Conflicts of Interest - A Practical Guide for Financial Institutions

Latest News and Recent Regulatory Action

• Moody's ESMA fine

• FCA fines, including Standard Life

What are “Conflicts of Interest”?

• COI training defines conflicts of interest

• Identifying and recording interests

• How do these look in the workplace?

• Conflicts of Interest by the Boards of Directors

• FCA definitions & required policies

• European Banking Authority (EBA) definitions and policies

• European Securities & Markets Authority (ESMA) definitions and policies

• Types of conflicts

• Identification & assessment

• Managing conflicts

• Disclosure

• Recording conflicts

• Different legal frameworks

Conflict of Interest (CofI) and Ethical Threats

• What is Ethics?

• The different types of Ethical Dilemmas

• Ethical responses and conduct risk or TCF

• Different approaches to ethics

• Conceptual Framework

• Threats and Safeguards

• Examples: An invitation to the Opera, the scion of a wealthy client gets a job offer, and a client makes an offer in return for fee reductions.

Rules and Principle-Based Approaches

• Conflicts of interest training includes a rules-based approach

• Principles-based approach – care re: who defines “principles-based”

• Conflict and the FCA approach

• ESMA approach

• EBA approach

• Joint ESM/EBA approaches

• Example: As the manager, you face resistance from colleagues to a rules and principles-based approach.

Ethical Conflict Resolution

• Typical Conflict of Interest Policy

• FCA/ESMA/EBA - differences in approach

• Gifts, sponsorship and hospitality

• Definition and inclusions: conflict of interest in corporate governance and business

• Mitigating actions: how to deal with a conflict of interest at work

• Case Study – A key supplier offers to assist another supplier in return for expense payments. What level of expense is acceptable, if any?

Best Practice

• How to make decisions on identified conflicts

• The dangers of making a mistake

• Example – The board has agreed to a root-and-branch review of Conflicts of Interest and Ethical issues. Now it's over to you.

Workshop – CofI in Practice

• Practical dilemmas in the workplace

• Key issues

Think Like a Compliance Professional

Course Conclusion

• Summary, open forum, and wrap-up conclude this conflict of interest course

Training Objectives

• This conflict of interest course enables participants to formally identify, in a risk-based manner, if conflicts are Actual, Potential or Perceived

• Sessions highlight an ethical approach to the subject and investigate why this is critical

• Participants master the three major types of exposure to conflicts in a regulated firm, understanding the challenges these create

• Training covers legal and regulatory frameworks

• Training appreciates that the UK Regulators' default position states that every effort must be made to eliminate Conflicts of Interest where possible as the first step

• The default position for UK regulators states that every effort is required to eliminate conflict, where possible and as a first step

• Why the ‘Disclosure and Client Consent’ approach is a ‘second step’ and MUST always follow concerted efforts to eliminate Conflicts of Interest; it should never be regarded as the ‘first step’ or the ‘default response’

• COI training aids recognition of the need for a clear communication line between operations and senior management

• Sessions ensure participants fully understand and appreciate good practice whilst avoiding poor, sloppy and ineffective management

• Training helps professionals define an effective and comprehensive COI policy

• Identify unexpected consequences or hidden conflicts

• Identify the best responses

• Create a clear and auditable management method, ensuring transparency

• Learn to think like a risk owner or compliance professional

Training Course Summary

With policy and procedure submissions found lacking, conflicts of interest are gaining increased regulatory scrutiny. In light of this, conflicts of interest training courses are required now more than ever.

The market is changing rapidly. With consolidation and restructuring now a regular occurrence, both involve changes to business models. Firms must have a robust approach in place for any conflicts that may arise.

All too often, firms think a generic policy and empty register means ‘job done’. Potential conflicts are often inherent in such arrangements and cannot always be prevented. Training highlights that although conflicts may be present:

• There’s evidence of proper thought and consideration of conflict by senior managers

• Any conflict has been effectively managed and completely disclosed, and clients’ interests remain at the heart of your firm’s decision-making process

Conflict, particularly in relation to governance structures and business models, often requires managing through a combination of measures depending on the firm, its staff and business model.

Note: This conflict of interest course covers the topic generally in an EU setting. For private or client-based delivery, it can be modified to make it more or less FCA-specific and more or less FVZF EBA/ESMA-specific, depending on client requirements.