Conflicts of Interests requirements under Principle 2 the Code of Practice for Investment Business

Summary

This guidance note from the JFSC sets out expectations for registered persons carrying on investment business under the Code of Practice for Investment Business (IB Code), specifically regarding the conflicts of interest requirements in Principle 2. It explains the underlying Code obligations and provides supervisory guidance on how firms should structure policies, procedures and disclosure practices to identify, avoid and manage conflicts of interest.

• Core Code requirement: Principle 2 requires a registered person to have the highest regard for the interests of its clients.
• Identification and prevention: Paragraph 2.11 requires a registered person, or an appropriate delegated sub-committee, to identify and manage conflicts of interest and take steps to prevent them arising.
• Handling conflicts that arise: Paragraph 2.12 requires effective procedures where conflicts do arise, including disclosure to the client, internal confidentiality rules, declining to act, or other appropriate measures.
• Policies and procedures: Registered persons should maintain conflicts of interest policies and procedures proportionate to the complexity and size of the business, periodically reviewed for robustness and adherence.
• Conflict scenarios to consider: Firms should assess whether the firm or an associate might gain financially at a client's expense, hold a distinct interest in an outcome, be incentivised to favour other clients, or receive third-party commissions (non-exhaustive list).
• Disclosure as last resort: Where mitigation does not give reasonable confidence the client risk is avoided, the conflict must be disclosed to the client in writing, in clear and understandable language; disclosure alone should be uncommon and accompanied by proportionate controls.
• Governance oversight: Periodic reviews of conflicts that have arisen should be undertaken, with reporting to the Board of Directors or governing body at least annually.

The guidance clarifies that satisfying suitability requirements elsewhere under Principle 2 does not remove or reduce the separate obligation to identify, avoid and manage conflicts of interest under paragraphs 2.11 and 2.12 of the IB Code.

Key obligations

• Identify and manage conflicts of interest and take steps to prevent them from arising (IB Code para 2.11), directly or via an appropriate delegated sub-committee.
• Have effective procedures to address conflicts that do arise, including disclosure, internal confidentiality rules, declining to act, or other appropriate measures (IB Code para 2.12).
• Maintain conflicts of interest policies and procedures proportionate to business size and complexity, and periodically review them for robustness and adherence.
• Identify, manage and record all conflicts of interest arising from business activities within the firm's policies and procedures.
• Disclose a conflict to the client in writing, in clear and understandable language, where not reasonably confident that mitigations have avoided the client risk.
• Undertake periodic reviews of conflicts that have arisen and report on this to the Board of Directors or governing body at least annually.

Applies to

registered persons under the Financial Services (Jersey) Law 1998 carrying on Investment Business

Deadlines

• at least annually: Reporting on periodic reviews of conflicts of interest that have arisen must be provided to the Board of Directors or governing body at least annually.