4:2 The firm must have a transparent management structure which ensures effective and prudent management in the light of the nature, scale and complexity of the risks inherent in its business model and operations.

4:3 Pursuant to Article 17 of the Brokerage Supervision Act, as a basic rule, there must be a division at the highest level between the functions responsible for effective management and those responsible for the supervision thereof. The following functions must be in place:

• a general policy function, responsible for determining general policy and strategy;
• a management function, responsible for managing the firm’s activity; and
• a supervisory function, responsible for supervising management.

4:4 The Brokerage Supervision Act provides for a sui generis governance model.^[1] In stockbroking firms, the general policy function is entrusted to the executive and non-executive directors on the statutory governing body, the management function is entrusted to the senior managers,^[2] and the supervisory function is entrusted to the non-executive directors, in particular (but not exclusively) the members of specialised committees of the statutory governing body established pursuant to the Brokerage Supervision Act (the risk committee and the remuneration committee) or on a voluntary basis.^[3]

4:5 The firm should clearly define the responsibilities for management and the supervision of management. The management function should determine the competencies and responsibilities of each segment of the organisation, specify the procedures and reporting lines and monitor their application. The interaction between the management function and the supervisory function should be efficient and constructive.

^{[1] Notwithstanding specific provisions of the Brokerage Supervision Act due to the sui generis governance model, the general provisions of the CAC remain applicable.}

^{[2] Senior managers may be executive directors as well as persons who, without having the capacity of director, are considered by the firm as de facto managers due to their ability to directly and decisively influence the management of all or some of the firm’s activities.}

^{[3] Article 24 (and Article 25 for small stockbroking firms) of the Brokerage Supervision Act.}