The FICC Markets Standards Board (FMSB) has published the final version of a Statement of Good Practice on the issue of conflicts of interest. The Board says the Statement aims to provide practical, working level guidance and examples for market participants to draw on, as they consider ways to prevent, manage and mitigate conflicts of interest that arise within their firms.
It explains that conflicts of interest may arise between clients; a firm and its client(s); and employees and a firm/client(s). These conflicts have the potential to be detrimental, not only to the firms involved, but to clients and the financial markets more generally, FMSB states, adding that dealing with them effectively is one way in which instances of this kind of market misconduct can be minimised.
The means of preventing, managing or mitigating conflicts of interest that are suggested in the Statement include periodic reviews within each business area to identify scenarios or situations that could potentially create a conflict, as well as ensuring the appropriate identification and escalation procedures for actual conflicts.
In 2018 The FMSB published a Behavioural Cluster Analysis study (BCA) which identified 25 types of behaviour relating to market misconduct that occurred repeatedly across the market enforcement cases reviewed. In many instances, market misconduct may indicate the existence of an undetected or unmanaged conflict of interest, it says.
The final Statement offers eight specific guidelines, including the reinforcement of the need for a firm to take appropriate measures to identify any conflicts, as well as ensure they have effective measures in place designed to appropriately manage and mitigate any conflicts which may arise. It also stresses the need for firms to have the appropriate escalation framework in place for any conflicts identified and that the necessary records are kept.
Senior management should provide oversight and governance around how conflicts of interest are identified and managed, and a written code of conduct should be available to staff, along with a training programme for all employees likely to be involved in potential conflicts of interest.
The Statement was issued previously as a Transparency Draft and the final version takes account of comments and feedback received from market participants and members.