“A firm must manage its conflicts of interest fairly, both between itself and its customers and between a customer and another client.”
Section 1 – Introduction
This document summarises IBP’s conflicts of interest policy. It sets out in broad terms the types of conflicts of interest that are relevant to clients of IBP and IBP’s means of managing those conflicts.
IBP sets out to manage conflicts of interest fairly. To that end, IBP maintains and operates arrangements which are designed to prevent any conflict of interest from giving rise to a material risk of damage to the interests of IBP’s clients.
Section 2 – Conflicts Overview
IBP is an integrated bank with a portfolio of businesses. There are a number of potential conflicts of interest that specifically exist within banks because they act for companies and individuals that are seeking to engage in a variety of activities.
The following are the most common types of conflicts faced by IBP:
Client v Client: This can occur where two IBP clients are on opposing sides of a transaction and IBP wishes to advise both parties (for example, where one IBP client wishes to buy another IBP client). It may be possible to manage the conflict through information barriers or by creating an ‘information box’ 1 within each advisory team, however it is also possible that one team could be required to stand down due to the perception risk surrounding the conflict (i.e. the perception that information may be shared between the two teams or due to regulatory requirements).
Client v Employee: This type of conflict usually occurs due to an employee’s shareholding or directorship of a company (for example, where an IBP advisory client is looking at a transaction where an IBP employee is a director/major shareholder of the counterparty). Such conflicts are mitigated through the PA Dealing Policy and requirements relating to outside business activities. Otherwise the resolution of such conflicts is usually treated on a case by case basis.
Firm v Client: This form of conflict may arise where IBP has an existing relationship with a client (e.g. a lending or shareholding exposure) and is considering an additional service to the same client. For example: Investec wishing to pursue an advisory relationship with a client to whom IBP already has a lending exposure. This conflict may be mitigated through a combination of informed client consent and disclosure. Additionally, trading businesses which act on both a principal and agency basis may be exposed to this conflict risk as traders may have an interest in putting the firm’s interests ahead of the clients where working a client order. Such conflicts are managed through our Order Execution Policy, appropriate training and surveillance of the trading businesses.
Firm v Employee: This type of conflict usually occurs either in circumstances similar to those detailed above relating to Client v Employee conflicts but may also arise in respect of the misuse of proprietary information of the firm. The former type of conflict is mitigated through the PA Dealing Policy and requirements relating to outside business activities. Otherwise the resolution of such conflicts is usually treated on a case by case basis. The misuse of proprietary information is dealt with elsewhere (for example in IT Security Policies).
Employee v Employee: This type of conflict may occur where there are personal relationships (which is defined as any intimate, romantic or sexual relationship) between colleagues. For example, this would include members of staff who supervise, lead, manage or have direct influence on the decision making for, another member of staff with whom they are in a personal relationship with (including but not limited to hiring, performance management or reward). This potential type of conflict is mitigated through the personal relationship disclosure procedure, which requires employees to disclose these relationships to the IBP or IBL Head of People & Organisation (P&O) or P&O lead within the business area in a timely manner.
Third Party: This type of conflict usually occurs when IBP contracts with a third party to provide goods and service or IBP steps into an outsourcing arrangement. In these scenarios an example of conflict could be an employee of IBP has a family member employed by the contacting third party. This type of conflict can also extend to relationships of a personal nature and should be assessed on a case by case basis.
1. Information box (also known as a deal tree) is where the equivalent of information barrier restrictions are created within a group/groups of individuals. This is often used to separate two teams located behind the same information barrier.
Section 3 – Identification and Management of Conflicts
It is the responsibility of all staff to ensure that conflicts of interest both inherent in business undertaken and specific to certain transactions and deals are identified, escalated and managed appropriately. To assist in conflicts identification, certain processes have been implemented within IBP.
Business heads are responsible for ensuring the appropriate management of day to day conflicts within their business unit. Certain inherent conflicts are managed through established policies, systems and controls. This includes:
Information Barriers - IBP uses effective information barriers as a means of managing potential or actual conflicts of interest. These information barriers prevent information passing from one part of the business to another. In general IBP use information barriers between the parts of the business that act for corporates/issuers, and the parts of our business that act for investors in those corporates. This means that, for example, when we are acting for a company planning a new issue of securities, that information will be withheld from those parts of our business who act for investors that might be acquiring shares in that company. Investors will be free to deal through our sales and trading teams as those teams will not have knowledge of the potential new issue
Wall Crossing Procedures – IBP has in place procedures relating to the provision of and distribution of inside information to public side employees.
Personal Account Dealing – Controls are in place to manage conflicts arising from personal account dealing. These are detailed in the IBP Personal Account Dealing Policy.
Gifts and Hospitality – The IBP Gift, Hospitality and Charitable Spend Policy details the controls in place to manage the conflicts arising from the provision or receipt of gifts or entertainment by IBP employees.
Outside Business Activities – IBP has in place policies relating to employees holding outside business activities. Such policies are detailed in the IBP Compliance Manual.
Co-investment Activities – These would be covered on a case by case basis, both where IBP and an employee may be looking to acquire or have an interest in a transaction, asset or fund.
Remuneration – IBP includes measures within its remuneration arrangements which ensure there is no direct correlation between rewards provided to employees engaged in one activity and the remuneration of, or revenues generated by different employees engaged in another activity where a conflict may deem to exist.
Personal relationships - IBP has in place procedures which set out the expectations of all employees to declare certain personal relationships (as defined in section 2) within the organisation to the Head of People and Organisation of IBP in a timely manner. Information of this type is dealt with sensitively and appropriately as necessary to mitigate against any conflict of interest.
Third party conflicts – IBP has in place policies relating to third party risk management which include the requirement to consider conflicts as part of the initial due diligence of third party relationships, with conflicts attestations incorporated into the risk matrix.
Additionally, certain business lines have additional conflicts management procedures to manage specific conflicts that arise from particular business activities.
Disclosure is a way of managing conflicts but should be used as a method of last resort.
When disclosure of a conflict is required, the disclosure shall clearly state that the organisational and administrative arrangements established by IBP to prevent or manage that conflict are not sufficient to ensure, with reasonable confidence, that the risks of damage to the interests of the client will be prevented.
The disclosure to clients must be made in a durable medium and it must also include a specific description of the conflict of interest that arises in the provision of investment and/or ancillary services, taking into account the nature of the clients to whom the disclosure is being made. That description must explain the general nature and/or sources of conflicts of interest, as well as the risks to the client that arise as a result of the conflict and the steps undertaken to mitigate these risks, in sufficient detail to enable that client to make an informed investment decision.
Section 4 – Escalation of Conflicts
Where employees identify a matter, business proposition or process which gives rise to a conflict of interest that may not be currently being managed by the embedded conflicts management framework, the potential conflict should be escalated to their line manager or Compliance.
Where such a conflict is identified, Compliance should be notified and will advise on the appropriate step which should be taken to manage the conflict ensuring that relevant stakeholders are included on any relevant discussions. Additionally, IBP has a designated Conflicts Officer whose responsibility it is to opine on conflict related matters of a particularly complex nature. Compliance will determine where a matter requires escalation to the Conflicts Officer.
The outcome of such discussions will vary depending on the particular circumstances but may include, inter alia:
The implementation of additional policies or controls to manage the conflict;
An amendment to a business practice or proposal in order to manage the conflict;
Information barriers/boxes or deal trees being established;
Disclosure to the client
IBP having to withdraw from a certain business or role in a transaction.