General rules of conduct; authorisation to issue statutory instruments

(1) An investment services undertaking is obliged to provide investment services and ancillary investment services honestly, fairly and professionally in the best interests of its clients.
(2) An investment services undertaking must, before carrying out transactions for a client, clearly disclose to the client the general nature and source of conflicts of interest and the steps taken to limit the risks of detriment to the client's interests, insofar as the organisational arrangements under section 80(1), second sentence, no. 2 are not sufficient to ensure, with reasonable confidence, that risks of damage to client interests will be prevented. The disclosure under the first sentence must
1. be made by means of a durable medium, and
2. be sufficiently detailed, having regard to the categorisation of the client within the meaning of section 67, to enable the client to take an informed decision with respect to the investment service or ancillary investment service in the context of which the conflict of interest arises.
(3) An investment services undertaking must ensure that it does not remunerate or assess the performance of its staff in a way that conflicts with its duty to act in the best interests of clients. In particular, it must not create, through remuneration arrangements, sales targets or otherwise, any incentive for its staff to recommend a particular financial instrument to a retail client where the investment services undertaking could offer the retail client a different financial instrument that would better meet that client's needs.
(4) An investment services undertaking that designs financial instruments for sale to clients must ensure that those financial instruments are designed to
1. meet the needs of a specified target market within the meaning of section 80(9), and
2. ensure that the strategy for the distribution of the financial instruments is compatible with that target market. The investment services undertaking must take reasonable steps to ensure that the financial instrument is distributed to the specified target market.
(5) An investment services undertaking must understand the financial instruments it offers or recommends. It must assess their compatibility with the needs of the clients to whom it provides investment services, including having regard to the target market referred to in section 80(9), and must ensure that it offers or recommends financial instruments only where this is in the interests of the client.
(5a) Subsections (4) and (5) do not apply to investment services undertakings, insofar as their investment service relates to bonds with a make-whole clause that have no embedded derivatives other than a make-whole clause, or where the financial instruments are marketed or distributed exclusively to eligible counterparties.
(6) All information that investment services undertakings make available to clients, including marketing communications, must be fair and clear and must not be misleading. Marketing communications must be clearly identifiable as such. Section 302 of the Capital Investment Code, Article 22 of Regulation (EU) 2017/1129, and section 7 of the Securities Prospectus Act, remain unaffected.
(7) Investment services undertakings are obliged to provide their clients, in good time and in comprehensible form, with appropriate information about the investment services undertaking and its services, about the financial instruments and the proposed investment strategies, about execution venues, and about all costs and associated charges, that is necessary so that clients are reasonably able to understand the nature and risks of the type of financial instrument or investment service being offered or sought by them and, consequently, to take investment decisions on an informed basis. The information may also be provided in a standardised format. The information under the first sentence must include the following particulars:
1. as regards the types of financial instruments and the proposed investment strategy, having regard to the target market referred to in subsection (3) or (4):
a) appropriate guidance on, and warnings of, the risks associated with investments in those types of financial instruments or with particular investment strategies,
b) appropriate warnings of the risks associated with that type of financial instrument or with particular investment strategies, and
c) whether the type of financial instrument is intended for retail clients or professional clients;
2. as regards all costs and associated charges:
a) information relating to the costs and associated charges of both investment services and ancillary investment services, including any cost of advice,
b) the cost of the financial instruments recommended or marketed to the client, and
c) how the client may pay for them, including any third-party payments. Information about costs and associated charges, including such costs and associated charges in connection with the investment service and the financial instrument, that are not caused by an underlying market risk, must be aggregated by the investment services undertaking so that the client can understand both the overall cost and the cumulative effect on the return of the investment. At the client's request, the investment services undertaking must provide an itemised breakdown. Such information must be provided to the client on a regular basis, at least annually, during the life of the investment, under the conditions set out in Article 50(9) of Delegated Regulation (EU) 2017/565. Sections 293 to 297, 303 to 307 of the Capital Investment Code remain unaffected. For certified retirement-provision and basic-pension contracts within the meaning of the Retirement Provision Contracts Certification Act, the information obligation under this subsection is deemed satisfied by the provision of the individual product information sheet under section 7 of the Retirement Provision Contracts Certification Act. The information on costs and associated charges required under this subsection must be made available to the client on request. The client must be expressly informed of this right when the individual product information sheet under section 7 of the Retirement Provision Contracts Certification Act is provided. Where a client is provided with a standardised information sheet under section 64(2), third sentence, the information on all costs and associated charges under the fourth and fifth sentences must be provided to the client unsolicited, using a formalised cost breakdown. Where the agreement to buy or sell a financial instrument is concluded using a means of distance communication that prevents the prior transmission of the information on costs and charges, the investment services undertaking may transmit that information to the client immediately after the conclusion of the transaction, either electronically or, where a retail client so requests, in writing, provided that
1. the client has consented to receive the information without delay after the conclusion of the transaction, and
2. the investment services undertaking has given the client the option of delaying the conclusion of the transaction until the client has received the information. In addition to the requirements under the twelfth sentence, the investment services undertaking must give the client the option of receiving information on costs and charges by telephone before the conclusion of the transaction. The requirements under the third sentence, number 2, and the fourth to sixth sentences, apply as against professional clients only in relation to the provision of financial portfolio management and investment advice.
(8) Subsections (6) and (7) do not apply to investment services offered as part of a financial product that, as regards information obligations, is already subject to other provisions of European Community law concerning credit institutions and consumer credit.
(9) Where an investment services undertaking offers investment services together with other services or other products, as a package, or in a form whereby the provision of the investment services, the other services, or the transactions in the other products, is conditional on the performance of the other components or the conclusion of the other agreements, it must inform the client whether the individual components can also be obtained separately, and must evidence to the client the costs and charges of each component separately. Where the risks associated with such a package or agreement are likely to be different from the risks associated with the individual components, it must inform retail clients adequately about the individual components, the risks associated with them, and how their interaction affects the risk.
(10) Before providing investment services other than investment advice or financial portfolio management, an investment services undertaking must obtain from clients information about their knowledge and experience in the investment field relevant to transactions in the specific types of financial instrument or investment service, insofar as that information is necessary to assess whether the financial instruments or investment services are appropriate for the clients. Where linked services or products within the meaning of subsection (9) are the subject of the client's order, the investment services undertaking must assess whether the overall linked transaction is appropriate for the client. Where, on the basis of the information received under the first sentence, an investment services undertaking is of the opinion that the financial instrument or the investment service is not appropriate for the client, it must warn the client accordingly. Where the investment services undertaking does not obtain the necessary information, it must inform the client that it is not possible to determine appropriateness within the meaning of the first sentence. Further provisions on appropriateness and on the obligations applicable in connection with the assessment of appropriateness are laid down in Articles 55 and 56 of Delegated Regulation (EU) 2017/565. The warning under the third sentence and the information under the fourth sentence may be given in a standardised format.
(11) The obligations under subsection (10) do not apply insofar as the investment services undertaking
1. provides, at the client's initiative, principal broking business, dealing on own account, contract broking or investment broking in respect of
a) shares admitted to trading on a regulated market, on an equivalent market of a third country, or on a multilateral trading facility, other than shares in AIFs within the meaning of section 1(3) of the Capital Investment Code, and shares in which a derivative is embedded,
b) bonds and other securitised debt instruments admitted to trading on a regulated market, an equivalent market of a third country, or a multilateral trading facility, other than those in which a derivative is embedded and those that have a structure making it difficult for the client to understand the risks involved,
c) money market instruments, other than those in which a derivative is embedded and those that have a structure making it difficult for the client to understand the risks involved,
d) units or shares in UCITS within the meaning of section 1(2) of the Capital Investment Code, other than the structured UCITS referred to in Article 36(1), second subparagraph of Regulation (EU) No 583/2010,
e) structured deposits, other than those that have a structure making it difficult for the client to understand the risk of return or the cost of exiting the product before maturity, or
f) other non-complex financial instruments for the purposes of this subsection that satisfy the criteria set out in Article 57 of Delegated Regulation (EU) 2017/565,
2. does not provide that investment service together with the grant of a loan as an ancillary investment service within the meaning of section 2(7), no. 2, other than where it consists of the utilisation of a credit ceiling of an already existing loan, or of an already existing loan granted such that, in a current-account contractual relationship, the lender grants the borrower the right to overdraw the account up to a specified amount (overdraft facility), or where the lender, under a current-account contract, without an agreed overdraft facility, tolerates the borrower's overdraft of the account and, as agreed, charges a fee for this, and
3. expressly informs the client that no appropriateness assessment within the meaning of subsection (10) is being carried out, whereby this information may be given in a standardised format.
(12) Investment services undertakings must report to their clients, in a suitable manner, on a durable medium, on the investment services provided; in particular, after the execution of a transaction, they must inform the client where the order was executed. The obligation under the first sentence comprises, on the one hand, periodic reports to the client in the cases further specified in Articles 59 to 63 of Delegated Regulation (EU) 2017/565, having regard to the nature and complexity of the relevant financial instruments and the type of investment services provided, and, on the other hand, where relevant, information on the costs incurred. For certified retirement-provision and basic-pension contracts within the meaning of the Retirement Provision Contracts Certification Act, the information obligation under the first sentence is deemed satisfied by compliance with the annual information obligation under section 7a of the Retirement Provision Contracts Certification Act. The information on costs and associated charges required under this subsection must be made available to the client on request. The client must be expressly informed of this right when the annual information under section 7a of the Retirement Provision Contracts Certification Act is provided. The first and second sentences do not apply to services provided to professional clients, unless those clients notify the investment services undertaking, either electronically or in writing, that they wish to exercise the rights conferred by these provisions.
(13) Further provisions on subsections (1) to (3), (6), (7), (10) and (12) are set out in Delegated Regulation (EU) 2017/565, in particular on
1. the obligation under subsection (1), in Articles 58, 64, 65 and 67 to 69,
2. the nature, scope and form of the disclosure under subsection (2), in Articles 34 and 41 to 43,
3. remuneration or assessment under subsection (3), in Article 27,
4. the conditions under which information within the meaning of subsection (6), first sentence, is regarded as fair, clear and not misleading, in Articles 36 and 44,
5. the nature, content, presentation and timing of the information required for clients under subsection (7), in Articles 38, 39, 41, 45 to 53, 61 and 65,
6. the nature, scope and criteria of the information to be obtained from clients under subsection (10), in Articles 54 to 56,
7. the nature, content and timing of the reporting obligations under subsection (12), in Articles 59 to 63.
(14) The Federal Ministry of Finance may, in agreement with the Federal Ministry of Justice and Consumer Protection, by statutory instrument not requiring the consent of the Bundesrat, adopt further provisions on the content and structure of the formalised cost breakdown under subsection (7), eleventh sentence. The Federal Ministry of Finance may transfer this authorisation, by statutory instrument, to the Bundesanstalt.