5.1 Compliance, Ethics and the Structure of the FIMM Code of Ethics

Why Ethics and Compliance Matter Here

The UTS and PRS industry channels retail savings into the economy and gives investors a way to earn returns and save for retirement. Because investors rely on schemes to meet financial goals, everyone involved in marketing and distribution must behave ethically and professionally. The FCE tests both the study guide's Chapter 5 and the FIMM Code of Ethics itself.

What Is Compliance?

Compliance is the discipline of complying with applicable laws, rules and regulations, codes of conduct, and internal policies and procedures.

• The SC requires Distributors to have a compliance function that ensures the business follows the applicable rules.
• Compliance is not only the compliance officer's job. It is a culture everyone must live, especially Consultants, so that investors are protected and treated fairly.
• Consultants should work closely with compliance staff, who supply tools such as checklists and training.

Compliance as a Risk-Management Tool

The study guide's analogy: businesses buy insurance against events such as fire after assessing their risks. Compliance is like insurance against the risks and consequences of breaching legal and regulatory requirements. It is also like quality control in a car factory that aims for steady output with no defects.

A strong compliance culture helps Consultants by:

What Is Ethics?

Ethics is a system of moral principles by which actions are judged right or wrong. It is a matter of personal responsibility, integrity and conscience. Regulators cannot watch everyone all the time (and constant monitoring would raise costs and bureaucracy), so Distributors and Consultants must keep their own conduct in check. Ethical requirements issued by FIMM and the SC guide them to operate without breaking laws and regulations.

The FIMM Code of Ethics

Status and history

The Code is issued under paragraph 2.2.2(a) of FIMM's Consolidated Rules and must be read with FIMM's rules, securities laws and other applicable laws. Acts done before 10 October 2023 are dealt with under the repealed codes.

Scope

The Code sets ethical standards and professional conduct for Distributors and Consultants:

1. in the marketing and distribution of UTS and PRS; and
2. in any activity that may adversely affect the industry.

"Marketing and distribution" is defined broadly: promoting, offering, marketing and distributing schemes in any form, including attempting to do so.

The five core principles

Objectives

Distributors and Consultants must follow the five principles to:

1. uphold ethical standards and professional conduct in marketing and distributing UTS and PRS; and
2. instil public confidence in the industry.

Each principle states required conduct (Chapter 3 of the Code) and prohibited conduct (a non-exhaustive list in Chapter 4 of the Code). The Code augments the conduct requirements in SC guidelines; where they overlap, Distributors and Consultants must know and follow both.

FIMM's practice question asks what each core principle aims to do. The correct elements are: instil public confidence, augment the SC guidelines' ethics and conduct requirements and uphold ethical standards and professional conduct. A reminder that FIMM can take action is not one of the stated aims.

How to Study the Code

Sections 5.2 to 5.4 go through each principle with its required and prohibited conduct. A useful approach for exam questions:

1. Identify the behaviour in the scenario.
2. Decide which core principle it relates to (for example, omitting a material fact is a disclosure of information issue).
3. Check whether it appears on the prohibited conduct list.