FMSB Issues Draft Good Practice Statements on Conflicts of Interest

The FICC Markets Standards Board provides new guidance to help market participants identify, prevent, manage and mitigate conflicts of interest.

The FMSB (FICC Markets Standards Board) has published a draft Statement of Good Practice on Conflicts of Interest, as part of its work to improve conduct and raise standards across wholesale markets.

“In wholesale markets there are inherent conflicts of interest in the way firms operate – a firm’s interests in price movements may conflict with those of their clients, opening the way for possible misconduct,” said FMSB chair Mark Yallop.

“That is why it is critical for firms to have robust policies and procedures in place which can identify, address and deal with any conflicts of interest that may arise.”

The draft Statement of Good Practice aims to provide guidance for FICC market participants as they consider how to identify, prevent, manage or mitigate conflicts of interest that may arise in connection with their FICC markets business, as well as more generally across their firm.

The document divides conflicts of interest into three broad categories:

  • Client versus Client: e.g. different clients placing competing orders to deal in the same instrument
  • Firm versus Client: e.g. a business unit holding a risk position in connection with market-making, while another unit advises investors on an inverse economic position
  • Employee versus Firm or Employee versus Client: e.g. giving or receiving gifts which may impact the individual’s behaviour

There are eight Good Practice Statements which firms should look to when considering their own practices in in managing conflicts of interest.

  • Appropriate measures to ensure conflicts of interest are identified
  • Effective measures to prevent or appropriately manage and mitigate conflicts of interest
  • Policies and procedures in place for the appropriate escalation of conflicts of interest identified
  • A control framework to ensure conflicts of interest can be identified, prevented, managed and mitigated
  • Appropriate and up to date record-keeping with respect to any conflicts of interest identified
  • Senior management oversight and governance around how conflicts of interest are identified and managed
  • A written conflicts of interest policy, including procedures and code of conduct, as appropriate
  • A training programme designed to increase employee awareness and understanding of conflicts of interest policies and procedures

Interested parties are invited to comment on the proposed Statement, available here, by 6 September.

The FMSB is an independent body set up by market practitioners to improve standards of conduct in wholesale FICC markets. 

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