This document summarises the policies and procedures in place with Prime Markets Ltd (Prime), for identifying, minimising and managing conflicts of interest.
In the UK the high level regulatory obligation in respect of conflicts of interests is set out in FSA’s General Principle 8 which states that “The firm must manage conflicts of interest fairly, both between itself and its clients and between a customer and another client”.
There follows some guidance regarding the content of a conflict of interest management policy, which has been produced in light of our understanding of the FSA’s expectations and industry good practice.
Identification of actual or potential conflicts of interest
We are required to set out the processes in place to identify and assess conflicts of interest occurring across the business.
In designing, implementing and documenting these processes, we must ensure that:
- Senior management are fully engaged in all aspects of conflicts identification;
- Senior management take a holistic view of conflicts of interest across the full range of business activities that the firm conducts;
- Staff are aware of the need to notify relevant senior management of any new conflicts of interest occurring within the business; and
- A record of all the actual or potential conflicts of interest occurring across the business is made and retained.
- Commitment to conflicts of interest management
The FSA expects all regulated firms to identify and manage the conflicts of interest occurring across their business and that the management of conflicts of interest it vital to maintaining orderly and efficient markets and ensuring that clients are treated fairly.
We are committed to treating our clients fairly and that we will never knowingly put ourselves in a position whereby our own interests, our duty to our business partners, or to any other persons on behalf of which we are acting conflicts with our duty to a client.
Furthermore, we recognise that there are instances whereby conflicts of interest are unavoidable and that it is committed to putting systems and controls in place to mitigate and manage such situations.
2) Senior management responsibility for managing conflicts of interest
The business activities of Prime includes the provision of investment advice and the arranging of client orders in CFD products. Therefore the senior management of Prime have identified the potential conflicts of interest between Prime and our clients, or the duties owed by Prime to different clients.
FSA’s expectations and industry good practice suggests that:
- A director or suitably senior manager should be apportioned overall responsibility for designing and implementing systems and controls to identify, mitigate and manage conflicts of interest; and
- The wider senior management team will be fully engaged in all aspects of conflicts of interest identification, management and mitigation.
3) Definition of conflicts of interest
A conflict of interest is usually a financial or other type of interest that may result in a decision being made or action being taken which is not in the best interests of clients. FSA guidance suggests that conflicts of interest fall into 3 main categories:
- Conflicts between the firm’s interests and its duties to customers;
- Conflicts between any business partner’s interests and its duties to clients; and
- Conflicts between the competing interests of one or more clients.
Some firms choose to adopt a wider definition of conflict of interest and include:
- Conflicts between the firm’s interests and its duties to business partners; and
- Conflicts between the firm’s interests and its duties to shareholders.
Examples of potential conflicts might include:
- Staff Remuneration Schemes – the remuneration structure for financial advisers may encourage the sale of products or services irrespective of the suitability of those products and services;
- Commission arrangements – the commission arrangements that we have in place with different product or service providers may prompt the firm to proactively encourage the sale of one type of product or service or the choice of one provider over another irrespective of the client’s best interests;
- Gifts, entertainment, hospitality and other inducements that influence your decision to do business with one product or service provider over another irrespective of clients’ interests;
- Close links with other firms that may influence your decision to do business with one product or service provider over another irrespective of client’s interests;
- Shareholdings & other financial interests in a product or service provider may influence X’s procurement decisions irrespective of a client’s interests;
- Personal Relationships with the senior management team at product and service providers may influence X’s procurement decisions irrespective of a client’s interests;
- Business strategy - Senior management’s desire to maximise profit may be incompatible with their responsibility to ensure that their business is conducted compliantly;
- Staff undertaking personal account dealing in such a way that might give rise to a conflict of interest with the asset management services being provided;
- engaging in proprietary trading in such a way that might give rise to a conflict of interest
- with the asset management services being provided;
- dealing in securities issued by an affiliated company or the client or client of an affiliated company;
- aggregating client orders for the purpose of trading; and
- undertaking excessive turnover of holdings in a client’s investment portfolio in order to generate higher fees or levels of commission.
The above are high-level examples of potential conflicts of interest. This list should not be considered exhaustive. Furthermore, this list should not be considered an accurate reflection of the types of conflicts of interest that might arise in our business.
Systems and controls to manage conflicts of interest
The systems and controls have been designed and implemented to monitor, manage and mitigate the actual and potential conflicts of interest occurring across the business.
A high-level description of these systems and controls are detailed below:
- A policy of independence – i.e. a policy whereby an employee disregards any corporate or personal relationship, arrangement or interest that is likely to influence, in a manner material to the client, the advice given or action undertaken in relation to the transaction or service in question;
- Disclosing the conflict of interest to the client; and
- Where necessary, declining to act for that client.
- Specific systems and controls includes:
Remuneration arrangements that ensure that a balance is maintained between achievement of sales volumes/product profitability and client care;
- Documented procurement procedures are in place for new business partnerships, which ensure that commercial and client interests are taken into account;
- Gifts procedures, including the maintenance of a gifts register;
- Personal account dealing procedures;
- Chinese walls;
- Segregation of duties;
- Dealing processes which provide for best and timely execution;
- Dealing procedures which provide for fair aggregation and allocation of client orders;
- Procedures for dealing with close connections and outside business activities, which include the need to disclose relevant connections and activities; and
- Disclosure documentation which sets out the scope of the service being provided and gives a description of the parties to that service and the inter-relationships between those parties.
The above are high-level examples of the sorts of systems and controls that are in place to manage conflicts of interest. This list should not be considered exhaustive. Furthermore, this list should not be considered an accurate reflection of the systems and controls relevant to us.
Methods of Managing Conflicts
Senior Management receives regular management information that enables it to assess the effectiveness of the systems and controls in place to manage conflicts of interest. There are processes in place to ensure that this management information is considered and that remedial action is undertaken where necessary.
Independence Policy and Segregation of Duties
Prime operates a formal policy of independence, which requires any employee giving advice or recommends a transaction to a client, to disregard any relationship, arrangement or interest of their own or Prime which may influence the advice or recommendation.
Disclosure of Conflicts
We must clearly disclose the general nature and/or the source of any conflict to the client(s) before accepting any business on behalf of the client. Prime discloses any conflicts of interest to both corporate and broking clients when required. The notification to clients must be clear and not misleading and must take into account the client’s level of understanding to enable the client to make an informed decision about the services involved.
All investment research contains both specific and general disclosures of interest. July 2011