Moonstone: Managing of conflict of interest
The General Code of Conduct and all its subsequent changes and clarifications can be quite a daunting piece of legislation to study and understand. One section that caught my eye was the regulations around conflict of interest, particularly in view of the widely publicised matter of Transport Minister Sbu Ndebele receiving, then returning, a R1m 500S Mercedes-Benz gift from emerging KwaZulu-Natal contractors.
This has led to a call for the appointment of a commissioner of ethics to act as the enforcing agency for codes of ethical conduct, to manage the register of interests, to rule on conflicts of interest and ensure the law was carried out.
The FSB recently circulated a follow-up discussion document aimed at providing clarity and guidelines on the giving and receiving of services and incentives in the financial services industry.
What does the General Code of Conduct stipulate in this regard?
“(b) the provider must disclose to the client the existence of any personal interest in the relevant service, or of any circumstance which gives rise to an actual or potential conflict of interest in relation to such service, and take all reasonable steps to ensure fair treatment of the client;
(c) non-cash incentives offered and/or other indirect consideration payable by another provider, a product supplier or any other person to the provider could be viewed as a potential conflict of interest
(d) the service must be rendered in accordance with the contractual relationship and reasonable requests or instructions of the client, which must be executed as soon as reasonably possible and with due regard to the interests of the client which must be accorded appropriate priority over any interests of the provider;
(e) transactions of a client must be accurately accounted for; and
(f) the provider involved must not deal in any financial product for own benefit, account or interest where the dealing is based upon advance knowledge of pending transactions for or with clients, or on any non-public information the disclosure of which would be expected to affect the prices of such product.”
In practice it requires that the FSB provide a set of guidelines within which one will have determine whether incentives are permissible or not, and what has to be declared and placed on public record.
The appointment of a commissioner to rule on grey areas is as essential as having a TV referee at a rugby match. While the provision of free training to brokers should in my view not be regarded as a service that can lead to conflict of interest, the conducting of such training in an exotic location and including flight and luxury accommodation costs is another matter.
A major shortcoming in most of the regulations in our industry is that application is almost a trial-and-error affair, with clarity a reactive result and not provided upfront. We pointed out in last week’s Moonstone Monitor the difficulties of having to defend ourselves against complaints regarding transactions which took place years ago, and particularly in the light of what the interpretation of legislation was at that time, as opposed to the current view against which we are now measured.
In the light of this, the appointment of a commissioner of ethics with far wider ranging powers than simply that of rulings on the acceptability of incentives would make a lot of sense.
