Effectively managing conflicts of interest is a cornerstone of a robust compliance program. Left unchecked, conflicts of interest can undermine the effectiveness of both the firm and the financial markets.  

What is an Employee Conflict of Interest? 

A conflict of interest occurs when an employee's personal interests, relationships, or activities outside of work interfere with their ability to perform their duties impartially, in the consumer's best interest and in compliance with firm policy and industry regulations.  

Examples of employee conflicts of interest include: 

• Personal Account Trading  

• Close Personal Relationships 

• Outside Business Activities 

• Gifts and Entertainment 

• Political Contributions and Donations  

What is a Conflict of Interest in the Transactions of a Firm? 

Conflicts of interest can occur when personal interests impact professional decisions when conducting and approving transactions in the firm's financial products. Examples include: 

• Deal Review 

• Customer Suitability  

• Research Reports 

• Information Barrier Procedures 

• Material Non-Public Information Management 

• Insider List Management 

• Payments and Money Movement 

What is a Third-Party Conflict of Interest? 

A third-party conflict of interest occurs when a financial institution or its representatives have relationships with external entities that could influence their professional judgment or actions. These conflicts can be found in relationships with customers, partners, vendors and suppliers. 

Steps to Managing Conflicts of Interest 

Chief Compliance officers and their teams must ensure that actual and potential conflicts of interest are identified, disclosed and adequately managed with appropriate controls for risk mitigation by taking the steps below: 

• Design and create a Conflicts of Interest Policy 

• Communicate the Conflicts of Interest policy when on-boarding all new hires and regularly to existing employees. 

• Train and educate all staff on the conflicts of interest policy with real-life case studies they can understand 

• Ensure any people manager is well trained in conflicts of interest identification and how to manage this 

• Create a process for any staff member to raise the identification of a potential conflict of interest 

• Develop an adequate process for management to review identified conflicts and implement mitigation steps to manage actual or potential conflicts of interest 

• Implement a continuous monitoring technique, such as an annual review of identified conflicts (and requesting updated declarations) to ensure they are current. 
  

Design and Create a Conflicts of Interest Policy 

Your conflicts of interest policy and procedures should be clearly written and readily available for staff to read and understand. It is good practice to include: 

• Written examples of "What are Conflicts of Interest?" 

• The firm's approach to managing conflicts 

• Staff responsibilities, including for Supervisors, Senior Managers, Directors, Board Members and Approved persons  

Within MyComplianceOffice's Conflicts of Interest Management software, policies and procedures can be stored for easy access by all employees. In addition, as part of annual attestation, employees can be sent the Conflicts of Interest policy, forced to download the document and attest they have read the policy.   

Train Staff on Conflicts of Interest Policy 

Your conflicts of interest policy should be communicated to staff when on-boarded and regularly throughout their employment. Effective compliance training includes creating not just a group-wide training program, but also specific scenarios relevant to that employee's department. Training for conflicts of interest should at least be completed annually. Time-based compliance training after an incident is also important and could be achieved with bite-sized (5-10 minute) training explaining the case and how to prevent it in the future. Senior managers, supervisors, and other senior executives should also be aware of their responsibility to review employee-identified conflicts and create a management plan. 

Identify Conflicts of Interest 

Many organizations will require employees to declare their conflicts in areas including Personal Trading, Outside Business Activities, Gifts and Entertainment, Personal Relationships or Political Contributions in accordance with firm policy.  

Conflicts of Interest management software like MyComplianceOffice streamlines the attestation process, saving compliance teams from the manual work of logging individual disclosures and managing spreadsheets with efficient automation that flags the attestations that pose potential conflicts for review and disposition. Using an online portal to identify and declare conflicts for review and management steps allows the direct manager and compliance manager to answer their questions about the identified conflict so a centralized register of compliance risk can be maintained for each employee.  

MyComplianceOffice allows firms to create and send questionnaires to employees at least annually, displaying existing conflicts of interest, allowing edits and creation of new conflicts of interest, and automating and streamlining the work of keeping conflicts of interest registers relevant and up to date. 

Having a single platform like MyComplianceOffice takes that picture of employee risk to a higher level, enabling cross-surveillance of behavior across the various areas of compliance. Data, including broker feeds and political contribution lists, can provide verification that the information contained in required disclosures was accurate and as expected.  

Manage Conflicts of Interest 

How to manage conflicts of interest can vary depending on the type of conflict. Management should create a register of the potential conflicts and how they plan on managing them. These can be used to guide managers in handling a potential or actual conflict if they arise. Some examples include: 

• Review process for all remuneration for sales staff to ensure they don't create undue pressure 

• Automate Personal Account trading practices to identify and deny trading where conflicts exist with the employee's client or firm's trading 

• Implement appropriate reporting lines if employee personal relationships are identified 

• Implement appropriate reporting lines if two departments may conflict with each other 

• Implement physical and electronic virtual barriers to segregate information flow between potentially or actually conflicted departments 

• Notify clients of identified conflicts that may impact them and how they are being mitigated  

Monitor Conflicts of Interest 

Like any good enterprise risk framework, controls should be monitored over time to ensure effectiveness. Compliance should monitor conflicts of interest over time by activities including: 

• Reviewing Conflicts of Interest policy and conflicts procedures 

• Requesting employees to update their identified conflicts and provide an opportunity to raise new conflicts. 

• Reviewing department conflicts of interest type registers and how business conflicts are managed 

• Reviewing information barrier processes and procedures  

Why Conflicts of Management Software is Important 

Conflicts of management software is a crucial element of a firm's compliance program for several reasons: 

Maintaining Regulatory Compliance 

Regulators worldwide impose strict regulations regarding conflicts of interest that impact firms of all sizes. Failure to manage these conflicts can result in legal penalties, fines, and other sanctions. 

Protecting the Firm's Reputation 

A firm's reputation is one of its most valuable assets. If not properly identified and managed, conflicts of interest can lead to enforcement actions and negative publicity that damage the firm's reputation, leading to loss of business and difficulty attracting top talent.  

Maintaining Integrity and Trust 

When stakeholders perceive that decisions are influenced by personal interests rather than the best interests of the firm or its clients, trust is eroded. Managing conflicts of interest helps ensure that all actions are transparent and fair, maintaining the trust of clients, investors, and the public. 

Preventing Financial Losses 

Conflicts of interest can lead to final loss from fraud, embezzlement, or poor business decisions. By identifying and mitigating these conflicts, conflicts of management software helps prevent such losses, ensuring the financial health and stability of the firm.  

Creating a Culture of Compliance 

Conflicts of management software plays a crucial role in fostering a culture of compliance in a firm by providing insight that promotes transparency, accountability, and efficiency.