[Draft 1] - Asset Management Conduct Standards

[Simone]

The World Assembly (WA),

Noting that asset management is an industry prevalent in numerous WA states;

Desiring a common solution across WA states to facilitate investments by governing the conduct of asset managers to protect customers;

The WA hereby enacts as follows:

1. Definitions.
   1. "A2M" refers to authorized asset managers duly authorized by an authority to manage, on a discretionary basis, the assets of independent third parties. This is regardless of whether they are managing the assets of sophisticated investors or others.
   2. "Authority" refers to an entity designated by a WA state to enforce and interpret this resolution.
   3. "Cross trades" refer to trades where one customer of the A2M buys or sells an asset to another customer of the same A2M, for whatever reason.
   4. "FISA" refers to the WA Financial Services Authority.
2. Fiduciary duty.
   1. The WA declares that any A2M under the jurisdiction of a WA state has full fiduciary duty to all its customers.
   2. This is regardless of whether such customers are inhabitants of WA states or non-WA states.
3. Resources. Each authority is required to ensure minimum standards for A2Ms in:
   1. financial resources for meeting payroll, overheads, and other requirements;
   2. human resources to meet its duties to investors, such as the education, experience and skills of staff, expertise in operations, compliance, and other matters;
   3. technical resources such as computing models, communications tools, and record keeping databases,
   4. access to sufficient coverage for professional indemnity insurance for directors and officers of the A2M in the event of litigation; and
   5. any other resources required by the authority.
4. Duties. Each authority shall ensure minimum standards for A2Ms in:
   1. Separating the duties of staff members in the A2M, such as between active managers, middle office staff, marketing, compliance, and dealing;
   2. Maintain clear lines of reporting and supervision of all staff members;
   3. Maintain a board of directors (or any analogous body or individuals pursuant to local laws that is deemed the most senior body in charge of an A2M, hereafter “directors” for convenience) that can provide proper supervision to staff members of the A2M, including a sufficient number of independent directors;
   4. Holding directors individually responsible for any lapses in compliance with any applicable rules;
   5. Safeguarding the escalation of potential risk factors (as well as whistleblowing) for consideration by directors without undue interference from other staff members.
5. Conflicts of interest. Each authority shall ensure minimum standards for A2Ms in:
   1. Identifying, monitoring and managing potential conflicts of interest that may be detrimental to customers that entrust their assets to the A2M;
   2. Promptly disclose any potential and actual conflicts of interest to investors.
6. Cross-trades. Each authority shall ensure minimum standards for A2Ms in:
   1. ensuring any cross-trades between customer accounts are in the best interests of both accounts, and fall within the investment objectives of both clients;
   2. all trades are priced on an arm’s length basis at the current fair market price;
   3. the reasons for a cross trade a documented prior to execution;
   4. all cross-trades require the prior approval of both customers.
7. Staff ethics.
   1. The WA declares that it is a principle that anyone who engages in the A2M business, when transacting for themselves, must give customers of the A2M business priority and avoid conflicts of interest.
   2. Cross-trades between accounts held by staff and accounts held by customers is prohibited,
   3. Front-running of orders ahead of customers is strictly prohibited and is an offence in all WA states. The authority shall be responsible for determining any penalties associated with front-running.
8. Model standards.
   1. FISA shall provide model standards (and to update these standards from time to time) for WA states that prefer to adopt common standards in lieu of setting the aforesaid standards themselves.
   2. Standards set by WA states may not be less stringent than FISA’s model standards.
9. Interpretation.
   1. If FISA is the enforcing authority, FISA is responsible for interpretation.
   2. Each WA state may designate one or more entities as the authority, depending on the governance structure of that state.