Investment services - conflict of interest KLÁRA

Question 1

Does MiFID deal with conflict of interest?

Answer 1

Yes, MiFID has legal provision on conflict of interest provision. Also CDR and CDD

Question 2

What are the negative effects of COI?

Answer 2

COI can arise in the course of providing investment services between IF and clients or between two or more clients

It can damage the interests of clients

Question 3

What do IF need to do in regards to COI?

Answer 3

Identify, prevent and manage COI.

IF needs to disclose to the client and have his consent (if other arrangements are insufficient) or else decline to execute the transaction

Question 4

What are some examples of COI situations?

Answer 4

IF is likely to make financial gain at the expense of the client

IF has an interest in a service to the client which is distinct/different from the clients interests

IF can be in competition with the client

IF receives from third party, for example, gifts in relation to the service provided to clients

Question 5

What must an IF do in regards to COI prevention?

Answer 5

IF must have an effective COI policy

Keep records of service giving rise to COI for 5 years

and must have a Chinese wall

Question 6

What is a “Chinese wall”

Answer 6

Its an information barrier and separation of activities between departments with in the IF to make sure that no non-public information flows between departments