Recognising and managing conflicts of interest
08 July 2025 | Philip Baker
The recent Guernsey Financial Services Commission Public Statement concerning Channel Islands Finance Limited (a provider of lending and brokerage services), and two individuals connected to the firm got me thinking about conflicts of interest, particularly as the JFSC has announced that this will continue to be a focus of their examinations in 2025.
There are quite a few fundamental learning points for regulated firms that are highlighted in the GFSC Public Statement, not least the failure to properly recognise and manage the obvious conflicts of interest of Channel Islands Finance Limited lending funds to businesses owned by one of its principals. I recommend that you read the Public Statement and share it with your colleagues.
Principle two of the Jersey Codes of Practice for each industry sector requires entities to implement adequate procedures to either avoid conflicts of interest or where conflicts arise, keep adequate records of such conflicts and address them appropriately.
As part of its preparation for the Conflicts of Interest examinations, the JFSC has published a self-assessment questionnaire. The purpose of the questionnaire is to enable the JFSC to understand what systems and controls (including policies and procedures) are in place for the management of conflicts of interest in your business.
The questionnaire is quite wide-ranging in the information it seeks and it gives an indication of the JFSC’s expectations regarding conflicts and how they expect firms to be managing them.
A few topics stood out to me as they aren’t always the first things to come to mind when thinking of conflicts:
- Categorising conflicts as either actual or potential. A potential conflict is a situation where someone’s personal interests could interfere with their duties in a professional or official capacity, even if no wrongdoing or bias has occurred. There would still be a requirement to disclose a potential conflict so that it can be assessed and appropriate action taken to manage it. An actual conflict is where the wrongdoing or bias has or may have occurred, as would appear to have been the case in the GFSC Public Statement.
- Compliance monitoring. Inclusion of the management of potential and actual conflicts in a firm’s compliance monitoring plan. Also, are transactions monitored where there is a known conflict of interest?
- Gifts & entertainment. The purpose of a gifts and entertainment policy is to promote ethical behaviour and avoid conflicts of interest arising, so it is important that a business incorporates the receiving and offering of gifts and entertainment as part of its overall approach to managing conflicts of interest.
- Employee declarations and training. All employees should be required to declare whether they have any conflicts at recruitment and on an ongoing basis. Employees should also receive regular conflicts of interest training, so that they are able to recognise potential and actual conflicts and take appropriate action, including disclosure. Training should include case studies or examples of potential and actual conflicts that a particular business may be exposed to.
It makes sense for all firms (not just those subject to a JFSC examination) to complete the self-assessment questionnaire to ensure that they meet the requirements and expectations of the Codes. The board and senior management should be informed of the findings.