Purpose of the policy
FundRock Distribution (“FRD”) as a PFS under the law of the 5th April 1993 as further amended (the “1993 Law”) and transposing the Directive 2014/65 of 15th May 2014 on Markets in Financial Instruments (“MiFID II”) is required to establish, implement and maintain an effective policy on conflicts of interest that is appropriate to FRD’s size and organisation and the nature, scale and complexity of its business and the materiality of the risk of damage to the interests of one or more clients.
The policy is applicable to the Head Office in Luxembourg as well as in any other country where FRD is present via subsidiaries, or branches.
The Policy sets out the potential material conflicts that have been identified by FRD together with the high level overview of the procedures and arrangements adopted to manage those potential conflicts. While total assurance cannot be secured that its systems and controls will prove fully effective in all and every circumstance, FRD continuously ensures that all reasonable steps have been taken to prevent conflicts from adversely affecting the interest of its clients.
The following activities and services are undertaken within FRD:
- Reception and transmission of orders in relation to one or more financial instruments;
- Investment advice;
- Distribution of units/shares in UCIs (within the meaning of Article 24-7 of the 1993 Law)
Conflicts of Interest
A conflict of interest is a situation in which a person has a duty to more than one person or organization, but cannot do justice to the actual or potentially adverse interests of both parties. This includes when an individual's personal interests or concerns are inconsistent with the interests of a customer.
For the purpose of the policy, “Client” refers to any natural or legal person to whom FRD provides investment advice, typically undertakings for collective investment (“UCI”) and their initiators (usually also acting either as investment managers and/or global distributors).
For the purposes of this Policy, “Client” includes:
- Existing Clients of FRD;
- Prospective Clients;
- Historic Clients, to whom FRD may owe ongoing duties.
In the context of MiFID II, conflicts of interest are those that may arise between;
(a) FRD, including its directors and authorised management, employees or any person directly or indirectly linked to FRD by control, and the investors in the UCI distributed by FRD;
(b) FRD, including its directors and authorised management, employees or any person directly or indirectly linked to FRD by control, and the investment manager/(sub-)distributor of the UCI distributed by FRD;
(c) Two (or more) Clients (whether current, former or prospective) of FRD;
(d) Two (or more) service providers (whether current, former or prospective) of FRD, or between such provider(s) and the UCI distributed by FRD
Other circumstances that could be taken into consideration:
- Internal audit and risk management function
- Internal audit and compliance function
FRD has listed some examples of situations where conflict of interest may arise (please refer to appendix n°1).
Factors giving rise to conflicts of interest
When identifying potential conflicts of interest, FRD will consider all of the factual circumstances and will take into account whether FRD, any of its Clients and/or service providers:
- Is likely to make a financial gain, or avoid a financial loss, at the expense of the Client;
- 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;
- Has a financial or other incentive to favour the interest of another Client or group of Clients over the interests of a given Client;
- Carries on the same business as the Client;
- 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 monetary or non-monetary benefits or services.
Independence in conflicts management
The procedures and measures established for the prevention of management of conflicts of interest are designed to ensure that relevant persons engaged in different business activities involving a conflict of interest carry on those activities at a level of independence appropriate to the size and activities of FRD and to the materiality of the risk of damage to the interests of the Clients.
These procedures and measures include the following where necessary and appropriate for FRD to ensure the requisite degree of independence:
a) effective procedures to prevent or control the exchange of information between relevant persons engaged in activities involving a risk of a conflict of interest where the exchange of that information may harm the interests of one or more Clients;
b) the separate supervision of relevant persons whose principal functions involve carrying out activities on behalf of, or providing services to, Clients whose interests may conflict, or who otherwise represent different interests that may conflict, including those of FRD;
c) the removal of any direct link between the remuneration of relevant persons principally engaged in one activity and the remuneration of, or revenues generated by, different relevant persons principally engaged in another activity, where a conflict of interest may arise in relation to those activities;
d) measures to prevent or limit any person from exercising inappropriate influence over the way in which a relevant person carries out services to Clients;
e) measures to prevent or control the simultaneous or sequential involvement of a relevant person in separate investment or ancillary services or activities where such involvement may impair the proper management of conflicts of interest.
If the adoption or the implementation of one or more of those measures and procedures does not ensure the requisite degree of independence, FRD adopts such alternative or additional measures and procedures as are necessary and appropriate for that purpose.
Managing conflicts of interest – general arrangements
FRD takes all reasonable steps to identify, record and manage potential conflicts of interest that arise or may arise in the course of providing its services to Clients.
It is important to note that conflicts of interest listed by FRD might not be exhaustive as it is extremely difficult to identify all potential conflicts of interest that could arise.
FRD has in place arrangements designed to ensure that potential conflicts of interest are identified promptly and are managed fairly and effectively. As a minimum these include:
- Segregation, within FRD operating environment, of tasks and responsibilities which may be regarded as incompatible with each other or which may potentially generate systematic conflicts of interest; Where FRD believes that its operating conditions may involve any other material conflicts of interest, it discloses them to the Clients.
- Appropriate controls in place to identify and manage cross-board memberships and the outside business interests of relevant persons;
- Maintenance of records of activities that may lead to conflicts (please refer to section n°9)
- Approval by the board of directors of business relationships with related parties where these have or may have a significant and negative impact on the risk profile of FRD. This arrangement shall also apply where, in the absence of any significant impact on each individual transaction, the influence is significant for all transactions with related parties.
In addition to this, as part of its authorised management governance framework, FRD has established a number of key organisational and administrative arrangements and internal control systems within its business which are designed to manage these potential conflicts and to prevent a material risk or damage to the interests of its Clients. These are:
- Corporate governance structure;
- Authorised management oversight, management and reporting;
- Compliance and Risk functions;
- Terms and conditions of employment;
- Handling confidential information;
- Declaration of interest (please refer to section 8 for details on Other Business Interests);
- Supervisory arrangements for the separate supervision of staff where necessary to ensure the fair management of conflicts of interest;
- Personal account trading restrictions and monitoring; and
- Records maintenance.
Managing conflicts of interest – specific arrangements
Where a conflict is identified, the following options might be envisaged to reduce or avoid the conflict:
- The relevant person may be asked to step aside from working on a specific transaction or participating in the management of a potential conflict of interest.
- Making arrangements for members of the board of directors of FRD (and, where relevant, its committees) as well as members of the authorised management to absent themselves from debate or decision on specific matters.
- Taking no further action because the potential for conflict is minimal or can be eliminated by disclosure and effective supervision;
- Appointing extra persons to the panel or committee to minimise the influence of the individual about whom the perception is held;
- Seeking the views of persons likely to be affected about the person continuing in the process;
- Restricting the access of the person to relevant information that is sensitive or confidential;
- Requesting the person to relinquish or divest the personal interest which creates the conflict;
- Removing the person from the responsibilities or duties to which the conflict relates.
Identifying and reporting conflicts of interest
Any FRD employee who becomes aware of:
- a potential or an actual conflict of interest;
- a situation where the employee thinks it could lead to a conflict of interest must report it immediately to the Compliance function.
Where members of the authorised management or the board of directors are subject to a conflict of interest, they shall promptly inform the authorised management or the board of directors, respectively, on their own initiative.
Doubt is sufficient to report a conflict and the employee is not asked beforehand to assess if it deals truly with a conflict of interest.
The Compliance function will log it, assess the situation with the impacted parties and report it to the authorised management.
Examples (but not limited to) of information that could help identifying a conflict of interest: Declarations of interest (see section n° 10), board members curriculum vitae, knowledge of particular situations such as a coming change, a particular project, counterparties rapprochement, counterparties shareholding structures, individuals’ registration …).
Examples of positions or teams (but not limited to) which might have access to sensitive information:
Under the FRD current model and organisation, the following teams and positions might have access to sensitive information while carrying out their duties:
- Authorised management, who usually have access to sensitive information
- Sales and Marketing function
Please refer to the appendix n°1 for some examples of conflicts of interest and mitigating actions
Conflict of interest Log
Actual and relevant potential conflicts which have been identified by FRD are maintained in a log together with the procedures and measures in place to manage these.
The log is maintained by the Compliance function of FRD (i.e. the Compliance function of FRD and the staff reporting to him/her).
The log is directly accessible to authorised management.
Management of other business interests
An ‘Other Business Interest (OBI)’ is defined as an employee undertaking certain activities and business interests outside of the scope of their employment and includes working for another company, taking financial roles in organisations, having politically exposed roles.
Every OBI has to be declared to the Compliance function who will assess the potential conflicts of interest and will require potential actions to mitigate or avoid the conflicts of interest.
The OBI will be logged together with the restrictions imposed. This log will be part of the FRD records.
Disclosure of Conflicts
Where a conflict of interest, or potential conflict, is identified, the authorised management of FRD must ensure that steps are taken to ensure that the conflict does not negatively impact the Clients. This may include additional independent oversight by management of the specific situation.
Where the organisational and administrative arrangements established by FRD to prevent or manage conflict of interest are not sufficient to ensure, with reasonable confidence, that the risks of damage to the interests of the Client will be prevented, the Client is promptly informed in order for them to take any necessary decision to ensure that in any case FRD acts in the best interests of the Client(s).
For the above situations where a conflict of interest cannot be avoided and/or that require particular actions, FRD must report to the Client(s) by any appropriate durable medium and give reasons for the decision.
Breaches of policy
Breaches of the Policy will be viewed as a serious matter.
Employees who fail to follow the requirements of this Policy will expose themselves and FRD to the risk of breaching legal and regulatory requirements and may render themselves liable to disciplinary action by FRD, up to and including termination of their employment.
Roles and Responsibilities
Authorised management is accountable for implementation, oversight and management of the key requirements set out in this Policy. In discharging their obligations they must:
- establish clear procedures and controls which must clearly reflect the requirements of this Policy as well as comply with local legal and regulatory requirements;
- document roles and responsibilities;
- ensure that any changes to this Policy (including actions arising from our regulators and auditors) are incorporated into local procedures and processes; and that they remain fit for purpose;
- act upon any breaches of this Policy or any relevant law or regulation as soon as possible;
- act upon any newly identified potential or actual conflict of interest as soon as possible;
- ensure that those with responsibility for any aspect of compliance with this Policy are identified, appropriately trained and competent to discharge their obligations effectively. Staff must be regularly assessed as being competent against FRD Training and Competence framework, Supervisory framework and behavioural expectations;
- ensure that reward frameworks, including incentives, recognize the need to deliver fair outcomes for customers at all times; and
- regularly review the Policy and the matrix of potential conflicts. This review should be done at least annually and each time a new conflict is identified.
- Employees are responsible for adhering to the requirements of this Policy and of any additional policies, procedures or business manuals applicable to their business unit or location.
- Employees should consult the Compliance function if they are uncertain of how the Policy should be implemented in a given scenario.
- Employees who believe that a potential or actual conflict of interest has been identified, should report their suspicion or concern to the Compliance function, who will report to the authorised management.
- Employees who believe there has been a breach of this Policy, whatever the cause, should promptly report their suspicion or concern to the Compliance Officer.
The Compliance function is responsible for establishing its own controls, processes and procedures to:
- assist FRD to comply with relevant regulations and this Policy, providing the necessary advice and guidance;
- maintain the Conflict of Interest log;
- maintains a folder of every declaration of interest made to the Compliance function;
- undertake a review of the Policy annually, and also as and when the regulations change, to take into account such changes to regulations and changes to business to ensure the Policy remains fit for purpose;
- provide training on the Policy to relevant FRD staff, as identified by the business and/or compliance, at least annually;
- review management information provided by the business and act as necessary on risks and issues identified;
- assist operational teams and authorised management when a new potential or actual conflict of interest has been identified and update the conflicts of interest log accordingly
- maintain and update a log of Compliance breaches (managed through the ‘incident’ management procedure) if the potential or actual conflict of interest stems from a breach of compliance by an employee;
- review and advise the business on the impact of regulatory changes;
- undertake appropriate risk-based quality assurance reviews, commensurate with the risk inherent in each business.
- Implement and maintain an adequate personal transactions policy prohibiting staff to invest into UCIs distributed by FRD. Such policy must avoid conflicts of interest posed by FRD teams which might hold potential sensitive information.
Review and update
The Policy is subject to annual review and update by the authorised management and the Compliance function of FRD.