Conflicts of Interest Policy
1. Purpose
This policy details how InvestEngine (UK) Limited (IEUK) will identify, prevent and manage conflicts of interest in respect of its business activities.
IEUK is authorised and regulated by the Financial Conduct Authority (FCA) and, as such, will act in accordance with the Conflicts of Interest rules as defined in FCA Principle 8 and SYSC 10 of the FCA handbook, which requires IEUK to manage conflicts of interest fairly, both between itself and its clients and between two clients.
2. Responsibilities
The Board of Directors of IEUK are responsible for ensuring that its systems, controls and procedures are able to identity, manage and control or prevent any potential and actual conflicts of interest that may arise.
3. Definition
A conflict of interest is a situation in which someone in a position of trust to the client has competing professional or personal interests. Such competing interests can make it difficult for individuals to fulfil their duties to their clients impartially. A conflict of interest may exist even if no unethical or improper act results from it.
Conflicts of interest arise in the course of providing a service to a client, the firm or its employees:
- Are likely make a financial gain or avoid a loss at the expense of the client.
- Have an interest in the outcome of the service provided which is distinct from the client’s interest.
- Have a financial or other incentive to favour the interests of another client over the interests of the client.
- Carry on the same business as the client.
- Receive, from a person other than the client, an inducement in relation to the service provided to the client, other than the standard commission or fee for that service.
4. Identifying, managing and preventing conflicts of interest
IEUK has reviewed its business model and has identified the following potential conflicts of interest:
- Employee Roles and Responsibilities
- Remuneration
- Employees and connected persons outside business interests
- Inducements including Gifts and Hospitality
- Personal account dealing
- Customer orders
- Handling confidential and insider information flows
IEUK will regularly review its business model to ensure any new potential conflicts of interest are noted and managed or prevented effectively.
4.1 Employee Roles & Responsibilities
IEUK maintains a clear segregation of roles and responsibilities including separate supervision and management reporting lines for employees whose activities for the firm may lead to a conflict of interest arising. This ensures an effective control environment and helps to avoid conflicts of interest in roles wherever possible.
4.2 Remuneration
The remuneration of staff will be assessed annually in accordance with IEUK’s Remuneration Policy and appraisal process and usually consists of a base salary and performance related variable compensation. IEUK strives to ensure our employees remain motivated whilst at the same time ensuring that this remuneration scheme does not give rise to conflict of interest situations or the possibility of inappropriate behaviour.
4.3 Employee and connected persons outside business interests
IEUK recognises that our current and future employees and their connected persons may have an interest, relationship or arrangement whereby they act as a trustee, hold power of attorney or have a Directorship that may potentially create a conflict of interest. IEUK requires its employees to declare any such interests and these will be recorded in the Conflicts of Interest register. To manage such conflicts, IEUK will implement controls to ensure that any activities conducted do not conflict with their role working in the firm.
4.4 Director Conflicts of Interest
Under the Companies Act 2006, directors of IEUK are required to avoid situations in which they have or could have, an interest which conflicts, or may conflict, with the interests of the firm. This applies in particular to an interest in any property, information or opportunity. In order to comply with this, directors are required to declare any potential conflicts of interest including the nature & extent of any interests that they have in any existing or proposed transactions or proposed arrangements with the firm. These will be recorded in the Conflicts of Interest register.
4.5 Inducements including Gifts and Hospitality
IEUK has a strict policy, which specifically prohibits employees from soliciting or accepting any inducements to conduct business in a specific manner that would give rise to a detriment to a client or to favour the interests of one client over another.
The firm recognises that Gifts and Hospitality can lead to potential conflicts of interest. Employees are not permitted to accept, or give to, any person any gift or other benefit that cannot properly be regarded as justifiable in all circumstances or may give rise to the perception that in doing so, decisions may be influenced or may not be impartial. All employees are expected to act with the highest standards of integrity to avoid any allegations of conflicts of interests.
Any employee who offers or is offered any gifts or hospitality are required to report this to Compliance for recording on the Gifts and Hospitality register. Any employee who offers or is offered gifts or hospitality over an agreed limit will require approval from Compliance prior to accepting or offering gifts or hospitality. In addition, any indications of expectation of support following a gift or hospitality of any value should be reported to Compliance.
Compliance will regularly review the Gifts & Hospitality register to identify any conflicts of interest that may be occurring.
The Gifts and Hospitality Policy contains further information and the agreed value limits set.
4.6 Personal Account Dealing Procedures
Employees dealing on their own personal account may present conflicts of interests. However, due to the size of the firm and current nature of the products provided (liquid ETF’s), the risks associated with PA Dealing are low. There is no current requirement for pre-approval of any PA dealing trades nor is there a requirement for staff to record all accounts or holdings they have. This is subject to change in the future as the IEUK grows and the risks associated with PA dealing changes.
4.7 Customer Orders
IEUK’s Best Execution Policy requires employees to take all reasonable steps to achieve the best overall trading result for clients; to exercise consistent standards; and operate the same processes across all markets, clients and financial instruments in which it operates.
As the firm aggregate all client orders and trades on a consolidated basis, segregated between managed and Execution Only mandates.
The firm does not trade on its own account, there is unlikely to be any conflict of interest regarding executing customer orders.
4.8 Handling confidential & inside information flows
IEUK is extremely unlikely to receive confidential or inside information due to the current nature of the business. However, should any confidential or inside information (information relating to a product, company or instrument which has not been made public, which is likely to have a significant effect on the price of that product, company or instrument) be received, Compliance must be informed immediately. Arrangements will then be made, such as Chinese Walls, Insider lists or disclosures on a need to know basis. The employee must ensure that the information is not divulged to anyone else under any circumstances or carry out any PA dealing or encourage anyone else to do so.
4.9 Preventing Third Party Conflicts
The general rule is that IEUK should make every effort to establish whether a conflict of interest exists prior to commencing a business relationship with a sub-contractor.
If there is a significant risk of a conflict of interest, the matter must be referred to the Director of Compliance for consideration.
Without exception, before a business relationship is established with an external organisation, the manager responsible will ensure that a conflict of interest check is undertaken.
Confirmation of the completion of the conflict of interest check will be confirmed by recording the fact on the Due Diligence Questionnaire, signed off by the appropriate executive. The document will be held within the organisations electronic file.
5. ETF Partners
IEUK intends to partner with some ETF providers, in order to promote the provider on its platform, in return for a fee. The purpose of this is to leverage the expertise and larger resources of ETF provider, in order to provide access to a wider range of information and resources to its clients.
The full list of IEUK’s paid partnerships, including the amount of fees payable, can be found in the Appendix 1 to this Policy
COBS 6.1.E.7(R) states that:
the services are available to firms at a price which does not vary inappropriately according to firm;
the payments are reasonable and proportionate for the service; and
the payments or service could not reasonably be expected to result in a channelling of business to the firm other than through the normal effect of general advertising
However, we do not expect payments for advertising to be used to help a product provider gain access to a shortlist of funds, influence any ranking of products, or otherwise result in a channelling of business to that product provider. We recognise that allowing the above payments gives rise to the possibility of abuse so that providers may still have the potential to influence distribution. However, we have made it clear in the Handbook text that we expect any charges made to be reasonable and proportionate, reflect the service being provided and not vary inappropriately between different product providers.
IEUK has identified several conflicts of interests that will arise, as a result of these partnerships. The following measures will be put in place to manage the conflicts of interests that arise:
5.1 ETFs of partners in Managed Portfolios
IEUK provides a Managed Portfolio service to clients, which consists of growth portfolios, which are assessed regularly, with ETFs being added or removed or the % of a certain ETF within a portfolio being changed. There is a risk that ETF choices for Managed Portfolios, may be influenced, with a bias towards the ETFs of partners, who have paid IEUK. This may occur at the expense of the best interests of clients, as better suited ETFs for portfolios may be excluded.
5.2 Limitations in fees that IEUK can receive
IEUK intends to partner with a number of ETF providers and there is a risk that a wide disparity between the value of the fees received from each partner, could lead to a greater disparity in service received by each partner. Therefore, in order to manage this conflict, any fees received should be proportionate to the size of the project. An annual review will be done of fees received for ETF partner projects.
5.3 Consistency of level of service
In addition to the limitation in fees that IEUK can receive, the service that is offered to different ETF providers should be consistent throughout. Whilst there will be slight variations between what is offered to providers, it is expected that any part of a service offered to one partner, is offered to all. No undue prominence should be given to any specific partners regardless of the fees paid.
5.4 Justification of partnership against PROD/PRIN
As an FCA regulated firm, IEUK is required to ensure that all Products & Services provided comply with the Product Governance rules, as well as the Principles of Business. Prior to any partnership being entered into, an assessment must be conducted to ensure the following:
The partnership will meet the needs of clients in one or more identifiable target markets;
Appropriate distribution channels will be used in selling the service from the partner to clients; and
The firm will still be adhering to the obligations outlined in the FCA Principles of Business
When looking at the above, the Consumer Duty principle, rules and outcomes should be taken into consideration and justification must be provided as to how this partnership will deliver good outcomes for IEUK’s clients
5.5 No individual targeting
The purpose of the partnerships with ETF providers is to ensure that all clients get the same opportunities and access to the information and resources provided. Therefore, no individual customers are allowed to be targeted or contacted directly by IEUK or the partner.
5.6 No individual customer information
In order to assist with ensuring no individual customers are targeted, no individual customer information (including masked information) shall be passed to partners. All agreements with partners shall include a clause stating this.
5.7 Compliance oversight on promotions
IEUK has procedures and policies in place, so that all financial promotions including website pages are checked and approved, to ensure compliance with COBS 4. These controls will continue to apply to any promotional material created, as part of these partnerships. There is an additional risk of certain partners getting more prominence and exposure than others, which could push clients to invest in ETFs, which may not necessarily be appropriate for their circumstances or in their best interests. In order to manage this additional risk, Compliance will also monitor the prominence and frequency of material for different partners, to ensure that one partner or specific ETF is not favoured over others.
6. Recording conflicts of interest
All conflicts of interest that arise, or may arise, are recorded on the Conflicts of Interest Register. The register will include the way IEUK prevents and manages the conflicts and the person responsible.
The Conflicts of Interest Register will be provided to the Board of Directors for review at least annually.
7. Disclosure or declining to act
For conflicts of interest that IEUK cannot manage or prevent, the firm will either inform the client or decline to act for the client.
7.1 Disclosure
As a last resort, where there is no other means of managing the conflict or where the measures in place do not, in the view of IEUK, sufficiently protect the interests of clients, the conflict of interest will be disclosed to clients, to enable an informed decision to be made by the client as to whether they wish to continue doing business with the IEUK in that particular situation. IEUK must disclose to the client the general nature ort sources of conflicts of interest and the steps taken to mitigate those risks. The disclosures will be recorded on the Conflicts of Interest Register.
The disclosure will be in writing and will include:
A statement that the arrangements put in place by IEUK are not sufficient to ensure that the risk of damage to the interests of the client will be prevented
A description of the specific conflict of interest taking into account the nature of the client or group of clients to whom the disclosure is made
An explanation of the general nature and sources of the conflicts of interest, the risks to the client that arise as a result of the conflict of interest and the steps undertaken to mitigate those risks
Sufficient detail to enable the client to make an informed decision as to whether to proceed or not.
7.2 Declining to Act
Where IEUK considers that it is not able to manage the conflict of interest in any other way, it may decline to act for a client.
8. Breaches of Conflicts of Interest Policy
Any breaches of the Conflicts of Interest rules will be recorded on the rule breach register in conjunction with the Regulatory Breach/Rule Breach policy.
9. Monitoring and review of Policy
Compliance will monitor the firm’s conflict of interests throughout the year via the compliance monitoring programme. This policy will be reviewed regularly, at least once a year, and amended where necessary in the event of changing circumstances or regulations
Appendix 1
| Partner | Fees paid annually |
|---|---|
| Ark | £20,000.00 |
| Fidelity | £20,000.00 |
| GlobalX | £20,000.00 |
| HANetf | £20,000.00 |
| Invesco | £185,000.00 |
| JP Morgan | £113,000.00 |
| Wisdom Tree | £25,000.00 |
| Xtrackers | £160,000.00 |
