7. CONFLICTS OF INTEREST
7.1. The general obligation
In accordance with Principle 8 of the Principles for Authorised Persons in GEN, an Authorised Firm must take all reasonable steps to ensure that conflicts of interest between itself and its Clients, between its Employees and Clients and between one Client and another are identified and then prevented or managed, or disclosed, in such a way that the interests of a Client are not adversely affected.
7.2. Identifying a conflict of interest
In order to identify the conflicts of interest that may arise in the course of its business, an Authorised Firm must consider whether it or a Person linked to the firm:
- (a) is likely to make a financial gain, or avoid a financial loss, at the expense of a Client;
- (b) has an interest in the outcome of a service or a transaction carried out for the Client, which is different from the Client's interest;
- (c) has arranged for one part of its business or a business line to provide a service or carry out a transaction for a Client that has a favourable or beneficial impact on another part or business line of the same Authorised Firm or Person linked to the firm;
- (d) has any incentive to favour one Client over another Client;
- (e) carries on the same business or activities as the Client; or
- (f) receives an inducement from a third party in relation to a service provided to a Client.
7.3. Managing a conflict of interest
Where an Authorised Firm is aware of a conflict or potential conflict of interest, it must take all reasonable steps to prevent that conflict of interest from adversely affecting the Client by using the following arrangements as appropriate:
- (a) establishing and maintaining effective organisational arrangements to prevent or manage conflicts, including information barriers to restrict the communication of the relevant information; and
- (b) disclosing the conflict of interest to the Client in writing either generally or in relation to a specific transaction, the risks resulting from that conflict, and the steps taken to address the conflict.
If an Authorised Firm is unable to prevent or manage a conflict or potential conflict of interest, it must decline to act for that Client.
Guidance: Information barriers
An information barrier, also known as a "Chinese wall", is an arrangement that requires a Person involved in one part of an Authorised Firm's business to withhold information from Persons involved in another part of the business.
7.4. Inducements
7.4.1. General requirement
An Authorised Firm must have policies and procedures in place to ensure that it, or its Employee or Associate, does not offer, give, solicit or accept any inducement from a third party, such as a fee, commissions or other direct or indirect benefit, where the inducement is reasonably likely to conflict with any duty that the Authorised Firm owes to its Clients.
7.4.2. Introductions
In circumstances where an Authorised Firm introduces a Client to a third party and receives a fee, commission or other benefit in respect of that introduction, such fee, commission or other benefit received in respect of such a referral would not be a prohibited inducement under this Rule, provided that the Authorised Firm has acted in the best interests of the Client.
7.4.3. Requirement to disclose inducements
An Authorised Firm must, before providing a Financial Product or Financial Service to a Client, disclose to that Client any inducement which it, or any Associate or Employee of it, has received or may or will receive as a result of providing the Financial Product or Financial Service.
7.4.4. Disclosure in summary form
An Authorised Firm may provide the information required by COB 7.4.3 in summary form, provided it informs the client that more detailed information will be provided to the client upon request and complies with such a request.
7.4.5. Record keeping
An Authorised Firm shall maintain record of inducements disclosed under COB 7.4.3 for a period of six years after such inducement was disclosed.
7.5. Personal Transactions
7.5.1. Conditions for Personal Transactions
An Authorised Firm must establish and maintain adequate policies and procedures so as to ensure that:
- (a) an Employee does not undertake a Personal Transaction unless:
(i) the Authorised Firm has, in a written notice, drawn to the attention of the Employee the conditions upon which the Employee may undertake Personal Transactions and that the contents of such a notice are made a term of his contract of employment or services;
(ii) the Authorised Firm has given its written permission to that Employee for that transaction or to transactions generally in Investments of that kind; and
(iii) the transaction will not conflict with the Authorised Firm’s duties to its Clients;
- (b) it receives prompt notification or is otherwise aware of each Employee’s Personal Transactions; and
- (c) if an Employee’s Personal Transactions are conducted with the Authorised Firm, each Employee’s account must be clearly identified and distinguishable from other Clients’ accounts.
7.5.2. Content of written notice
The written notice in COB 7.5.1(a)(i) must make it explicit that, if an Employee is prohibited from undertaking a Personal Transaction, he must not, except in the proper course of his employment:
- (a) procure another Person to enter into such a Transaction; or
- (b) communicate any information or opinion to another Person if he knows, or ought to know, that the Person will as a result, enter into such a Transaction or procure some other Person to do so.Where an Authorised Firm has taken reasonable steps to ensure that an Employee will not be involved to any material extent in, or have access to information about, the Authorised Firm’s Regulated Activities, then the Authorised Firm need not comply with the requirements in COB 7.5.1 in respect of that Employee.