CONFLICTS OF INTEREST WITHIN MiFID II/UCITS
Markets in Financial Instruments Directive II (“MiFID II”) and UCITS Directive has stipulated the need to identify and manage all conflicts of interest (not just material conflicts) arising as a result of the firms’ business activities. The use of disclosure of a conflict as a means of management is to be treated as a measure of last resort to be used only when the policies and procedures listed below are not sufficient to ensure that the clients’ interests will not be affected.
The below policy must be reviewed and a report provided to senior management on the situations recorded within the conflicts register at least annually.
REGULATORY AND LEGAL BACKGROUND
RESPONSIBILITIES OF STAFF
It is the responsibility of all employees/ contractors to familiarise themselves with this Policy and to report conflicts of interest to the Head of Compliance. Failure to adhere to this policy can be taken to be a breach of an employee’s contract.
Overall responsibility for Conflicts of Interest lies with the Employees/ Contractors. The Head of Compliance is responsible for the day-to-day administration of the Policy.
The Head of Compliance will work with Employees / Contractors to identify and manage Conflicts of Interest, and record on the Conflicts register.
TYPES OF CONFLICTS
A conflict of interest can arise in any area of DW’s business in the course of providing a service and whose existence may damage the interests of a client. As a minimum, it must take into account whether it or a relevant person:
EXAMPLES OF CONFLICTS OF INTEREST
Below are non-exhaustive examples of what may be considered typical conflicts of interest that may arise in relation to investment services provided by DGW:
IDENTIFICATION AND MANAGEMENT OF CONFLICTS
DGW procedures are designed to ensure that persons engaged in different business areas involving a conflict of interest must carry out their activities with a sufficient degree of independence.
As such in line with COBS 10, DGW must have in place the following to ensure the appropriate degree of independence:
CONTROLS
To manage the above conflicts and ensure effective arrangements are in place DGW implements the following controls, all of which are subject to compliance monitoring to ensure adherence.
1. Conflicts of interest register
DGW retains a record of circumstances in which a conflict may, has or will arise as a result of firm activities, known as the conflicts of interest register. The register records the type of conflicts, as well as how the conflicts are managed. The register is updated as and when new conflicts are identified. It is the responsibility of DGW employees to inform Compliance of any conflicts as soon as they are identified and the actions taken to manage the conflict.
The information within the register facilitates the effective identification and management of any potential conflicts of interest.
2. Chinese Walls
Chinese Walls are used to act as an information barrier to prevent sensitive information being passed between different areas of DGW. DGW also utilises insider lists and wall crossing procedures in order to control information. DGW consistently monitors these procedures to ensure they are functioning properly. In addition, each department’s electronic files have restricted access to ensure only relevant persons can access those files.
3. Personal Account Dealing (“PAD”)
Employees’ and agents’ personal interests in holdings of securities, or in dealing in securities, may conflict with their obligations to either corporate or investing clients. DGW PAD policy requires all members of staff to inform compliance of all existing trading accounts and seek approval of all trades prior to the trade taking place, either via self-certification or directly informing compliance. Particular restrictions apply to any employees dealing in securities issued by corporate clients. Full details are contained in the firm’s PA Dealing Procedures and Requirements, in the Compliance Manual. All employees are required on joining the firm to sign an Undertaking to comply with the firm’s P.A dealing policies, and are also required to reconfirm this, when completing the annual Fit and Proper Questionnaire
4. Restricted Trading Lists
To comply with regulations and to avoid the appearance of impropriety, DGW maintains restricted trading lists. This is a list of securities, which are subject to restrictions in Directors, Contractors and employee personal account trading (as set out in the PAD policy).
Directors, Contractors and employees are prohibited from trading in securities in the market whilst they remain on the list.
5. Training and Competency
DGW requires that in its dealings with customers, its employees / contractors must maintain the highest standard of integrity at all times.
The induction process, Training and Competency procedures, ongoing training programme and monitoring programme are designed to ensure that all relevant staff are familiar with and observe the FCA Principles for Business and the Statements of Principle and Code of Practice for Approved Persons.
6. Gifts and Entertainment
It is the policy of the firm that Directors, Contractors or employees may not accept or give a gift or entertainment valued at over £100, without the prior consent of the Compliance Officer. Such permission must be withheld if a conflict is considered likely between the firm’s clients and the employee / contractor. All gifts and hospitality received, of whatever value, must be notified to Compliance. Full details are set out in the Compliance Manual.
7. Best Execution
In order to ensure as fair treatment as possible for customers, the DGW Order Execution Policy requires DGW to take all sufficient steps to achieve the best overall trading result for the
customer and to exercise a consistent approach across all markets, clients and financial instruments in which we operate.
8. Outside Interests
Employees and agents may not accept any employment or business interest outside DGW without the prior written approval of the Board, who consider the potential for conflicts of interest before granting permission for any such interest. The Compliance Department maintains a register of all employees’ outside business interests, which is monitored for conflicts.
9. Compliance Monitoring Programme
The Compliance Department is responsible for monitoring the firm’s policies and procedures for identifying and managing conflicts of interest, and for ensuring that any issues identified as a result of this monitoring are recorded on the Conflicts Register, as well as testing the arrangements in place for existing conflicts to ensure they are appropriate and being adhered to. A formal risk-based monitoring programme is in place.
10. Remuneration
DGW has adopted a remuneration policy which aims to ensure that DW:
UCITS Funds Remuneration Policy
A separate UCITS Remuneration Policy is in place which ensures that relevant persons are remunerated both on quantitative commercial criteria as well as taking into account compliance with regulations, the fair treatment of clients and quality of service provided to clients. (This also applies to generic DGW remuneration) In addition the UCITS policy also ensures that where relevant persons are engaged in different activities where a conflict may arise in relation to those activities, there is no direct link to their remuneration.
11. Declining to Act
If a potential conflict of interest is considered too great to be reasonably managed DW will decline to act for that client.
12. Telephone and Email Monitoring
Compliance carries out regular telephone and email monitoring which incorporates conflict of interest monitoring.
13. Employees/ Contractors attestation
On an annual basis all employees/ Contractors are required to complete an attestation which includes a declaration confirming they are aware of their responsibilities towards conflicts of interest and that where identified they have been notified to the Compliance Officer.
Disclosure of Conflicts
If the above arrangements are not sufficient to ensure, with reasonable confidence, that risks of damage to the interests of a client will be prevented, DGW must clearly disclose the following to the client before undertaking business for the client and thus disclosure should only be used as a last resort for the management of a conflict and all other options should be carefully explored, before making a ‘Disclosure Statement’:
– The general nature or sources of conflicts of interest, or both and
– The steps taken to mitigate those risks.
The disclosure must:
– Be in a durable medium.
– Acceptable: paper or email – if email address is provided
– Not acceptable: telephone or face to face
– Clearly state the organisational and administrative arrangements established by the firm to prevent or manage that conflict are not sufficient to ensure, with reasonable confidence, that the risks of damage to the interests of the client will be prevented.
– Include specific description of the conflicts of interest that arise in the provision of investment service or ancillary services.
– Explain the risks to the client that arise as a result of the conflicts of interest.
– Include sufficient detail, taking into account the nature of the client to enable that client to take an informed decision with respect to the service in the context of which the conflict of interest arises.
The policy is reviewed annually and any proposed changes put to the Board of DGW for approval.
Should you wish to discuss anything further, please email compliance@dowgate.co.uk