CONFLICT OF INTEREST POLICY

The purpose of a “conflict of interest policy” is to prevent and address potential conflicts of interest.

This note deals with such a policy when it is required as a condition of an AFS Licence.

ASIC PS 181 is not limited to advisers. It is not limited to commission or staff bonus disclosures.

In a financial service provider’s case, what sort of conflicts could arise? Possible conflicts might include:

• The company, its directors or staff could be involved with another organization which may have dealings with the company's customers;

• Outsourcing decisions, including participation in group service arrangements;

• Investment management decisions.

Whether or not the above, or similar possibilities, apply to you, every AFS Licensee is required to have a policy stating how you would identify and then manage these if they did arise.

The conflicts management obligation does not prohibit all conflicts of interest. It does not provide that a licensee can never provide financial services if a conflict of interest exists. Rather, the conflicts management obligation requires that all conflicts of interest be adequately managed.

Many conflicts of interest can be managed by a combination of internal controls and disclosures.

However, some conflicts cannot be managed in this way: where conflicts cannot be adequately managed through controls and disclosure, the licensee must avoid the conflict or refrain from providing the affected financial service.

In April 2006 ASIC released a discussion paper on managing conflicts of interest in the financial services industry.

The discussion paper uses hypothetical case studies illustrating real or perceived conflicts of interest across the financial services industry to explain ASIC’s views on how those conflicts should be managed.

The discussion paper suggests practical ways of managing different types of conflicts of interest and covers financial advisers (wholesale and retail), licensees, research report providers, product issuers and fund managers.

Read about ASIC's conflict of interest action against Citigroup.