The FCA has banned a UK investment professional from acting as a non-executive director (NED), as well as imposing a £20,000 fine, for her failure to act with integrity in her work with two mutual societies.
Angela Burns was a NED at two mutual societies and served as the chair of their investment committees – both societies sought her advice and guidance.
During this time, Burns participated in discussions about a US investment manager, Vanguard Asset Management. She did not inform either mutual society that she was also seeking consultancy work with Vanguard, while she was providing them with what they thought was impartial advice.
In a statement, the executive director of enforcement of the FCA, Mark Steward, said directors have a duty to disclose or avoid conflicts of interest:
“Ms Burns placed herself in a position where her duty as a non-executive director may have conflicted with concurrent opportunities she was pursuing.
"This was neither disclosed nor, as a consequence, could it be addressed by the board. This was inappropriate and inconsistent with the standards of integrity expected from senior managers."
In light of this, it is worth considering the duties of insurance intermediaries regarding conflicts of interest.
Insurance intermediaries face a conflict of interest when:
- The firm’s own interests conflict with those of the customer
- The firm is unable to act in the best interests of one customer without adversely affecting the interests of another
The Insurance Distribution Directive (IDD) requires all firms to act in the customer’s best interest and the FCA has included this requirement in the rule book ICOBS2. Insurance intermediaries are required to act honestly, fairly and professionally in accordance with the best interests of their customers. The IDD strengthens the regulation of conflicts of interest, requiring:
- that intermediaries disclose shareholding links they have with any insurers. This applies to shareholding of 10% and over
- that, where intermediaries do not provide advice on the basis of a fair and personal analysis of the market, they must disclose the names of insurers with whom they may place business
Senior management have the ultimate responsibility of setting clear standards for their firm and to put in place a formal conflicts of interest policy explaining clearly how the firm proposes to reduce any conflicts identified. Clear guidance should be in place for staff on how to recognise a potential issue as well as when and how to escalate it to management.
Firms should aim to identify and manage conflicts of interest arising in relation to their various business lines and activities within a comprehensive conflicts of interest policy.
To manage risk as effectively as possible, the firm should:
- Identify what activities have the potential to give rise to conflicts of interest
- Assess the risk of such conflicts actually arising and adversely affecting customers
- Ensure that responsibility for identifying conflicts and how to manage them is clearly allocated to accountable individuals
- Set controls to reduce the impact of conflicts
- Promote the conflicts of interest policy at all levels within the business
- Regularly monitor, review and test
Informal management processes and controls will not suffice in this area. The FCA’s Principles for Businesses are clear on the requirement for an insurance intermediary to conduct its business with integrity and address actual and potential conflicts of interest that arise.