The FICC Markets Standards Board (FMSB) has published a transparency draft of a new statement of good practice on conflicts of interest – the ninth such statement since it was established in 2015.
The primary aim of the latest statement is to provide guidance for FICC market participants as they consider ways in which to identify, prevent, manage or mitigate conflicts of interest that arise both specifically in connection with their FICC markets business and more generally across their firm.
The document covers an important area for FMSB and divides conflicts of interest into three broad categories:
- Client versus Client – for example, different clients placing competing orders to deal in the same instrument;
- Firm versus Client – for example, a business area holding a risk position in connection with market-making activities, while another business area is advising investors with respect to an inverse economic position; and
- Employee versus Firm or Employee versus Client – for example, giving or receiving gifts or entertainment which may potentially impact the individual’s behaviour.
There are eight good practice statements which firms should look to when considering their own practice in this area, FMSB says, including having the necessary policies, procedures and training in place across a firm; having senior management provide oversight and governance around how conflicts of interest are identified and managed; and having controls in place to either prevent conflicts of interest from arising, as well as managing or mitigating those that do arise.
“In wholesale markets there are inherent conflicts of interest in the way firms operate – a firm’s interests in price movements may conflict with those of their clients, opening the way for possible misconduct,” says Mark Yallop, chair of FMSB. “This statement of good practice therefore covers a vitally important area in the work that FMSB is doing to improve conduct and raise standards across wholesale markets. That is why it is critical for firms to have robust policies and procedures in place which can identify, address and deal with any conflicts of interest that may arise.”
FMSB says members and other interested parties are invited to comment until 6 September 2019 on the proposed statement before it is finalised by FMSB. The final document is expected to be published shortly thereafter.