The Central Bank has completed a themed inspection on the identification and management processes for conflicts of interest in investment firms. Investment firms include MiFID investment firms and their branches and UCITS managers authorised to provide individual portfolio management. Issues identified are also relevant to firms authorised under the AIFMD as well as UCITS and UCITS managers who are not authorised to provide individual portfolio management as they give useful insight into Central Bank thinking and expectations. Under the MiFID, UCITS and AIFMD requirements, firms must establish, implement and maintain a conflicts of interest policy.
The issues identified during the themed inspection have been followed up with the relevant institutions directly to ensure that specific remedial actions are taken. The Central Bank has also sent a Dear CEO letter to all investment firms providing feedback on the findings and highlighting good and poor practices. This letter outlines that, in order to identify and manage conflicts of interest, a strong culture of compliance is essential to ensure that the best interest of the client is not negatively impacted. Appendix 1 of the letter highlights the key findings, Appendix 2 outlines good practices observed as well as poor practices.
The Central Bank expects the letter to be discussed , considered and minuted by the boards of the relevant investment firms by 30 June 2016. These firms will be expected to review their conflicts of interest policies and procedures, consider the good and poor practices in Appendix 2 against their own, review their current list of conflicts of interest and keep these up to date.
The themed inspection found that firms with a strong culture of client-focus and regulatory compliance managed the risks around conflicts of interest best. These best-in-class firms were aware of the potential for conflicts of interest to occur and ensured that they were mitigated accordingly.
Director of Markets Supervision, Gareth Murphy said: “An awareness and understanding of potential conflicts of interest goes hand in hand with a culture of looking out for clients’ best interests. This culture of awareness must be driven from the top and embraced by all employees of investment firms.”
Gareth Murphy, added: “The identification of conflicts of interest is a key step to ensuring that client detriment does not occur. If a firm cannot identify potential conflicts of interest then it will not be able to prevent an actual conflict from harming clients.”