject to regular internal controls and that these controls have not revealed any substantial shortcomings. The Federal Supervisory Office may however request that such branches be included in the following examination. As regards parts of the business which are outsourced to other enterprises and which are material for the provision of investment services or non-core investment services, sentences 1 to 4 shall apply accordingly. The Federal Supervisory Office shall be informed of an examination of a foreign branch not later than two weeks before the start of the examination.
(4) The auditor shall inform the Federal Supervisory Office without delay if an investment services enterprise refuses to be examined or if it impedes the conduct of the examination.
(5) The auditor shall be authorised to record the examination in writing or by means of data media and to take documents necessary for making the report. Business documents of the investment services enterprise under examination may only be taken by the auditor with the consent of the enterprise. Upon his request, he must be given copies of the documents necessary for making the report. The records shall be retained for six years.
(1) The examination report shall contain information as to whether the investment services enterprise has observed the reporting requirements and the rules of conduct. Shortcomings shall be described in detail in the examination report.
(2) If in individual cases the Federal Supervisory Office has made provisions relating to the content of the examination or has determined main points of emphasis of the examination , the examination report shall contain a detailed description of the respective action taken during the examination and the findings.
(3) As a rule, it shall not be permitted to make references to the contents of previous examination reports. In order to avoid extensive repetition, such references shall be permitted if the auditor encloses in the examination report the respective extracts of the previous examination reports or of the annual financial statements.
(4) The examination report shall contain a description of how the shortcomings discovered during the previous examination have been remedied or what remedial action has been introduced. If the shortcomings resulted from organisational deficits it shall be explained what organisational measures have been taken by the investment services enterprise to avoid such shortcomings in future.
(5) There shall be a final remark containing a summary assessment of whether the investment services enterprise has complied with the reporting requirements and the rules of conduct. Shortcomings shall be listed by indicating where they are referred to in the report. The auditor shall sign the examination report, stating the place and the date of the examination.
(6) The results of the examination shall be recorded in a questionnaire (enclosure). The questionnaire shall be completely answered and attached to the examination report.
(7) The auditor shall explain the examination report on request of the Federal Supervisory Office.
(1) The following details shall be included in the examination report:
1. the nature and scope of the investment services and non-core investment services rendered in the period to be covered by the examination;
2. the measures taken in respect of the selection and training of employees in connection with compliance with the reporting requirements and the rules of conduct;
3. the structure and operational organisation of the investment services enterprise; business areas requiring a particular organisation shall be described separately;
4. the way in which parts that are material for the provision of investment services or non-core investment services are outsourced as well as how compliance with the requirements pursuant to Section 33 paragraph (2) of the Securities Trading Act is ensured;
5. compliance with the requirements under Section 34a of the Securities Trading Act;
6. the way in which customer complaints are handled and the steps taken in this respect concerning staff and organisation;
7. compliance with the requirement to keep and retain records pursuant to Section 34 paragraph (1) of the Securities Trading Act, indicating the number of spot checks and, if necessary, the nature of the shortcomings;
8. compliance with the rules of conduct for employees as regards staff transactions.
(2) If the details set forth in the first paragraph above did not give cause for complaint in the previous examination and if no changes have been revealed during the current examination, a detailed description shall not be required. If, during at least three subsequent years, some areas have not been described in detail, the Federal Supervisory Office may require their detailed description in the following examination even if no changes have occurred in these areas.
This Ordinance will take effect on the day following its announcement.
Frankfurt am Main, 6 January 1999
The President of the Federal Securities Supervisory Office
|No||Securities Trading Act (WpHG)||Subject of the examination||If the answer is “yes”, tick here||If there are shortcomings that have not been remedied in the meantime, also tick here1|
General rules of conduct
|1||sec. 31 para. (1) no. 1||Are there any shortcomings in respect of accepting and executing customer orders (especially as regards immediate transmission of customer orders)?|
|2||sec. 31 para. (1) no. 1||Is there evidence (e.g. customer complaints) indicating that customers were not able to place orders because the enterprise could not be reached?|
|3||sec. 31 para. (2) no. 1||Are there any shortcomings in respect of seeking information from customers?|
|4||sec. 31 para. (2) no. 2||Are there any shortcomings in respect of providing customers with proper investor- and investment-related information (especially about product risks and commissions)?|
|5||sec. 31 para. (2) no. 2||Is there evidence indicating that commission agreements have not been mentioned?|
Special rules of conduct
|6||sec. 32 para. (1) no. 3||Is there evidence indicating own-account transactions made in cognisance of customer orders, which may lead to disadvantages for the customer (so-called front running)?|
|7||sec. 32 para. (1) no. 1||Is there evidence indicating disproportionately high fees or frequent movements in the accounts or securities accounts of customers which are not justified by the interest of the customer (so-called churning)?|
|8||sec. 33 para. (1) no. 1||Are there any shortcomings in respect of the required training and qualification?|
|9||sec. 33 para. (1)||Is there a lack of appropriate organisational arrangements as regards replacement for temporarily absent members of staff?|
|10||sec. 33 para. (1)||Is there a lack of appropriate organisational arrangements to ensure the proper conduct of staff transactions?|
|11||sec. 33 para. (1)||Are there any shortcomings in practice as regards compliance with the rules of conduct for employees concerning staff transactions?|
|12||sec. 33 para. (1) no. 3||Is there a lack of efficient internal control mechanisms to counteract breaches of the WpHG, e.g. an independent compliance department for possible conflicts of interest?|
|13||sec. 33 para. (1) no. 3||Are there any shortcomings in respect of the continuous monitoring of the organisational duties?|
|14||sec. 33 para. (2)||In the case of outsourcing, is there any breach of the statutory duties under Section 33 para. (2) WpHG (ensuring the proper conduct of the services and compliance with the requirements pursuant to Section 33 para. (1) WpHG as well as the respective examination and control rights of the Federal Supervisory Office in cases where material business areas are outsourced)?|
Requirements to keep and retain records
|15||sec. 34 para. (1)||Does the rate of the shortcomings discovered in the spot check pertaining to the record keeping requirements exceed 15 per cent?|
|16||sec. 34 para. (3)||Are there any shortcomings in respect of compliance with the duty to retain records?|
Separate asset management2
|17||sec. 34 a para. (1) and (2)||Is there any breach of the requirement under Section 34 a WpHG to hold client money and/or securities separately?|
|18||sec. 9||Is there a lack of appropriate arrangements made by the enterprise to ensure compliance with the transaction reporting requirements pursuant to Section 9 WpHG?|
|19||sec. 9||Are there any shortcomings in practice as regards the completeness and correctness of the reports made pursuant to Section 9 WpHG?|
|20||sec. 36 b||Is there evidence indicating solicitation of private customers by means of unsolicited telephone calls (so-called “cold calling”)|
Main points of the examination
|21||Has the examination revealed any shortcomings regarding the main points of emphasis of the examination determined by the Federal Supervisory Office?|