Conflicts of interest
Here, we give links to information on conflicts of interest:
In summary, SYSC 10 requires common platform firms to:
- take all reasonable steps to prevent conflicts of interest from giving rise to a material risk of damage to the interests of clients;
- implement and operate an effective written policy for identifying and managing conflicts of interest;
- specify in the conflicts policy certain procedures and measures to ensure appropriate independence and further steps if these prove inadequate;
- disclose the conflict to the client, if the arrangements under the firm's policy are not adequate to prevent material risks of damage to a client; and
- in considering its own policy in respect of its duties to its clients, take account of any circumstances, of which the firm is or should be aware, which may give rise to a conflict arising as a result of the structure and business activities of other members of the group.
The new rules on conflicts of interest
The new rules on conflicts of interest are set out in SYSC 10. You can access them via our full Handbook online through 'High Level Standards' and 'SYSC'. For common platform firms, this will replace our current material in COB Chapter 7.1, 5.10 and 2.4.
FSA publications
- Chapter 9 of CP06/9: Organisational systems and controls: common platform for firms covers our proposals to implement the MiFID and CRD provisions for the effective management of conflicts of interest for common platform firms.
- Chapter 8 of PS06/13: Organisational systems and controls - common platform for firms, states that the respondents to CP06/9 generally agreed (albeit with a few exceptions which are detailed in the document) with our proposals for a common platform approach to the conflicts management requirements.
- Chapter 8 of CP07/23: Organisational systems and controls - extending the common platform presents our proposal to extend the application of SYSC 10 to non common platform firms in a proportionate manner. The consultation closes on 19 March 2008.
- Note that the MiFID provisions on conflicts of interest in investment research and inducements have their own pages in this section.
Conflicts of interest in the Level 1 and Level 2 MiFID text
MiFID comprises two levels of European legislation. 'Level 1', a Directive of the European Parliament and Council, was adopted in April 2004. In several areas, including conflicts of interest, Level 1 provides for its requirements to be supplemented by 'technical implementing measures' – known as Level 2 measures.
MiFID Level 1 Directive - Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004
- Article 13(3) requires a firm to maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps designed to prevent conflicts of interest from adversely affecting the interests of its clients.
- Article 18 requires firms to identify conflicts of interest and to clearly disclose such conflicts where organisational or administrative arrangements made to manage conflicts are not sufficient to ensure, with reasonable confidence, that risks of damage to client interests will be prevented.
The Level 2 Directive Commission Directive
- Article 21 sets out the requirement to identify conflicts potentially detrimental to a client.
- Article 22 requires a firm to have a conflicts policy and details the content of the policy.
- Article 23 requires firms to keep and regularly update a record of the kinds of services or activities giving rise to conflicts.
