Firms must ensure that actual and potential conflicts of interest are declared (and thus identified) and adequately managed with appropriate risk mitigation. The compliance officer must ensure they have implemented adequate controls including:
- Design and create a Conflicts of Interest Policy
- Communicate the Conflicts of Interest policy to all new-hires and regularly to existing employees.
- Train and educate all staff on the conflicts of interest policy with real-life case-studies they can understand
- Ensure any people manager is well trained in conflicts of interest identification and how to manage this
- Create a process for any staff member to raise the identification of a potential conflict of interest
- Develop an adequate process for management to review identified conflicts and implement mitigation steps to manage actual or potential conflicts of interest
- Implement a continuous monitoring technique, such as annual review of identified conflicts (and requesting updated declarations) to ensure they are up to date.
Let’s break this down a little further:
Design and create a Conflicts of Interest Policy
Your conflicts of interest policy and procedures should be clearly set out in writing and easily available for staff to read and understand at any time. It is good practice to include:
- Written examples of “What are Conflicts of Interest?”
- The firms approach to Managing Conflicts
- Staff responsibilities including for Supervisors, Senior Managers, Directors, Board Members and Approved persons
Within MyComplianceOffice Compliance Program Manager Policies and Procedures can be stored for easy access by all employees. In addition, as part of annual attestation employees can be sent the Conflicts of Interest policy, forced to download the document, and attest they have read the policy. Read more about our Compliance Management solution here.
Training & Communication of Policy
Your conflicts of interest policy should be communicated to staff when they are on-boarded, and regularly throughout their employment. Effective compliance training includes creating not just a group-wide training programme, but also specific scenarios that are relevant to that employee’s department. Training for conflicts of interest should at least be completed on an annual basis. Time-based compliance training after an incident is also important and could be achieved with bite-sized (5-10 minute) training explaining the case and how to prevent it in the future.
Senior managers, supervisors and other senior executives should also be made aware of their responsibility in reviewing employees identified conflicts and creating a management plan.
Manage your employees CPD, Registrations and licenses in our latest module.
Create a process for raising conflicts
Many organizations will require employees to declare their conflicts in an online register such as MyComplianceOffice’s “Outside Business Activities” or Compliance Program Manager module. When raising Conflicts of Interest ideally these will be allocated to a “category” of conflict. This will allow management to understand the actions the firm wishes you to take to manage each potential situation.
Using an online portal for identifying and declaring conflicts for review and management steps allows the direct manager and compliance manager to answer their own questions about the identified conflict so a centralised “conflicts of interest” register can be maintained against the employee.
Create a process for managing conflicts
Managing conflicts can vary depending on the type of conflict. Management should create a register of the potential conflicts, and how they plan on managing them. These can be used to guide managers on how to handle a potential or actual conflict if they arise. Some examples include:
- Review process for all remuneration for sales staff to ensure they don’t create undue pressure
- Automating Personal Account trading practices to identify and deny trading where conflicts exist with the employee’s client or firms trading
- Implement appropriate reporting lines if employee personal relationships are identified
- Implement appropriate reporting lines if two departments may conflict with each other
- Implement physical and electronic Chinese walls to segregate information flow between potentially or actually conflicted departments
- Notify clients of identified conflicts that may impact them and how they are being mitigated
Monitor conflicts of interest
Like any good enterprise risk framework, controls should be monitored over time to ensure they are effective.
Compliance should monitor conflicts of interest over time by (non-exhaustive):
- Reviewing Conflicts of Interest policy and conflicts procedures
- Requesting employees to update their identified conflicts and provide an opportunity to raise new conflicts.
- Reviewing department conflicts of interest type registers and how business conflicts are managed
- Reviewing Chinese wall processes and procedures
MyComplianceOffice allows firms to create and send questionnaires to employees at least annually displaying existing Conflicts of Interest, allowing edits and creation of new conflicts of interest. Thereby automating the work of keeping conflicts of interest registers relevant and up to date.
There are certain types of Conflicts of Interest that should be actively managed, and these include but not limited to:
- Conflicts between the employee and the client or firm and the client
- Personal Account Trading in Financial Services
- Director / Employee Trading of Company Securities
- Market Abuse
- Research Reports
- Employee Remuneration practices
- Close Personal Relationships
- Outside Business Interests
- Chinese Wall procedures
- Material Non-Public Information Management
- Insider List Management
- Gifts, Entertainment and Inducements
Various markets around the world seek to regulate and provide guidelines on how corporations should manager Conflicts of interest including, some of which include:
Example Australia Conflicts of Interest Regulation
- RG 76 Related Party Transactions
- RG 181 Licensing: Managing conflicts of interest (s912A(1)(aa Corporations Act)
- RG 193 Notification of directors’ interests in securities – listed companies
Example Singapore Conflicts of Interest Regulation
Example Hong Kong Conflicts of Interest Regulation
- Hong Kong Monetary Authority Supervisory Policy Manual
- SFC Code of Conduct 24th Edition, September 2019
- SFC Fund Manager Code of Conduct November 2018
- Joint reviews by HKMA and SFC on managing conflicts of interest
Example United Kingdom (UK) Conflicts of Interest Regulation
Example Japan Conflicts of Interest Regulation
MyComplianceOffice provides a single integrated solution to manage conflicts of interest as part of your Conduct Risk programme. Our software assists you in automating your policies & procedures and embedding them within your business.