Conflict of Interest Management¶

Three-Step Hierarchy for Conflict Management¶

MAS-aligned best practice requires conflicts of interest to be addressed in this priority order:

AVOID — restructure activities to eliminate the conflict where possible
DISCLOSE — when avoidance is not possible, fully disclose the conflict to affected clients
MANAGE — apply controls (information barriers, oversight, declines) to mitigate residual risk

Disclosure alone is NOT sufficient — avoidance must be considered first.

Overview¶

Managing conflicts of interest is a fundamental regulatory obligation for financial institutions (FIs) in Singapore. MAS expects FIs to have robust frameworks to identify, disclose, manage, and where necessary, avoid conflicts of interest that may arise in the course of conducting regulated activities. This is particularly important in the context of representative management, where representatives often have access to confidential information and are in positions to influence client decisions.

The regulatory basis includes the Securities and Futures Act (SFA), the Financial Advisers Act (FAA), MAS Notice FAA-N16 on Disclosure of Remuneration, MAS Guidelines on Fair Dealing, and the Code of Conduct for representatives.

Identification of Conflicts¶

Types of Conflicts¶

Conflicts of interest in the context of representative management can arise in several forms:

Firm vs. client: Where the FI's commercial interests conflict with the interests of its clients (e.g., recommending proprietary products over more suitable third-party alternatives)
Representative vs. client: Where a representative's personal interests conflict with their duty to act in the client's best interests (e.g., recommending products that generate higher commissions)
Client vs. client: Where the interests of one client conflict with those of another (e.g., a representative acting for both buyer and seller in a transaction)
Information conflicts: Where a representative has access to material non-public information that could be used to benefit themselves or certain clients at the expense of others

Common Conflict Scenarios¶

FIs should identify and manage the following common conflict scenarios:

Commission-driven recommendations: Representatives recommending products based on commission structures rather than client suitability
Churning: Excessive trading in a client's account to generate commission income for the representative
Front-running: A representative trading ahead of a client order to benefit from the expected price movement
Personal relationships: Representatives managing accounts of family members, close friends, or business associates
Outside business activities: Representatives engaging in outside business activities that may conflict with their duties to the FI or its clients
Gift and entertainment: Representatives accepting gifts or entertainment from product providers, counterparties, or clients that may influence their judgment
Investment banking conflicts: Where the FI has investment banking relationships with issuers whose securities are recommended to clients

Disclosure Requirements¶

Disclosure to Clients¶

FIs and their representatives must disclose the following to clients:

Remuneration structure: Under MAS Notice FAA-N16, financial advisers must disclose the remuneration (including commissions, fees, and any other benefits) they receive in connection with product recommendations. This includes the amount or basis of calculation for commissions, trailer fees, and soft dollar arrangements
Material interests: Any material interest that the FI or the representative has in a transaction being recommended to the client
Conflicts of interest: Any actual or potential conflict of interest that may affect the objectivity of the advice or recommendation
Proprietary products: Where the FI is recommending its own products, this must be clearly disclosed to the client
Limited product range: If the representative can only recommend products from a limited range of providers, this must be disclosed

Disclosure to the FI¶

Representatives must disclose the following to their employer:

Personal financial interests: Any personal financial interest that could create a conflict with their duties
Outside business activities: Any outside business activities, directorships, or partnerships
Personal relationships: Any personal relationships with clients that could affect their objectivity
Gifts and entertainment: All gifts and entertainment received from or provided to clients, product providers, or counterparties above a defined threshold
Material changes: Any material changes to previously disclosed information

Management Procedures¶

Organizational Controls¶

Segregation of duties: Ensure appropriate segregation of duties between functions that may give rise to conflicts (e.g., separate sales and compliance functions, separate research and trading functions)
Reporting lines: Representatives should not report to individuals who may have conflicting interests
Product governance: Independent product governance committees to evaluate and approve products for distribution, separate from sales management
Remuneration design: Design remuneration structures that do not create incentives for representatives to act against clients' interests. Avoid purely commission-based remuneration; include compliance and conduct metrics in performance assessments

Policy Framework¶

The FI's conflict of interest policy should include:

Scope: Coverage of all types of conflicts that may arise in the FI's business
Identification procedures: Processes for identifying new and emerging conflicts
Assessment criteria: Criteria for assessing the materiality and risk of identified conflicts
Management measures: Specific measures to manage each type of conflict (disclosure, restriction, avoidance)
Escalation procedures: When and how conflicts should be escalated to senior management or the compliance function
Monitoring: How the effectiveness of conflict management measures will be monitored
Review: Regular review and update of the policy (at least annually)

Personal Account Dealing Policies¶

Scope and Requirements¶

Personal account dealing (PAD) policies apply to all representatives and other staff who have access to material non-public information or who are involved in making investment decisions or recommendations:

Pre-clearance: All personal trades in securities and derivatives must be pre-approved by the compliance function before execution
Restricted lists: Representatives must not trade in securities on the FI's restricted list (e.g., securities of companies for which the FI is conducting corporate advisory work)
Holding periods: Minimum holding periods for personal investments (e.g., 30 days) to prevent short-term speculative trading
Blackout periods: Prohibition on personal trading during blackout periods (e.g., around earnings announcements for companies the FI covers)
Reporting: Regular disclosure of all personal trading accounts and positions (typically quarterly)
Family members: PAD restrictions typically extend to the representative's spouse, dependent children, and any other person whose account the representative controls or influences

Monitoring and Enforcement¶

Trade surveillance: Automated monitoring of representative personal trades against the restricted list, client orders, and firm trading activity
Duplicate statements: The compliance function should receive duplicate brokerage statements for all representative personal trading accounts
Breach management: Clear consequences for PAD policy breaches, ranging from written warnings to termination depending on severity
Annual attestation: Representatives must annually attest to their compliance with the PAD policy and the completeness of their account disclosures

Gift Registers¶

Gift and Entertainment Policy¶

Threshold: Define monetary thresholds below which gifts and entertainment do not require pre-approval (e.g., SGD 100 per item, SGD 200 cumulative per counterparty per year)
Pre-approval: Gifts and entertainment above the threshold require pre-approval from the representative's supervisor and/or the compliance function
Prohibited items: Certain items are prohibited regardless of value (e.g., cash, cash equivalents, loans, personal services)
Frequency limits: Limits on the frequency of entertainment with any single counterparty to prevent the development of obligations

Register Requirements¶

Central register: Maintain a central register of all gifts and entertainment given and received by representatives above the minimum threshold
Required information: The register must record the date, description, estimated value, giver/recipient, business justification, and approval status
Review and analysis: The compliance function must regularly review the gift register to identify patterns that may indicate attempts to influence representatives
Retention: Gift register records must be retained for a minimum of 5 years

Chinese Walls and Information Barriers¶

Purpose¶

Information barriers (commonly known as "Chinese walls") are organizational controls designed to prevent the flow of material non-public information between different business areas of the FI:

Structural barriers: Physical separation of business areas that may have conflicting interests (e.g., investment banking and research, proprietary trading and client advisory)
Information technology controls: Restricted access to systems and databases containing sensitive information, with access limited to authorized personnel on a need-to-know basis
Communication controls: Restrictions on communication between personnel across information barriers, including monitoring of cross-barrier communications
Personnel controls: Restrictions on personnel moving between functions on different sides of an information barrier without appropriate procedures (including cooling-off periods)

Wall-Crossing Procedures¶

When it is necessary for information to be shared across a barrier:

Approval: Wall-crossing must be pre-approved by the compliance function
Documentation: The reason for the wall-crossing, the information shared, and the recipients must be documented
Restrictions: Individuals who receive information through a wall-crossing are subject to trading restrictions in the relevant securities
Monitoring: The compliance function must monitor for any suspicious trading activity following a wall-crossing
Cleansing: Procedures for "cleansing" individuals once the relevant information becomes public, removing their trading restrictions

Effectiveness Testing¶

Regular testing: The compliance function must regularly test the effectiveness of information barriers, including attempted unauthorized access, cross-barrier communication monitoring, and physical security assessments
Penetration testing: Periodic tests to verify that IT controls preventing unauthorized access to restricted information are functioning correctly
Incident response: Clear procedures for responding to barrier breaches, including investigation, containment, and reporting

Monitoring and Oversight¶

Compliance Monitoring¶

Regular reviews: Periodic reviews of conflict of interest disclosures, PAD compliance, gift register entries, and information barrier effectiveness
Data analytics: Use of data analytics to identify patterns that may indicate unmanaged conflicts (e.g., correlation between representative trading and client orders, concentration of recommendations in high-commission products)
Supervisory oversight: Supervisors must be alert to potential conflicts of interest in their teams and escalate concerns to compliance
Internal audit: The internal audit function should include conflict of interest management in its audit universe and test the effectiveness of controls on a risk-based cycle

Reporting¶

Board reporting: Annual report to the Board on the effectiveness of the conflict of interest management framework, including key findings and remediation actions
MAS reporting: Report to MAS any material conflicts of interest that could not be adequately managed and any significant breaches of the conflict of interest policy
Client disclosure: Ongoing disclosure to clients as required by regulation and the FI's policies

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