Moonstone: Conflict of interest now regulated

The long awaited Board Notice 58 containing details of new legislation aimed at regulating conflict of interest was published on 19 April 2010.

We will spend the next few weeks discussing it, but strongly advise that you spend time reading the 10 pages of very important information as it involves certain actions from you.Please click here to download the document.

The definition reads as follows:

“conflict of interest” means any situation in which a provider or a representative has an actual or potential interest that may, in rendering a financial service to a client, –

(a) influence the objective exercise of his, her or its obligations to a client; or

(b) prevent a provider or representative from rendering an unbiased and fair financial service, or from acting in the interests of a client, including, but not limited to –

(i) a financial interest;

(ii) an ownership interest;

(iii) any relationship with a third party;”

These interests are then defined as follows:

1. “financial interest” means any cash, cash equivalent, voucher, gift, service, advantage, benefit, discount, domestic or foreign travel, hospitality, accommodation, sponsorship, other incentive or valuable consideration, other than –

(a) An ownership interest;

(b) Training, that is not exclusively available to a selected group of providers or representatives, on –

(i) products and legal matters relating to those products;

(ii) general financial and industry information;

(iii) specialised technological systems of a third party necessary for the rendering of a financial service; but excluding travel and accommodation associated with that training;

The draft version for discussion did not include the detailed breakdown on training, and in discussions with our legal division it became clear that more clarity is required as to what is included under training and what not, for instance, is training for the regulatory exams included or not? While it may have been deliberately defined widely, it leaves the door open to accidental and wilful misinterpretation.

2. “ownership interest” means –

(a) (a) any equity or proprietary interest, for which fair value was paid by the owner at the time of acquisition, other than equity or an proprietary interest held as an approved nominee on behalf of another person; and includes any dividend, profit share or similar benefit derived from that equity or ownership interest;

(b)(b) any equity or proprietary interest, for which fair value was paid by the owner at the time of acquisition, other than equity or an proprietary interest held as an approved nominee on behalf of another person; and

(c) (c) includes any dividend, profit share or similar benefit derived from that equity or ownership interest;

3. “third party” means –

(a) a product supplier;

(b) another provider;

(c) an associate of a product supplier or a provider;

(d) a distribution channel;

(e) any person who in terms of an agreement or arrangement with a person referred to in paragraphs (a) to (d) above provides a financial interest to a provider or its representatives”.”

Mention is also made of what was earlier termed inconsequential interests:

“immaterial financial interest” means any financial interest with a determinable monetary value, the aggregate of which does not exceed R1000 in any calendar year from the same third party in that calendar year received by –

(a) a provider who is a sole proprietor; or

(b) a representative for that representative’s direct benefit;

(c) a provider, who for its benefit or that of some or all of its representatives, aggregates the immaterial financial interest paid to its representatives;”;

Next week we discuss the management and reporting obligations laid down by this piece of legislation.