Clarification on delegation of management and grouped purchases of financial products

A judgment handed down by the Court of First Instance of Monaco on 1 February 2018 has shed more light on the issue of asset management on behalf of third parties by Monegasque financial services companies.

In an entirely new move, the Court set out the information to be given to clients as part of delegation agreements, including a requirement that the client be advised of the delegate’s identity and the scope of the delegation (i.e. partial or full). The Court added that, unless otherwise specified, the delegation arrangement will be governed by the terms of the management mandate signed by the client. In all cases, the information specified in Article 4 of Sovereign Ordinance No.1284 of 10 September 2007 need not necessarily be disclosed to the client.

The judgment emphasises the importance of the wording of the investor’s profile, given that the Monegasque courts carry out a point by point review of the management activities undertaken, based on the investor profile drawn up by the asset manager.

Consequently, financial services companies need to be more vigilant when establishing investor profiles. They must also ensure that their asset management decisions reflect the criteria indicated in investor profiles (such as investment goals, risk tolerance and investment horizon), at every stage of the contractual relationship. Otherwise, they may be held liable.

Finally, the Court clarified the notion of direct transactions between client accounts, something which Monegasque financial services companies are prohibited from doing by Article 24 of Act No.1338 of 7 September 2007. The judges of the first instance indicated that where a financial services company groups together the funds of more than one client in order to reach the nominal amount needed to acquire a given financial product, this is in contravention of the aforementioned Article 24.