Conflicts of Interest in Practice – Part 2: Systems to identify, mitigate and review

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This is the second article in a two-part series on conflicts of interest in financial services. In this series, Brooke Benson, Compliance Consultant at CompliSpace, will build upon the insights and concerns identified by ASIC and provide practical insights on the management of conflicts of interests in financial services businesses. Part Two will explore key business systems to enable you to effectively manage conflicts of interest.  

How often are conflicts of interest considered in your business? Do they form part of the standing agenda items of your boards and committees? Or are they part of your due diligence processes?

The management of conflicts of interest is often an issue which does not attract much ongoing attention by an organisation – a set and forget approach is usually taken.

However, investing attention in conflicts of interest issues makes good business sense. If you get it wrong, the consequences can be severe and costly. In some cases, it may include enforcement action or a forced restructure of business units, roles and remuneration structures.

So what steps should you consider taking to effectively manage conflicts of interest in your business? Below are some practical suggestions which you may wish to adopt as part of your organisation’s governance activities.

Policies and Procedures

  • Make your policies and procedures relevant to your organisation and enable them to ‘come alive’ by including examples of how conflicts of interest may arise in your organisation. Also, identify the key people in your organisation that staff may seek guidance from, and report conflicts of interest to.

Training, Awareness and Ownership

  • Add conflicts of interest to the ongoing training agenda to keep the issue front of mind within your organisation. Training sessions should address how to identify a conflict of interest; reporting mechanisms within your organisation; and examples of how conflicts have arisen in your organisation and how they were managed, including any lessons learned.
  • Share experiences with managing conflicts and interest and communicate these to all staff. We suggest drawing examples from past conflicts of interest registers, including the controls which were put in place to manage the conflict.
  • Make the identification and reporting of conflicts of interest the responsibility of everyone in your organisation. Consider conducting a workshop to identify conflicts of interest within your organisation and to draw attention to the issue.

Due Diligence

  • Include identifying and managing conflicts of interest as part of your formal due diligence process. Ask all staff involved in the delivery of a new product, or use of a new supplier, to consider if a conflict of interest exists at an individual or organisational level.
  • Address the issue of conflicts of interest in all executive or board briefing papers, including the identification of any conflicts and suggested controls to be put in place to manage the conflict.

Reporting, Record and Metrics

  • Undertake regular reviews of your organisation’s conflicts of interest policies, procedures and register to ensure their currency and accuracy.
  • Ensure reviews and controls are implemented consistently and in accordance with your organisation’s policy.
  • Develop and report key metrics such as staff training records, project certification, annual director and staff attestation conflict types (related party, remuneration etc.) and resolution types.

Remuneration

  • Consider and review bonuses, incentives and rewards to ensure that they are not creating potential conflicts of interest.

On this point ASIC has indicated that it will be paying particular attention to this issue and it may be subject of future reports and guidance.

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