11.1 Conflicts of interest policy in the context of loans and other transactions with members of the management body and their related parties

As part of their conflicts of interest policies for staff (Section 11) and the management of conflicts of interest of members of the management body as set out in paragraph 107, the management body should set out a framework for identifying and managing conflicts of interest in the context of granting loans and entering into other transactions, e.g. initial public offerings, service agreements or outsourcing agreements with members of the management body and their related parties.

Investment firms should consider additional categories of related parties to whom they apply, in whole or in part, their conflicts of interest framework regarding loans and transactions.

The conflicts of interest framework should ensure that decisions regarding loans and entering into other transactions with members of the management body and their related parties are taken objectively, without undue influence from conflicts of interest and are, as a general principle, conducted at arm’s length.

The management body should set out the applicable decision-making processes for granting loans and entering into other transactions with members of the management body and their related parties. This framework may provide for a differentiation between standard business transactions³¹ entered into in the ordinary course of business and concluded on normal market terms and staff transactions, which are concluded subject to conditions available to all staff. Furthermore, the conflicts of interest framework and decision-making process may differentiate between material and non-material loans or other material transactions, different types of loans and other transactions and the level of actual or potential conflicts of interest they may create.

³¹ Business transactions include loan leasing, factoring, services in the context of initial public offerings (IPOs), mergers and acquisitions and buying and selling property.

As part of the conflicts of interest framework, the management body should set appropriate thresholds (e.g. per product type, volume, or depending on the conditions) above which the transaction with a member of the management body or its related parties always requires approval by the management body. Decisions on material loans and other material transactions with members of the management body that are not being concluded under normal market terms, but subject to conditions available to all staff, should always be made by the management body.

The member of the management body benefiting from such a material loan or other material transaction, or the member who is related to the counterparty, should not be involved in the decision-making process.

When deciding on a loan or other transaction with a member of the management body or their related parties, before taking a decision investment firms should assess the risk to which the investment firm might be exposed due to the transaction.

To ensure compliance with their conflicts of interest policies, investment firms should ensure that all relevant internal control procedures fully apply to loans and other transactions with members of the management body or their related parties and that an appropriate oversight framework is in place at the level of the management body in its supervisory function.