Conflicts of Interest Policy
CONFLICTS of INTEREST POLICY
The purpose of this Conflicts of Interest Policy under and Article 34 (2) of MiFID II is:
- To identify, by reference to the specific services and activities carried out by (or on behalf of) the Firm, the circumstances which constitute or may give rise to a conflict of interest entailing a risk of damage to the interests of one or more clients; and
- To specify procedures to be followed and measures to be adopted in order to manage such conflicts; and
- To communicate this information to all those who are in the Firm
It is the responsibility of all staff members to familiarise themselves with the contents of the Policy and report conflicts of interest to the Compliance Officer using the appropriate channels.
2. Regulatory Background
FCA Principle 8 (Conflicts of Interest) states that:
A firm must manage conflicts of interest fairly, both between itself and its clients and between one client and another.
3. Summary of Requirements
- Identifying and Preventing Conflicts
Article 23 requires a firm to take all appropriate steps to identify and prevent conflicts of interest between:
- The Firm (including its managers, employees, or any person directly or indirectly linked to them by control) and a client of the Firm; or
- One client of the Firm and another client;
- That arise or may arise in the course of the Firm providing any services in the course of carrying on regulated activities, including those caused by the receipt of inducements from third parties
- Types of Conflict
SYSC 10.1.4 of the FCA handbook sets out that, for the purpose of identifying the types of conflict that arise in the course of providing a service, and, where there may be a risk of damage to the interests of a client, the Firm must take into account certain issues. It must consider as a minimum, whether the Firm or a relevant person or a person directly or indirectly linked by control to the Firm:
(1) is likely to make a financial gain, or avoid a financial loss, at the expense of the client;
(2) has an interest in the outcome of a service provided to the client or of a transaction carried out on behalf of the client, which is distinct from the client’s interest in that outcome;
(2A) in the case of a management company providing collective portfolio management services for a UCITS scheme, (2) also applies where the service is provided to, or the transaction is carried out on behalf of, a client other than the UCITS scheme;
(3) has a financial or other incentive to favour the interest of another client or group of clients over the interests of the client;
(4) carries on the same business as the client; or in the case of a management company, carries on the same activities for the UCITS scheme and for another client or clients which are not UCITS schemes; or
(5) receives or will receive from a person other than the client an inducement in relation to a service provided to the client, in the form of monies, goods or services.
- Segregation of functions
The senior management of the Firm should, where appropriate segregate duties so as to avoid conflicts of interest.
- Disclosure of conflicts to clients
SYSC 10.1.8 of the FCA Handbook requires that, where the arrangements made by the firm are not sufficient to ensure, with reasonable confidence, that the risk of damage to the client will be prevented a clear disclosure to the client must be made.
This disclosure must explain the general nature or sources of conflicts of interest and the steps taken to mitigate those risks
The disclosure must:
- be made in a durable medium;
- clearly state that the organisational and administrative arrangements established by the firm to prevent or manage that conflict are not sufficient to ensure, with reasonable confidence, that the risks of damage to the interests of the client will be prevented;
- include specific description of the conflicts of interest that arise in the provision of insurance distribution activities, investment services or ancillary services;
- explain the risks to the client that arise as a result of the conflicts of interest; and
- include sufficient detail, taking into account the nature of the client, to enable that client to take an informed decision with respect to the service in the context of which the conflict of interest arises.
It is important to note that a disclosure may be made only as a matter of last resort after all other options to successfully mitigate the conflict of interest have been exhausted.
- Responsibilities of Staff Members
It is the responsibility of all employees to familiarise themselves with this Policy and to report conflicts of interest to their line manager who will in turn report them to the Compliance Officer. Failure to adhere to this policy may be held to be a breach of an employee’s contract.
Overall responsibility for Conflicts of Interest lies with the Board. The Compliance Officer is responsible for the day-to-day administration of the Policy.
The Compliance Officer will work with line management to identify and prevent Conflicts of Interest, record conflicts and the mitigating action in the Conflicts Register and report the situation to the Board for consideration. Additionally, the Compliance officer will ensure that this conflict of interest policy is reviewed at least annually.
The Board, via the Compliance Officer, has responsibility for ensuring that staff are aware of the aspects of the Policy relevant to them.
All staff have a responsibility for carrying out aspects of the policy that are relevant to them.
4. Situations in which Conflicts of Interest could arise
The purpose of this section is to set out typical situations in which conflicts of interest may arise and are managed in the course of the Firm’s day-to-day business, so that employees are better equipped to identify, report and assist in eliminating or managing conflicts.
- Potential misuse of information
Members of staff of the Firm may come into possession of material non-public information. The improper use of such information by staff members could cause a conflict with the interests of the Firm’s clients, or between the interests of the Firm’s clients, and may also be unlawful.
Method of managing/avoiding conflict
The Firm manages these risks by maintaining and following policies and procedures to prevent the misuse of material non-public information. These procedures have been designed to prevent and detect any insider trading, taking into account the nature of the Firm’s business and the instruments typically traded which are Exchange Traded Funds so not open to insider manipulation as a share would be.
- Personal Account Dealing (“PAD”)
The Firm’s staff members may engage in the trading of securities or other instruments for their own account. Such trading activities may put those employees and officers, or the Firm, in conflict with the interests of the Firm’s clients (for example, by having a personal interest in a transaction with a client, or by front-running transactions with clients).
Method of managing/avoiding conflict
The Firm manages this potential conflict of interest by maintaining a PAD Policy which has been formulated in accordance with relevant FCA Rules.
The giving or receiving of gifts, entertainment, or any other form of gratuity or hospitality by or to the Firm’s staff members may create the appearance of a lack of impartiality and may lead to a potential conflict between the interests of the donor /done and the interests of the clients.
Method of managing/avoiding conflict
Staff members are prohibited from giving to and accepting from clients, potential clients, or other third parties gifts and entertainment of above the specified threshold, which is £250 or in the case of South African related business, clients, potential clients or third parties the amount is R1,000.
- Remuneration Policy/Performance Fees
A conflict may arise in respect of the Firm’s fee-based income from the management of its portfolios.
Method of managing/avoiding conflict
Potential conflicts arising and arrangements for controlling/mitigating them are identified in the Conflicts of Interest Register.
Firm and employee interests are aligned with those of the Firm’s clients. Directors and other employees are compensated through a basic salary, ownership (or options of ownership) in Omba or firm performance-based measures. Risk in client portfolios is strictly managed through agreements (IMA) with clients and ongoing monitoring. Appropriateness and client KYC processes are performed thoroughly and by reviewed independently by those not responsible for sales.
- Outside Business Interests
The Firm’s staff members may hold outside business interests, such as directorships or shareholdings, in service providers or other firms. The Firm has identified that such outside business interests or investments could cause a potential conflict between the personal interest of the relevant member of staff and the interests of the Firm’s clients.
Method of managing/avoiding conflict
Staff members must inform the Compliance Officer about their outside business interests. The Compliance Officer must approve any such interests and will maintain a record of them.
- Staff on notice to leave
Conflicts of interest could arise if a member of staff on notice to leave the Firm concentrates on higher risk short term performance in order to achieve a larger leaving bonus. The Board of the Firm monitors the risk level of investments and, where necessary, gives instructions to restore the risk balance. If an employee or partner on notice is seen to pose a particular risk, then that individual will be put on ‘gardening leave’ to remove the possibility of inappropriate trading.
- Cross Trading between accounts
The Firm does not cross trade between accounts.
- Public statements
Potential conflict and Market Abuse issues arise if the portfolio managers make public statements in order to “talk up or down” a particular security in which the portfolios managed by the Firm have a position. The Firm and its staff do not currently make public statements about the Firm or its investments and due to investments in solely Exchange Traded Funds these would not be impacted as would a share. The Firm also has procedures in place whereby employees are not allowed to talk to the press regarding the Firm and its investments unless prior approvals from the Compliance Officer and the Governing Body of the Firm have been received.
- Trade and Initial Public Offering allocations
Conflicts may arise where the Firm only receives scaled back allocation for oversubscribed IPOs. Such a conflict is managed allocating any securities on a pro-rata basis.
5. Arrangements for managing conflicts
- The Firm has robust governance arrangements. Key business decisions are taken by the Board and are recorded.
- The Compliance Officer reports directly to the Board.
- The Firm has rules in place to govern employee conduct, including PAD rules which control and mitigate conflicts of interest. It also maintains a Conflicts of Interest Register.
- Reporting Lines
The Firm has defined and clear reporting lines. An organisational chart is maintained by the Compliance Officer.
- Segregation of Functions
Duties should be segregated as appropriate, to avoid conflicts of interest wherever possible. These duties are set out in job descriptions, procedure manuals and organisational charts. Ensuring these duties remain segregated is the responsibility of line managers, as advised by the Compliance Officer.
- Disclosure of Personal Conflicts
Employees and owners are required to disclose conflicts of interest. Employees will disclose any conflicts of interest to their line manager, who in turn will inform the Compliance Officer. Owners will disclose any conflicts directly to the Compliance Officer. The Compliance Officer will record in the appropriate register and inform the Board of any action taken.
- Disclosure to Clients
If the Firm’s arrangements to manage a conflict of interest are not sufficient to ensure, with reasonable confidence, that the risk of damage to that client’s interests is prevented, the Firm will inform the client, in a durable medium, of the general nature and/or source of the conflict so that an informed decision can be made by that client before business is undertaken.
- Restricted List and Insider List
In order to facilitate the monitoring of conflicts, the Firm maintains a global Restricted List and an Insider List.
Staff members are prohibited from giving to and accepting from clients, potential clients or other third parties, gifts and entertainment of above the specified threshold. The Firm also maintains a Bribery policy.
When individuals are recruited by the Firm, their fitness and propriety is considered by the Compliance Officer, as well as their technical and, where relevant, managerial ability. Suitable background checks are made and references are taken up.
Compliance training regarding conflicts of interest forms part of the annual training needs analysis. The Compliance Officer ensures that appropriate training is devised and delivered.
- Compliance and Procedures Manuals
Systems and controls are documented in the compliance and procedures manuals which are reviewed at least once a year to ensure they are fit for purpose. The reviewer is appointed by the Board.
- Periodic Audit
The Compliance Officer oversees and executes a suitable audit programme at least annually to verify that the systems and controls are being applied.
- Management Information
Management information regarding the identification of conflicts is reviewed by the Compliance Officer. Conflicts checks are undertaken when taking on new clients or accepting new business from existing clients.
- Verifying Compliance
To verify that these policies have been complied with, an annual compliance review will be undertaken by the Compliance Officer. The Compliance Officer will have responsibility for assessing compliance with the policy on an annual basis and will report formally to the Board.
The Firm’s remuneration policy is designed to avoid rewarding behaviour that could lead to disadvantage for its clients. Directors and other employees are compensated through a basic salary, ownership (or options of ownership) in Omba or firm performance-based measures. Risk in client portfolios is strictly managed through agreements (IMA) with clients and ongoing monitoring. Appropriateness and client KYC processes are performed thoroughly and by reviewed independently by those not responsible for sales.
- Conflicts Monitoring
Potential conflicts of interest are considered on an ongoing basis and prior to taking on a new client. In cases where a conflict is identified, a decision is made as to whether to proceed with the new client and, if so, what additional measures should be taken to mitigate the conflict. All such decisions are documented and are based on the nature of the conflict and the potential for the conflict to entail a material risk of damage to the interest of one or more clients. The Compliance Officer keeps records of business approval and related correspondence.
No portion of this Policy may be copied or reproduced without prior permission.
- Chinese walls
The Firm does not have Chinese Walls as they are not currently required.
Regulation and Compliance
The Financial Sector Conduct Authority (FSCA) of South Africa is the market conduct regulator of financial institutions that provide financial products and financial services. The FSCA is responsible for market conduct regulation and supervision. FSCA aims to enhance and support the efficiency and integrity of financial markets and to protect financial customers by promoting their fair treatment by financial institutions, as well as providing financial customers with financial education.
Omba Advisory & Investments Limited has contracted Compli-Serve Cape (Pty) Ltd as its independent compliance officer. Compli-Serve is a nationally represented independent provider of regulatory compliance management services and solutions to the financial services sector. Internally, one of the Omba directors is accountable for compliance and works with Compli-Serve and the FSCA in fulfilling its regulatory responsibilities and function.