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CONFLICT OF INTEREST POLICY

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INTRODUCTION

 

Prospergate Capital Ltd, (hereinafter called the “Company”) is an Investment Firm regulated by the Cyprus Securities and Exchange Commission (License No. 361/18). Following the implementation of the Markets in Financial Instruments Directive (MiFID II) in the European Union and its transposition in Cyprus with the Investment Services and Activities and Regulated Markets Law of 2017 (Law 87(I)/2017), the Company is required to provide its clients and potential clients with its Conflicts of Interest Policy (hereinafter the “Policy”).

Under the above legislation, the Company is required to take all reasonable steps to detect and avoid conflicts of interest. The Company is committed to act honestly, fairly and professionally and in the best interests of its clients and to comply, in particular, with the principles set out in the above legislation when providing investment services and other ancillary services related to such investment services.

SCOPE OF THE POLICY

 

The Policy applies to all its directors, employees, any persons and tied agents directly or indirectly linked to the Company (hereinafter called “related persons”) and refers to all interactions with all clients. The Policy is addressed to all the Company’s Clients. This Policy is not intended to, and does not, create third party rights or duties that would not already exist if the Policy had not been made available, nor does it form part of any contract between the Firm Company and any client.

PURPOSE

 

The purpose of this document is to set out the Company’s approach to identifying and managing conflicts of interest which may arise during the course of its business activities. The Policy applies to all related persons linked to the Company and refers to all interactions with all clients.

The Company takes all reasonable steps to identify conflicts of interest that arise or may arise, in the course of the provision of services to clients between:

  • The Company, including managers, employees and appointed representatives;
  • Any person directly and/or indirectly linked to the Company; and
  • Amongst clients of the Company.

Accordingly, we have adopted a conflicts of interest policy setting out the procedures, practices and controls in place to achieve this.

 

OVERVIEW

 

A ‘conflict of interest’ is a situation between the Company (including  its  related persons), or any person directly or indirectly linked to the Company by control, and its clients or between one client and another, that arise in the   course  of   providing   any   investment  and  ancillary   services,   or combinations   thereof including   those   caused   by   the   receipt   of inducements from third parties or by the Cyprus Investments firm’s (CIF) own remuneration and other incentive structures.

This also includes situations where the Company or an employee, or other associate of the Company has competing professional or personal interest, which may prevent services being provided to clients in an independent or impartial manner.

In order to identify, monitor and manage all actual and potential conflicts of interest that can and/or may arise between the Company (including related persons) and our clients, the Company is committed to  manage conflicts of interest in order to ensure the fair treatment of clients. This is achieved  by setting appropriate procedures and controls in place which are designed to ensure that relevant persons engaged in different business activities involving a conflict of interest carry on those activities at a level of independence appropriate to the size and activities of the common-platform firm and of the group to which it belongs, and to the materiality of the risk of damage to the interests of clients including the following as are necessary and appropriate for the common-platform firm to ensure the requisite degree of independence.

IDENTIFICATION OF CONFLICTS OF INTEREST

 

When the Company offers Investment Services to the client, an associate or some other person connected with the Company, it may have an interest, relationship or arrangement that is material in relation to the transaction concerned or that conflicts with the client’s interest.

In such situation,  the Company adheres to a policy that the creation of conflicts of interest must, insofar as is possible, be prevented.

This is applied through a combination of control measures that play a role in various aspects of our business operations, such as:

–  effective procedures to prevent or control the exchange of information between relevant persons engaged in activities involving a risk of a conflict of interest if the exchange of that information may harm the interests of one or more clients

–  the separate supervision of relevant persons whose principal functions involve carrying out activities on behalf of, or providing services to, clients whose interests may conflict, or who otherwise represent different interests that may conflict, including those of the firm

–  the removal of any direct link between the remuneration of relevant persons principally engaged in one activity and the remuneration of, or revenues generated by, different relevant persons principally engaged in another activity, when a conflict of interest may arise in relation to those activities

–  measures to prevent or limit any person from exercising inappropriate influence over the way in which a relevant person carries out services or activities

–  measures to prevent or control the simultaneous or sequential involvement of a relevant person in separate services or activities when such involvement may impair the proper management of conflicts of interest.Based on the business model and experience of the Company the following circumstances (not exhaustive) which may give rise to a conflict of interest have been identified and are set out below as examples :

(a) the Company may be matching a client’s Order with that of another client by acting on such other client’s behalf, as well as, on the client’s behalf;

(b) the Company may be providing other services to associates or other clients of the Company who may have interests in Financial Instruments or investments or Underlying Assets, which are in conflict or in competition with the client’s interests;

(c) the Company may have an interest in maximizing trading volumes in order to increase its commission revenue, which is inconsistent with the Client’s personal objective of minimizing transaction costs;

(d) the Company may receive or pay inducements to or from third parties due to the referral of new clients;

(e) the Company or a related person has an interest in the outcome of a service provided to the client or of a transaction carried out for the client’s portfolio, which is distinct from the client’s interest in that outcome;

(f) the Company or a related person has a financial or other incentive to favor the interest of another client or group of clients over the interests of the client;

(g) the Company or a related person carries on the same business as the client.

For the purposes of identifying the types of conflict of interest that arise in the course of providing investment and ancillary services or a combination thereof and whose existence may damage the interests of a client, the Company takes into account, whether the Company or a relevant person, is in any of the following situations, whether as a result of providing investment or ancillary services or investment activities or otherwise:

1) is likely to make a financial gain, or avoid a financial loss, at the expense of the client;

2 has an interest in the outcome of a service provided to the client or of a transaction carried out on behalf of the client, which is distinct from the client’s interest in that outcome;

3) has a financial or other incentive to favour the interest of another client or group of clients over the interests of the client;

4) carries on the same business as the client;

5) receives or will receive from a person other than the client an inducement in relation to a service provided to the client, in the form of monies, goods or services, other than the standard commission or fee for that service.

MANAGE CONFLICTS OF INTEREST

 

To ensure that conflicts of interest are managed effectively, the Company  follows the processes and procedures set out below in order to manage conflicts of interest and to ensure the fair treatment of clients and compliance with the relevant Law and Regulations and Directives issued by the Cyprus Securities and Exchange Commission CySEC. the Executive Director together with the Compliance Officer will have overall responsibility to establish the internal policies in cooperation with the in-house Compliance Department which has been set-up to identify and managing potential conflicts interests.

The Compliance Department also updates the relevant internal procedures and ensures compliance with such procedures. Organizational and administrative measures to manage the identify conflicts of interest. as well as  ongoing monitoring of business activities are undertaken to ensure that internal controls are appropriate, for instance:

  • remuneration structures;
  • segregation of duties;
  • policy of independence;
  • information barriers such as reporting lines.

WHERE THE COMPANY PROVIDES FUND MANAGEMENT

 

For the purpose of identifying the types of conflicts of interest that arise in the course of managing an AIF, the Company shall take into account, in particular, whether the Company or a related person linked by way of control to the Company:

Is likely to make a financial gain, or avoid a financial loss, at the expense of the AIF or its investors;

  1. Has an interest in the outcome of a service or an activity provided to the AIF or its investors or to a client or of a transaction carried out on behalf of the AIF or a client, which is distinct from the AIF’s interest in that outcome;
  2. Has a financial or other incentive to favor:
  3. The interest of a client or group of clients or another AIF over the interest of the AIF,
  4. The interest of one investor over the interest of another investor or group of investors in the same AIF;
  5. Carries out the same activities for the AIF and for another AIF, or client; or
  6. Receives or will receive from a person other than the AIF or its investors an inducement in relation to collective portfolio management activities provided to the AIF, in the form of monies, goods or services other than the standard commission or fee for that service;
  7. Is likely to promote the group’s company funds and divert client assets in these funds.

Set out below are typical situations in which conflicts of interest may arise. The list is not exhaustive and employees should only use it as guidance to identify and report conflicts.

  1. Remuneration: a conflict of interest may arise when estimating the assets of each client to calculate management and performance fee to be paid to the Company. The Company will ensure that all investment holding valuations are conducted in accordance with the relevant valuation policy and where possible on an arms-length basis by an independent fund administrator or custodian of good reputation.
  2. Inappropriate influence / inappropriate simultaneous or sequential involvement: a conflict of interest may arise when relevant persons that carry out investments or functions are inappropriately influenced over the way they perform their duties. Similarly a conflict of interest may arise when there is simultaneous or sequential involvement of a relevant person in separate investments or functions which may impair the proper management of potential conflicts of interest. The Company has clear and defined roles and reporting lines to ensure an adequate degree of independence. The Company ensures proper supervision and control by the line managers, Compliance Function, Senior Management and BoD to prevent and limit any person from exercising inappropriate influence and to prevent and control any excessive involvement in separate activities. All relevant persons have a duty to report immediately to their line manager and to the Compliance Function any attempt to exercise inappropriate influence.
  3. Personal Transactions: a conflict of interest may arise where an employee uses information acquired in the course of the Company’s activities for dealings in his or her personal account. The Company will ensure that its personnel abide by the personal account dealing rules set out in this Manual. The Company provides regular reporting on personal account holdings in order to prevent possible conflicts of interest;
  4. Personal Interest in AIFs: the Company will ensure no conflict of interest arises with the AIF(s) ensuring no personal interest of any employee/member of the Company prevails and/or has any negative consequences on the other investors in the AIF(s);
  5. Inducements: a conflict may arise where personnel receive inducements in connection with their services to the Company that can improperly influence their decisions. The Company takes reasonable steps to ensure that neither it nor its employees offer or give, or solicit or accept, in the course of business, any inducements which may lead to conflicts. Due to the various relationships the Company may have with its clients and other entities, employees may not solicit gifts or gratuities nor give inducements, except in accordance with this Manual. The term “inducements” means gifts, entertainment and similar benefits which are offered to or given by employees. Gifts of an extraordinary or extravagant nature to an employee are to be declined or returned in order not to compromise the reputation of the employee or the firm. Gifts of nominal value or those that are customary in the industry, such as meals or entertainment may be appropriate. The Company prohibits any form of a loan by an employee to a client or by a client to an employee;
  6. Dealing, managing and allocating trades: a conflict may arise when the Company aggregates orders for more than one client and there is need to allocate the executed trades to many different accounts. In such a case the Company will ensure that the allocation of trades to each portfolio is performed in a fair manner and independent of the specific portfolio manager. If needed the Company will put in place a transparent policy for order allocation, which will define the way that allocations are performed on a pro rata basis. The policy will ensure that all clients achieve same average executed price.

The arrangements that are in place in order to manage conflicts are the following:

1) Governance:

The Company has rigorous governance rules. Key business decisions are taken by the Senior Management and by the BoD. The Compliance Function, working independently, reports directly to the BoD;

  1. The Company has set out specific rules governing employee conduct in the standard employment terms and conditions, including rules regarding dealings in personal accounts, with the purpose of eliminate any possible conflict of interest;

iii. The Company has rigorous and clear reporting lines. An organisational chart is maintained by the Compliance Function.

2)  Conflict of Interest Register: as a mechanism for identifying, managing, monitoring and mitigating conflicts of interest, the Compliance Function maintains a Conflicts of Interest Register. The Company keeps the register updated with the kinds of investment or ancillary service or investment activity carried out by or on behalf of the Company in which a conflict of interest entailing a material risk of damage to the interests of one or more clients has arisen or, in the case of an on-going service or activity, may arise. The register has also the purpose of identifying mitigating controls and responsibilities. All the persons involved in the activity of the Company must familiarise themselves with the contents of the Conflicts of Interest Register and with the terms of the Policy and apply them to their own activities within the Company.

3). Segregation of functions: duties and functions are segregated as appropriate to avoid conflicts of interests and meet the relevant legislation requiring segregation of functions. These duties are set out by the individual job descriptions and procedure manuals. The line managers will ensure these duties remain segregated as advised by the Compliance Function.

4) Remuneration of Personnel Policy: The level of remuneration of the personnel in the Company is fixed unless decided differently by the BoD. When decided to consist elements of variable dependent on Company’s actual performance the Company ensures that its interests and employee interests are aligned with those of the Company’s clients. Risk management and control procedures are in place to avoid that too much risk may be taken with a client’s portfolio in order to increase employees’ personal gains;

5) Disclosure of Personal Conflicts: Dealing on “own account” : arrangements are in place to minimize the risk of a conflict of interest when the Company’s employees deal in investments on their own account. Under MiFID II, these rules regarding ‘personal account dealing’ are applicable to individuals defined as ‘relevant persons’. In simple terms a ‘relevant person’ means anyone working for the firm (from directors of the firm or any of its appointed representatives, to any natural person involved in providing services to the firm – such as an outsourced services provider). As conflicts of interest can be subjective, and can depend on the specific role an individual fulfills and the specific information they possess, each firm will design its personal account dealing policy according to its own business context and activity. In some cases, all members of staff will be expected to apply the policy in a common manner; in some companies the personal account dealing policy will apply differently as the individual progresses up the corporate hierarchy. The intention is to protect staff against the suggestion that they acted improperly under a conflict of interest, so the policy may restrict the following types of activity: entering into a personal transaction that is contrary to the Market Abuse Directive (MAD); involves misuse or improper disclosure of confidential information, or conflicts with the firm’s duties to a customer improperly advising or procuring that anyone else enters into a transaction that (if it had been done by the employee themselves) would have fallen foul of the above or of a ‘relevant provision’, or improperly disclosing information or opinion, if they know or should know that the person to whom they have disclosed it is likely to enter into a transaction that (if it had been done by the employee)  would have fallen foul of the above or of a relevant provision, or encouraging someone else to do so.

6)Disclosure to Clients: If the Company‘s arrangements to manage a conflict of interest are judged not sufficient to prevent, with reasonable confidence, the risk of damage to a client’s interests, the Company shall inform the client of the type and source of the conflict in a durable medium and in sufficient detail to enable the client to make an informed decision with respect to the investment or ancillary service in the context of which the conflict of interest arises.

Other systems and controls in place to identify, limit and mitigate possible conflicts of interests include:

Constant review and update of procedures and controls: systems and controls are documented in this Policy. To ensure all procedures are up to date and fit for purpose they will be reviewed at least once a year by a reviewer appointed by the BoD and the Manual will be amended accordingly;

b.Recruitment and Training: when recruiting individuals, the Compliance Function will assess their fitness and suitability, as well as, technical and managerial ability. Suitable background checks will be performed and references requested. The Compliance Function will ensure that appropriate training relevant to conflicts of interests is planned and given to all its members. For detailed recruitment process please refer section titled Employment and evaluation procedures.

Internal Audit and Periodic Reviews: the Compliance Function, by delegation if needed to the Internal Audit Department/Internal Auditor, oversees and executes a suitable audit programme at least once a year to verify that systems and controls are being applied. The Compliance Function will verify compliance with the Policy on a monthly basis and report the findings formally to the Board of Directors;

PROCEDURES AND CONTROLS TO MANAGING CONFLICTS OF INTERESTS

 

In general, the procedures and controls that the Company follows to manage the identified conflicts of interest are as described in the above sections of the Policy but also include the following measures:

(a) A ‘need to know’ policy governing the dissemination of confidential or inside information within the Company.

(b) Chinese walls restricting the flow of confidential and inside information within the Company, and physical separation of departments. Communication of information and data between the various business units of the Company, whether the Company’s officers and/or employees have access to data in the possession of business units to which such access is not permitted. Chinese Walls are erected between the Asset Management Department of the Company and the rest of the Company’s organisational units, so that to prevent the flow of confidential information in a way that which adversely affect the interest of the Clients. The Company’s Compliance Department is responsible for maintaining such Chinese Walls, by means of regular checks and monitoring.

(c) Procedures governing access to electronic data.

(d) Segregation of duties that may give rise to conflicts of interest if carried on by the same individual.

(e) Personal account dealing requirements applicable to relevant persons in relation to their own investments.

(f) A gifts and inducements log registering the solicitation, offer or receipt of certain benefits.

(g) The prohibition of external business interests conflicting with the Company’s interests as far as the Company’s officers and employees are concerned, unless Board of Directors approval is provided.

(h) A policy designed to limit the conflict of interest arising from the giving and receiving of inducements.

(i) Establishment of in-house Compliance Department to monitor and report on the above to the Company’s Board of Directors. This will also update the relevant internal procedures and ensure compliance with such procedures.

(j) Appointment of Internal auditor to ensure that appropriate systems and controls are maintained and report to the Company’s Board of Directors.

(k) Establishment of the four-eyes principle in supervising the Company’s activities.

ASSESSMENT – RESOLUTION – NOTIFICATION & RECORD-KEEPING

 

The Compliance Officer is responsible for assessing, managing and mitigating all conflicts of interest situations, including but not limited to, assessing the following:

1) Whether the situation represents an actual or potential conflict of interest for either the Client or the Company;

2) Whether the situation identified is a perceived conflict for either the Client or the Company and the risk that it may become an actual conflict;

3) How the conflict of interest can be appropriately managed and/or mitigated and the degree of materiality of the conflict of interest;

4) Whether the conflict of interest identified requires immediate notification to Senior Management for further assessment, giving information on the seriousness of the risk and direction on the level of reporting/action required;

As above mentioned, the Compliance Department maintains a Conflicts of Interest Register of all circumstances in which a conflict of interest has been identified and/or arisen, containing the measures taken to mitigate or manage the conflict of interest identified and/or arisen, a description of the circumstances which constituted or may have constituted a conflict of interest, names of the persons involved, the name of the person responsible for the mitigation of the conflict, a description of the steps taken in order to mitigate the conflict – including client disclosures and subsequent resolutions. The Conflicts of Interest Register is updated any time a conflict of interest has been identified and/or arisen or may have arisen and is kept for the durations of the business relationship with the Client and for a minimum of five years after the conclusion of such business relationship.

EMPLOYEES UNDERSTANDING

 

All of our employees are made aware of this policy to highlight and emphasize the importance of identifying and managing conflicts of interest.

All employees are required to adhere to the Company’s Conflict of Interest Policy which requires employees to notify Compliance of all situations whereby an employee becomes aware of conflicting and/or inside dealing information. Employees are also required to notify Compliance of any situation where information received might constitute conflicting and/or inside information. The Compliance Department will record the circumstances of the situation and take such action as is necessary and appropriate informing also Senior Management of the Company.

Employees must never permit their personal interest to conflict with, or to appear to conflict with, the interests of the Company.

Prospergate Capital Ltd reserves the right to amend its policies at any time by making them public on its website. The Client consents and agrees that the latest versions of any of the Documentation and/or Policies published on Prospergate Capital’s official website www.prospergate.com shall prevail.

CLIENT CONSENT

 

The company is required, when establishing a business relationship with the client, to obtain his/ her prior consent to the policy.