Conflict of interest coming under greater FCA scrutiny
31 March 2019
Advice firms must review their conflict of interest policies and identify all conflicts whether actual or potential, says ATEB Consulting’s Steve Bailey
MiFID II tightened the regulations around how firms deal with conflicts of interest.
Firms must manage conflicts, not merely disclose them. Disclosure of a conflict of interest is a measure of last resort that should only be used where the organisational and administrative arrangements established by the firm to prevent or manage its conflicts of interest are not sufficient to ensure, with reasonable confidence, that the risks of damage to the interests of the client will be prevented.
The FCA has made it clear that over-reliance on disclosure will be a strong indication that a firm’s conflicts of interest policy is deficient and inadequate.
Disclosure being a last resort means that firms are expected to do everything possible to actually prevent and manage the conflicts.
Evidence from recent discussions about contingent charging, which we believe will be revisited in the impending FCA RDR/FAMR review, shows that regulatory scrutiny in this area is set to rise.
What is a conflict of interest?
A conflict of interest occurs when the interests of a client are at odds with the interests of the firm, an employee or another client.
With the upcoming FCA review in relation to RDR & FAMR implementation, ATEB believes that conflicts of interest could well raise its head again – especially the issue of contingent charging, which is unlikely to go away.
As such, ATEB believes that now is a good time for firms to review their conflict of interest policies and ensure that ALL conflicts have been identified, whether actual or potential and that appropriate controls are in place to manage these on a day to day basis.
Here are some examples to start the brain juices flowing:
Remember the FCA mantra “if it’s not documented, it’s not done”. So, the conflicts and controls should be documented.
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