9 ways to critique a board report on conflicts of interest

  • 11 June 2014

The UK’s regulator’s recent report into how insurance brokers in the SME market were handling conflicts of interest will hopefully have triggered many an internal review into how each firm was handling its own particular conflicts. One of the key outputs from such reviews should be the provision of management information (MI) about conflicts of interest for on-going board level monitoring. So how can someone at board level recognise good conflicts of interest MI from bad conflicts of interest MI?

Good management information should communicate two things: firstly, how an issue is being managed, and secondly, where things are going wrong and what is being done about it. Here are some questions you could be asking in relation to conflict of interest MI (CoI MI):

1. Who’s got operational responsibility for compiling the CoI MI? If they’re not named, that’s a problem. If they are named, are they the one presenting this CoI MI to the board? If not, when.

2. Does the CoI MI confirm what policies and procedures are in place to manage conflicts of interest? And when they were last reviewed? And when their use was last scrutinised by internal audit?

3. Does the CoI MI tell me about the main types of conflict of interest risk and where within the business they’re to be found? And does it tell me what internal controls are in place to counter those risks? Does it give any indication of the spread between gross and net for each risk?

4.  Does it show me incident numbers and values in relation to each of those main types of conflict of interest risk?

5. Does the CoI MI tell me about occasions when ‘actual conflicts of interest’ have arisen? Does the metric chosen for this make sense? And does the data populating seem reliable? What does it tell me about the steps taken to tackle each incident? And what steps have been taken to avoid a recurrence?

6. Does the CoI MI tell me about occasions when ‘potential or perceived conflicts of interest’ have arisen and how they were then mitigated? Is there a breakdown of this information (and that in point 5 above) by  type of conflict of interest risk and by line of business/dept/etc?

7.  What does the CoI MI tell me about the repercussions for the business of how conflict of interest situations were handled?  Do I know how much business was lost as a result, or could have been lost if not properly handled?

8.  Am I seeing diverse sources of information about levels of conflict of interest? Does it include references to conflicts of interest in complaints, or any cases where the firm has been taken to the Financial Ombudsman Service?

9. Do I get any sense from the CoI MI of what the staff think about how the firm is handling conflicts of interest? Has it come up in appraisals, or in reports coming through the firm’s ‘speaking up’ or whistleblowing arrangements? Has a question relating to it (either specifically or broadly) been included in an employee survey? If not, then when?

If you’re thinking that CoI MI like this is more detailed than you’re use to, then (if you’re anything other than a small firm) consider two things: conflicts of interest are the key ethical risk for insurance brokers, and your regulator is looking closely at how you’re managing such risks. Collecting management information like this is a much cheaper option than paying the fine.