Individuals within MB Capital (MBC) face potential conflicts of interest every day. This policy is not seeking to eradicate all situations where potential conflicts of interests may arise. Instead it focuses on the processes individuals and MBC have in place to ensure that where potential conflicts of interests could arise, they are either avoided or managed appropriately to minimise risk of detriment to clients.
In fulfilling the duties owed to the public and their employer, staff are bound to observe high standards of conduct which may sometimes appear to be contrary to their personal self-interest. This policy is an aid to help staff identify occasions when they might be at risk of failing to recognise or conform to any of those standards and to suggest ways of avoiding such exposure.
It is not practical or possible to establish ethical requirements or procedures which apply in all situations and circumstances. Each case and scenario will differ from the next and if staff are in any doubt as to the correct course of action they should seek further advice from a senior partner.
The term ‘Conflict of Interest’, means any financial or other interest which conflicts with the service(s) an individual provides because it could:
- Significantly impair the individual’s objectivity;
- Create an unfair competitive advantage for any person or organisation.
The term ‘Conflict of Interest’ means something more than individual bias. There must usually be an interest (usually financial) that could directly influence an individual.
The term ‘Conflict of Interest’ applies only to current interests. It does not apply to interests which have expired, no longer exist and cannot reasonably affect current behaviour. Nor does it apply to possible interests that may arise in the future but do not currently exist because such future interests are speculative. For example, a pending formal or informal application for a particular job or contract is a current interest but the mere possibility that one might apply for such a job in the future is not.
The term ‘Conflict of Interest’ applies not only to the financial interest of the individual but also to the interest of others with whom the individual has substantial and common financial interests, if these interests are relevant to the functions to be performed, e.g. their employer, business partners, family members and anyone else with whom they have a substantial common financial interest.
Ethics play a key role in managing conflicts of interest because they underline how conflicts of desire are resolved.
Staff are obliged to comply with all relevant laws, including the requirements of any regulatory authorities. In the UK the high level regulatory obligation in respect of conflicts of interests is set out in FSA’s General Principle 8 which requires a firm ‘To manage conflicts of interest fairly, both between itself and its customers and between a customer and another client’.
What this means for MBC
Conflict management policy
MBC have rigorous internal policies in place and procedures for identifying and managing conflicts of interest to avoid adversely affecting their clients. A list is available of the situations across the business where the duties individuals owe to their clients may be inconsistent with either their own interests or the interests of one or more clients. Employees are trained to recognise conflicts. Having identified a list of potential conflict situations, appropriate systems are in place to manage them and employees trained in their use. These procedures are regularly tested and updated, where appropriate.
Conflict of interest requirements in MBC are objective standards designed to eliminate certain specific potentially compromising situations from arising to protect the individual, other members of the firm and the public. MBC ensure, where practical, that individuals are not placed in a situation where others could reasonably question their integrity, or their work, because of the existence of any conflict of interest.
The conflict management policy within MBC is appropriate to the firm’s business model, including its size and organisational structure, the expertise of its clients and the nature of the service it provides.
In addition to management controls and procedures employees are able to recognise when their actions are, or are likely to, conflict with the interest of MBC or, more importantly, their client. In all cases, where measures designed to manage potential conflicts in individual circumstances do not meet, adequately reduce or resolve the prospect of conflicts arising, consideration is given to withdrawing those services from clients.
The role of Senior Management
Senior Management are fully involved in conflict identification and management. They are not necessarily personally involved in every decision however they do assure themselves that decisions taken within the frameworks set up to identify and manage conflicts are consistent with their desired approach, for example, that complaints are being approached openly and independently.
Senior Management view risks and consider mitigation across the full range of activities for which they are responsible. Mechanisms are in place which allow them to assess the totality of conflict within the firm and how this is being managed.
To achieve consistent treatment of conflicts of interest throughout their organisation, Senior Management have set clear guidelines for the type of activities that generate conflicts which they feel cannot be adequately managed and should not be engaged in. Systems and controls are designed to reflect the nature and seriousness of differing classes of conflict and be able to identify the persons accountable for making decisions at differing levels. Guidelines include the types of conflict that should be escalated to senior management for a decision on whether the conflict can be mitigated.
Mitigating conflicts of interest
Methods of mitigation are designed for the types of conflicts MBC has decided can be managed. Consideration is given to the level of risk mitigation that is required to ensure that it is within the MBC’s risk management capability. Senior Management receive management information on the extent and mitigation of conflicts of interest and this information is used where appropriate.
Specific methods which are used to manage potential conflicts include:
- a hospitality and/or gift register;
- restrictions on gifts and hospitality individuals may accept;
- information barriers or ‘chinese walls’ between different business units to prevent free flow of confidential information;
- changes to remuneration arrangements for the firm and individual staff to avoid incentives and targets which may encourage misuse of information or giving poor advice;
- increasing disclosure to clients and obtaining informed consents from them;
- information systems designed to provide timely and accurate information;
- reporting structures to build in checks and balances to promote objective judgement;
- recording of and justification for decisions when selecting products or suppliers;
- documenting why and how recommendations are being made to customers;
- complaints handling and claims settlement procedures.
The culture of MBC is a key mitigating tool for the management of conflicts of interest. Culture is a combination of both formal structures and procedures (such as company policies on remuneration, complaints handling, appraisals, KPI’s, discipline and training and any reporting tools for these) and informal structures including the values and ethics of the firm and the individuals who work in it.
Corporate governance plays an important role in the management of conflicts of interest. Problems arise when incentives drive the organisation to deliver shareholder value over customer satisfaction. Senior Management’ bonuses and share options are usually linked to financial performance rather than how well customers have been treated or compliance with regulation or codes of practice. This could mean customer interests are prejudiced in favour of shareholder interests. Public interest representation on boards or nonexecutive ‘user’ councils can assist in assessing whether policies are working and firms are delivering on their promises.
Where work is outsourced, MBC’s obligations to manage and deal with any conflicts of interest remain, so the relationship with our outsourcers ensures that they also meet these obligations.
What does this means for the individual
Behaving with integrity
Staff behave with integrity in all their professional and business relationships. Integrity implies not only honesty but fair dealing and truthfulness. Any advice given or work undertaken is not corrupted by self-interest or influenced to the detriment of personal integrity by the interests of other parties.
If staff are instructed or encouraged to engage in any activity which is unlawful or improper (including where this is part of their contract of employment) they are entitled to and should decline.
In making professional/business judgements and in giving opinions, staff do not allow prejudice or bias or the influence of others to override objectivity.
The interests of the employer do not affect the objectivity of the staff’s judgement.
Staff are aware of the difficulties which may arise from the offer or acceptance of any gift, favour or hospitality which may be intended to influence them or may be reasonably interpreted by a person being in full possession of the facts to be likely to have such effect. Inappropriate gifts or hospitality are be offered or accepted.
Any reports prepared for a customer or PA are accurate, truthful and, within its scope, complete and balanced. They do not contain ambiguities or half-truths or be based on unreasonable assumptions and be objectively justifiable.
The opportunity to have access to confidential information, if abused or misused, may confer an unfair competitive advantage. If staff use or intend to use confidential information not reasonably available to the public for their own direct and substantial economic benefit, such conduct constitutes a conflict of interest. The same principle applies if they disclose or intend to disclose information to other individuals or organisations in such a manner that a direct and economic benefit may be conferred on those individuals or organisations.
Any information acquired by staff from a customer is only used or disclosed in the normal course of providing the service which the customer requires unless the consent of the customer has been obtained or information is required because there is a legal or regulatory obligation to disclose. When staff change their employment they are entitled to use the experience they have gained in their previous employment but not confidential information of any description acquired or received by them. If staff acquire or receive confidential information deliberately or accidentally in the course of their professional work, to which they would not otherwise have access, they should neither use, nor appear to use, that information for their personal advantage or the advantage of a third party.
Behaving honestly and fairly
Staff are honest and fair in the way they hold themselves out to customers either by means of advertising or in the description of their role or the service they can provide. When staff give information in order to secure work, they ensure that it is:
- factual and relevant;
- not misleading or unfair.
Staff ensure that any advice, solutions and recommendations are based on thorough, impartial consideration and analysis of all the available pertinent facts and their relevant experience and are realistic and clearly understood by the client. If staff make a mistake they do not hesitate to admit the error, apologise and rectify matters promptly and fairly.
Staff take special care to uphold the best interests of clients at all times.
Staff do not accept any financial or other incentive from whatever source that could be construed in any way as a bribe or solicitation or favour.
Staff always provide timely and accurate information to customers. They make reasonable endeavours to ensure the truth and accuracy of every statement they make and any information provided to clients or to third parties and that they do not conceal any information which is pertinent.
Staff do not misuse or abuse their power or position. They act with courtesy and consideration and without discrimination towards any individual they encounter. This includes taking into account the likely level of understanding, financial or numeracy capabilities of customers.
Staff keep their promises.
Acting with due skill, care and diligence
Staff act only within the limits of their personal competence and any limits of authorisation. Staff undertake professional work only where they have the necessary competence required to carry out that work, supplemented if necessary by assistance and consultation.
Staff use their best endeavours to comply with the relevant standards or, where they do not, ensure the reasons for such non-compliance are stated truthfully, unambiguously and fairly.
Risk Warning Notice
Contracts for difference may be subject to rapid and unexpected price movements and past performance is not necessarily a guide to future performance. Trading in these markets is generally considered to be suitable only for the more experienced investor as it poses a risk of loss to your capital. An investor may not receive back the amount of their original investment and in certain circumstances may be liable for a sum that is greater than their original investment. Tax treatment depends on your individual circumstances and may be subject to change in the future. If in any doubt please seek further independent advice.