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MiFID II 

Conflicts of interest 

01 December 2011

Impact Amber traffic light

Low/Medium impact: Draft legislation currently does not propose changes, but significant changes possible as part of the secondary measures. Some changes to sale processes and additional compliance obligations may be necessary, depending on the detail of the proposed changes.

Other areas to consider

Best Interests of Clients; Inducements

Current MiFID rules

Managing conflicts

A firm must maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps designed to prevent conflicts of interest from adversely affecting the interests of its clients.

If the arrangements made by a firm are not sufficient to ensure, with reasonable confidence, that risks of damage to the interests of a client will be prevented, the firm must clearly disclose the general nature and/or sources of conflicts of interest to the client before undertaking business for the client.

Identifying conflicts

A firm must take all reasonable steps to identify conflicts of interest between the firm and its client or one client of the firm and another client, that arise in the course of providing any MiFID investment services and activities to the client.

Policies and procedures

To identify and manage conflicts of interest, a firm must establish, implement and maintain an effective conflicts of interest policy that is set out in writing and is appropriate to the size and organisation of the firm and the nature, scale and complexity of its business.

Records

A firm must keep and regularly update a record of the kinds of MiFID investment services and activities in which a conflict of interest entailing a material risk of damage to the interests of one or more clients has arisen or, in the case of an ongoing service or activity, may arise.

MiFID Level 1 Directive Arts: 13(3)), 18(2).

MiFID Implementing Directive: Recital 25, Arts 22(1), 23

FSA rules

SYSC 10

Proposed changes
Draft Directive
Article 23

The Commission expressed a desire in its December 2010 consultation to amend MiFID to ensure a more consistent application of MiFID principles across Europe, particularly in the context of the sales process. Although the consultation paper was unspecific as to the amendments that would be required, the Commission mentioned remuneration and structure of incentives for sales staff, and so this seems likely to be an area of focus.

The draft Directive or Regulation does not address these issues and it is possible that they will be addressed in secondary implementing measures.

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