Conflicts of Interest Under SYSC 10: A Practical Guide
Most firms have a conflicts of interest policy. Rather fewer have a conflicts register that reflects what the business actually does, and fewer still can show what they did when a conflict was identified. That gap — between the document and the practice — is what supervisors look for.
This guide covers what SYSC 10 requires, how to build a register that is genuinely useful, and the conflicts small firms most often miss.
What the Rules Require
Our guide to the SYSC sourcebook covers the module as a whole; this page goes into the conflicts requirements in detail.
SYSC 10 requires firms to take all appropriate steps to identify and prevent or manage conflicts of interest. Three obligations sit behind that phrasing.
The firm must identify conflicts — between itself and a client, between one client and another, and between an individual within the firm and a client. It must maintain and operate effective arrangements to prevent those conflicts from damaging clients’ interests. And where the arrangements are not sufficient to ensure with reasonable confidence that damage will be prevented, it must disclose the conflict clearly before acting.
The order matters. Disclosure is the last resort rather than the first answer, and a firm that reaches for disclosure before attempting to manage a conflict has misread the rule.
Identification Is the Hard Part
Conflicts policies tend to describe categories in the abstract. The useful work is mapping those categories onto the specific things this firm does.
The question worth asking is simple: where does the firm, or someone in it, have an interest that is not the client’s interest? Remuneration structures that reward volume. Introducer and referral arrangements. Group companies providing services to each other. Personal account dealing. Gifts and hospitality. Outside business interests and directorships held by staff. Family relationships with clients, suppliers or introducers.
Most small firms have conflicts in several of these areas and have documented one or two. The gap is rarely deliberate — it is that nobody has sat down with the business model and worked through it line by line.
The Register
A conflicts register should record the conflict, who it affects, how it is managed, who owns it and when it was last reviewed. If it reads as a list of theoretical possibilities rather than a record of live arrangements, it is a policy appendix rather than a register.
Two tests are worth applying. First, does every material conflict have a named owner and a described control, rather than the word “disclosed”? Second, is there any evidence of the register changing — entries added, controls revised, items closed? A register that has not moved in two years is describing a business that has not changed in two years, which is rarely true.
Remuneration Is the One Firms Underestimate
Remuneration structures are the most common source of conflicts and the least often recorded as such.
Where staff are paid on volume, on the sale of particular products, or on retention of particular business, the firm has built an interest that may diverge from the client’s. That is not prohibited, and plenty of well-run firms operate commission structures. What is required is that the firm recognises the conflict and manages it — through oversight, file review, approval thresholds or structural changes to how the incentive works.
The failure mode is a firm whose conflicts register makes no mention of how anyone is paid. It is the first thing a supervisor will think of and the first gap they will find.
Introducers, Referrals and Group Arrangements
Referral fees and introducer arrangements create an obvious interest in directing business a particular way. Where the referral is to a connected party, the conflict is sharper still.
Group structures generate a related problem. Where one group company supplies services to another, the terms of that supply, and whether the client could have been better served elsewhere, is a conflict the firm has to be able to address. Firms frequently treat intra-group arrangements as internal administration rather than as something requiring the same discipline as a third-party relationship.
Personal Interests
Personal account dealing, gifts and hospitality, and outside business interests are the three areas where individual rather than firm interests create the conflict.
Each needs a policy, a register and an approval route. More importantly, each needs someone actually reviewing what is recorded. A gifts and hospitality log nobody reads is a record of the problem rather than a control over it.
Outside business interests deserve particular attention in smaller firms, where staff frequently hold directorships or consultancies elsewhere. The question is not whether the activity is permitted but whether it creates a conflict with the firm’s clients, and who has considered that.
Disclosure, and Why It Is Not a Shortcut
Where a conflict cannot be managed with reasonable confidence, the firm must disclose it. The rules are specific about the standard: disclosure must be clear enough for the client to make an informed decision, it must be specific to the conflict rather than generic, and it must come before the firm acts.
A paragraph in standard terms of business saying the firm “may have conflicts from time to time” does not meet that standard. It is also, in practice, a signal that the firm has decided not to manage the conflict, which is the opposite of what SYSC 10 asks.
Conflicts in Specific Business Models
The generic categories only get you so far. Three business models generate conflicts that are easy to miss because they look like ordinary commercial arrangements.
Vertically integrated firms. Where advice, product and platform sit within one group, each handover is a point at which the client could have been directed elsewhere. The arrangement may well be in the client’s interest, but the firm has to be able to show it considered the question rather than assumed the answer.
Firms with a small number of large clients. Commercial dependence on one relationship is itself a conflict, because the pressure not to deliver unwelcome news is structural. It rarely appears on a register and it is frequently the most material conflict the firm has.
Appointed representative networks. A principal firm earns from its ARs and supervises them, which puts commercial interest and oversight obligation in the same place. Where an AR is a significant revenue source, the conflict needs managing explicitly rather than left to the integrity of whoever runs the oversight.
Who Owns It
Conflicts management sits with the Compliance Oversight function at most firms, which means the SMF16 holder is personally accountable for the arrangements being adequate.
That has a practical consequence for how the role is resourced. Conflicts work is not a once-a-year policy refresh — it is ongoing identification as the business changes, review of the registers, and challenge when something new arrives. A firm that has not allowed any capacity for it in the compliance arrangement will find it is the work that quietly does not happen.
Testing It
Conflicts should appear in the compliance monitoring programme as something tested rather than something assumed. Useful testing looks at whether the register matches the business as it currently operates, whether recorded controls are actually running, whether gifts and personal account records are being reviewed, and whether any disclosure made in the period met the standard.
If the monitoring programme covers conflicts with a single line confirming a policy exists, the firm is testing the document rather than the arrangement.
What a Supervisor Will Ask
Show me your conflicts register. How did you identify these? How are your people paid, and where does that appear here? What conflicts have you added in the past year? Give me an example of a conflict you identified and what you did about it. Who reviews the gifts and hospitality log, and when did they last do so?
The question about what changed in the past year is the one that separates firms with a live process from firms with a document.
Frequently Asked Questions
Is a conflicts policy enough on its own?
No. The rules require arrangements that work in practice, and evidence that they are operating. A policy without a maintained register and some record of application is a partial answer.
Can we manage a conflict purely by disclosing it?
Only where the arrangements are genuinely insufficient to prevent damage, and the disclosure meets the specific standard the rules set. Disclosure is the fallback, not the default.
Do commission structures have to be recorded as conflicts?
Where remuneration creates an interest that may diverge from the client’s, yes. The structure need not be changed, but it does need identifying and managing.
How often should the register be reviewed?
At least annually, and whenever the business changes — a new product, a new introducer relationship, a new group arrangement or a significant hire.
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About the author
Adrian Lawrence FCA
Adrian is the founder and Managing Director of FD Capital. A Chartered Accountant and ICAEW Fellow, he became a finance director at 28 and has spent more than 25 years at C-suite level, including as finance director of a listed company and of a private equity backed management buy-out. Every search is run by our specialist team, with Adrian overseeing each mandate.
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