Two of the largest sectors within Guernsey’s finance industry have met expectations set by their own regulator around managing conflicts of interest.
The Guernsey Financial Services Commission recently tested the Investment and Fiduciary sectors.
It reviewed a selection of licensees to understand the types of conflicts of interest they encounter, while considering the controls used by licensees to identify and manage any conflicts of interest.
In both sectors, the GFSC found that “in general, firms appropriately identify, manage and record conflicts of interest that arise during the course of doing business, using a combination of policies, procedures and periodic training”.
The Commission said it was encouraged to see examples of firms recording the specific controls that had been implemented to manage each conflict.
Separate reports have been issued for both the Investment and Fiduciary sectors.
In relation to the Insurance sector, the Commission said: “Overall, the controls used by licensees to identify and manage conflicts of interest met the Commission’s expectations.
“It was apparent from the review that licensees are cognisant of the importance of identifying conflicts arising from clients and staff at an early stage, and are implementing appropriate measures to mitigate any conflicts to ensure that they are always acting in the best interest of their clients. Further, licensees were mindful of the requirement to disclose conflicts to clients in cases where the controls used to manage conflicts of interest are not sufficient to ensure that the risk of damage to client interests will be prevented.
“All licensees that participated in the review had suitable conflict of interest and gift and hospitality registers. Whilst the Commission was pleased to find licensees were adequately recording conflicts of interest that have been identified, the Commission expects licensees to consider documenting the specific controls that they have implemented to manage each conflict of interest.
“Licensees have generally established adequate policies and procedures that comply with the requirements of the COB Rules, the Principles of Conduct and the Code of Corporate Governance. Staff training was widely utilised to embed controls, and the effectiveness of such controls was tested via licensees’ CMPs.
The Commission expects licensees to consider the types of conflicts of interest in their business and the effectiveness of their management of them in light of the information in this report.”
Regarding the Fiduciary sector it said: “The Fiduciary Rules require licensees to be impartial, not to unfairly place its interests above those of its clients and ensure fair treatment between clients. The Commission found that licensees clearly understood the inherent conflict between a director’s fiduciary duty to both the licensee and the client,
and the importance of ensuring that a licensee does not unfairly place its interests above those of its clients.
“Some licensees were found to have focused mainly on director-centric conflicts. Licensees should consider whether other types of conflicts that were reported via this thematic review exist within their business.
“Overall, the controls used by licensees to identify and manage conflicts of interest met the
Commission’s expectations in most cases. It was apparent from the review that licensees are cognisant of the importance of identifying conflicts arising from clients and staff at an early stage and implementing appropriate measures to mitigate any conflicts and ensure that they are always acting in the best interest of their clients. The broad range of measures used by licensees to manage or mitigate the risks stemming from conflicts of interest provided a strong indication that licensees are conscious of the risks associated with conflicts of interest and the importance of managing these risks.”
The Commission has also created a “non-exhaustive list” of types of conflicts of interests that it discovered through its review.
There was some cross over between the two sectors with potential conflicts of interest including “gifts or hospitality”, “retrocessions”, the “vested interest of director/employee in a client”, “competing client interests”, and “shareholder-director influence”.
