Ethics, Conduct and Conflicts of Interest
The core standards
Conduct regulation rests on a small set of durable principles: act with integrity, with due skill, care and diligence, deal with the regulator openly and cooperatively, pay due regard to client interests and treat them fairly, and manage conflicts fairly. Around these sit the market-abuse prohibitions - insider dealing, unlawful disclosure, market manipulation - and rules on inducements, personal account dealing, gifts and entertainment, and front-running.
Conflicts management follows a hierarchy: avoid the conflict where the risk of damage is high (for example, not taking a position against a client you are advising); control it with information barriers, separate supervision, restricted lists and disclosure of the firm's own position; disclose it clearly as a last resort. Disclosure is not a cure for a conflict that should have been avoided or controlled.
Traps in questions
- "We disclosed it, so it's fine" - often the wrong answer where avoidance or a control was available.
- Treating a client's consent as a blanket waiver of the duty of care.
- Confusing a gift (given to influence) with hospitality (genuinely proportionate and disclosed).
- Front-running: trading ahead of a client order you know about is misconduct even if the client never finds out.
- Assuming a firewall excuses the firm; if information is shared, the barrier has failed and must be escalated.
Rule of thumb
Ask three questions in order: Would a reasonable client, fully informed, be comfortable? Would I be content to see this in the press? Is there a control that costs little and removes the risk? If any answer is uncomfortable, escalate rather than self-approve.
Worked example: An analyst learns of an unannounced takeover from a colleague and buys the target's shares. The correct answer is that this is insider dealing and a failure of the information barrier - the barrier does not need to be formally crossed; careless handling is itself a breach.