Identification and management of conflicts of interest
Doing the right thing for our clients is central to our business. To deliver the best service and value for our clients, we build strong relationships based on honesty, trust and confidentiality. Our values and our culture of collaboration, openness and excellence underpin our Conflict of Interest Framework to ensure the appropriate identification and prevention or management of conflicts of interest across our business.
This is supported by the mechanisms that empower employees to speak up when issues arise and act as a bottom-up check to ensure that consideration of conflicts is embedded in the firm’s culture and that our conduct and culture expectations are a significant factor when considering how to manage potential and actual conflicts of interest.
In practice this means that Schroders implements and maintains effective organisational and administrative arrangements, with a view to taking appropriate steps to prevent or manage conflicts of interest from constituting or giving rise to a risk of damage to the interests of its clients.
Definitions
A conflict arises where the interests of one party (e.g. Schroders, or a director, or any employees, or a client) are not currently, or may not in future, be aligned with the interests of another party. Therefore, one party may be disadvantaged to the advantage of the other.
Examples includes the following:
- Employee vs Client e.g. Employees being remunerated for performance that may encourage misconduct.
- Firm vs Client e.g. Trading in advance of the client in an illiquid security on the basis of a forthcoming price moving order.
- Client vs Client e.g. Competing orders to deal in the same instrument for different clients.
Conflict of Interest Framework
The Group Conflict of Interest policy applies to all employees and sets the minimum standards and provides guidance on the: identification, prevention, management and appropriate disclosure (where all other options have been exhausted) of conflicts of interest that arise or might arise in the course of carrying out our business, and which might entail a material risk of damage to:
- the interests of one or more of our clients
- our ongoing activities in all markets we operate
- the reputation of Schroders.
The Conflicts of Interest framework is overseen by the Group Conflicts Committee who are responsible for the Group’s arrangement to identify, and to prevent or manage conflicts of interest. The status of our Framework and the details of our Conflicts of Interest Register are reported and reviewed by a number of Committees including the Group Risk Committee, Group Management Committee, the Board Audit and Risk Committee and Legal Entity Boards.
Below is a high level overview of our Conflicts of Interest framework:
1. Identify and report
- All employees are responsible for identifying and reporting conflicts of interests (potential, actual or perceived) to facilitate a prompt discussion with business area Senior Management and the local of Head of Compliance. To support this, all employees on joining Schroders complete initial conflicts training to ensure timely identification and escalation, the training is repeated on an annual basis.
2. Prevent or mitigate
- Prevent: find a way to remove or neutralise the conflict, where possible through discussion with management and Compliance.
- Mitigate: implement controls that enable us to reduce the impact or likelihood of the conflict becoming an issue. All employees are responsible for complying with business area policies and procedures designed to prevent, mitigate or manage conflicts of interest.
- Significant matters, or those where agreement cannot be reached on the action to take, escalation will be made to the Group Conflicts Committee.
3. Recording and reporting of conflict
- Group Conflict of Interest Register (the Register): lists all potential conflicts that are identified by the business.
- Group Conflict of Interest Log: all actual conflicts, including the remediating activity, that arise in a business area or legal entity. Please note, conflicts of interests that are managed as part of standard business processes are recorded in the applicable business system rather than in a separate log.
- Group Compliance and Local Compliance teams maintain and update the Group Conflict of Interest Register and Log as well as providing support and training to business areas on the Conflicts of Interest framework.
4. Disclose or stop
- Disclose: if we cannot prevent or mitigate to our satisfaction that client’s interests will be protected, then we disclose to clients.
- Stop: if we cannot manage then the activity or change Regulated legal entities maintain their own governance frameworks for conflicts.
- Such scenarios would be escalated promptly and approved by the Group Conflicts Committee.