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Session 9Conflicts of interest
2
Contents
Part 1: Introduction
Part 2: Conflicts of interest
Part 3: Safeguarding confidentiality
Part 4: Standard conflict check procedure
Part 5: How to deal with conflicts
Part 6: Obtaining consent
Part 7: Keeping records
Part 8: Instructions after conflict arises
Part 9: Summary
3
Introduction
Part 1
4
Purpose of our policy
The purpose of our Conflicts of interest policy is to:
• set out responsibilities
• observe and uphold our positions on conflicts of interests
• provide information and guidance on recognising and dealing with conflicts of interest
5
Application of the policy
Who is covered?
All staff
Who is responsible for our policy?
Compliance officer for legal practice (COLP)
Urgent matters when COLP is not available—refer to their deputy
6
Conflicts of interest
Part 2
7
Conflicts of interest
Main categories of conflicts of interest:
•own interest conflicts
•client conflicts
8
Own interest conflicts
What?
Where personal/commercial interests of our firm conflict with our duty to act in the best interests of a client, orthere is a significant risk that personal/commercial interests of our firm will conflict with our duty to act in the best interests of a client
How?Case-by-case basis depending on the circumstances
Who? Fee earners expected to exercise judgment
9
Own interest conflicts (cont)
We can NEVER act when there is an own interest conflict with a new or existing client.
Own interest conflict is assumed where the firm is asked to act:
•against a major client even if there is no direct client conflict
•against a supplier/connected party/named contact
•in any matter where a member of staff is an opposing party, whether contentious or non-contentious
In each of these cases, approval is needed before accepting instructions
10
Own interest conflicts (cont)
We CANNOT accept instructions to act against an entity in which our firm or a member of staff has an interest.
Exception:
Member of staff unconnected with the conduct of the matter has a minor holding in a publicly listed company
In such a case, approval is needed before accepting instructions
11
Register of interests
• Any interest must be notified
• Register maintained by COLP
12
Client conflicts
What?
Owe separate duties to two or more clients in relation to the same/related matters and:
•duties actually conflict, or•significant risk those duties may conflict
How?Refer to our Conflicts of Interest Policy and the firm’s manuals
Who? All staff
13
Client conflicts (cont)
We CANNOT accept instructions where there is a conflict between two or more new or existing clients.
Unless:
•clients have a substantially common interest in relation to a matter or a particular aspect of it, or
•the clients are competing for the same objective
14
Substantially-common-interest exception
When does it apply?
• common purpose is established between clients• strong consensus on achieving common purpose • client conflict is peripheral to common purpose
What else must you do?
• explain to clients the issues/risks and have a reasonable belief that they understand
• be satisfied:o it is reasonable and in best interests to act o benefit outweighs the riskso clients consent in writing
Do not act where:
• clients cannot be represented even-handedly • clients are prejudiced if not separately represented• the clients' interests are not the same• there is unequal bargaining power between clients
15
Competing-for-the-same-objective exception
When does it apply?
• where two or more clients compete to obtain the same objective
Objective?
• asset, contract or business opportunity • which one or more client is seeking to
acquire/recover • through a form of insolvency process
or by means of an auction or tender process or a bid or offer that is not public
16
Competing-for-the-same-objective exception (cont)
What else must you do?
• explain to clients issues/risks—reasonable belief they understand
• ensure there is no other client conflict • no individual acts for more than one of the clients• be satisfied that:
o it is reasonable to act for all clientso benefit outweighs the riskso clients consent in writing
Do not act where:
• clients cannot be represented even-handedly • clients are prejudiced if not separately represented• clients compete for a residential property• unless clients are common users of legal services
17
Safeguarding confidentiality
Part 3
18
The usual confidentiality problem
We act in client conflict situation for Client 1 and Client 2:
• receive confidential information about C1
• confidential information about C1 is relevant to C2
Our duty of confidentiality to C1 takes priority
19
Safeguarding confidentiality
Can only act if:
confidential information about C1 can be protected
reasonably believe C2 is aware of and understands the issues and gives consent
C1 consents and we agree safeguards to protect C1's confidential information or, we implement safeguards (information barriers) to common law level
20
Safeguarding confidentiality (cont)
How do we implement safeguards?
Ring-fencing—ensure fee earners/teams are not involved with other clients
No overlap of management of the fee earners/teams that deal with each client
Access restrictions to confidential information imposed on relevant fee earners/teams
Physical separation of fee earners/teams dealing with each client
21
Safeguarding confidentiality (cont)
How do we implement safeguards?
Password protect information on management system
Appoint supervisor for confidentiality of each client
System for incoming correspondence to prevent inadvertent sharing of confidential information
Signed statements from each fee earner/team member confirming understanding of duty and compliance
22
Safeguarding confidentiality (cont)
What do we do if we cannot implement adequate confidentiality safeguards?
Refuse instructions to act in a client conflict situation, even if an exception applies
23
Confidentiality or conflict?
Hold material confidential information for:
1.existing client with adverse interest to our client on an unrelated matter
2.former client with adverse interest to our client
3.former or existing client with no adverse interest
24
Confidentiality or conflict (cont)
Scenarios 1 and 2
Confidential information combined with an adverse interest
•Not a strict client conflict scenario but confidentiality requirements apply
•Consider safeguarding confidentiality when we act
25
Confidentiality or conflict (cont)
Scenario 3
Confidential information without adverse interest
•For example, we hold confidential information for existing client (C1) that matters to the other client (C2) but there is no adverse interest between C1 and C2
•Act for C2 if we safeguard C1’s confidential information. No requirement for C1’s consent
26
Standard conflict check procedure
Part 4
27
Standard conflict check procedure
1. Carry out conflicts search
2. How?
•checking the names of the prospect/ client and any opposing or interested parties using Compliance Manager
•checking the report produced by CM carefully
•CM will send out a standard email to all legal staff
3. No conflict : we can accept instructions.
If there are any changes: conduct a further search.
28
Standard conflict check procedure (cont)
Potential reason for conflictType of conflict this could raise
Financial interests of the firm or a member of staff Own interest conflict
Personal relationships of the firm or a member of staff Own interest conflict
Public office held by a member of staff Own interest conflict
Commercial relationship of the firm or a member of staff Own interest conflict
The clients have different interests Client conflict
The firm's ability to give independent advice to the clients is or may be fettered
Client conflict
It may be necessary to negotiate between the clients Client conflict
There may be an imbalance in bargaining power between the clients
Client conflict
One of more of the clients is vulnerable Client conflict
29
How to deal with conflicts
Part 5
30
How to deal with conflicts
Obvious conflicts
•Instructions can be rejected immediately
•Exercise caution when explaining reasons:
• just say ‘due to a conflict of interest’
• refer to the COLP if detailed information is requested
31
How to deal with conflicts (cont)
All other situations
Use Compliance Manager (and an email) to notify the COLP if uncertain as to whether:
oan own interest conflict exists
oa client conflict exists and/or an exception applies
owe hold material confidential
The COLP will review the matter with you to decide if we can act.
32
How to deal with conflicts (cont)
Decision category Outcome
No conflict and suggestion that we hold material confidential information about another client
We can act
• Own interest conflict• A client conflict and no exceptionAND/OR• We cannot safeguard material
confidential information
We cannot act
• A client conflict but exception appliesAND/OR• We hold material confidential about
another client with adverse interest
We can act if client consent obtained. We can safeguard material confidential information
We hold material confidential information but no adverse interest
We can act if material confidential information safeguarded
33
Obtaining client consent
Part 6
34
Obtaining client consent
Process for obtaining client consent:
1.obtain preliminary permission from all affected clients to disclose sufficient information
2.when permission is granted, prepare a summary for each client setting out how the conflict affects that client
3.obtain each client's signature to the summary confirming that we can act, despite the conflict
The COLP will advise and supervise the fee earner on the process to be used in each case of obtaining informed consent.
35
Obtaining client consent (cont)
If the consent is refused
The firms MUST refuse to act
If all clients consent
protect the clients’ confidential information
fee earner notify the COLP that the clients have all consented
fee earner and COLP create an action plan, including monitoring at fixed intervals
36
Keeping records
Part 7
37
Keeping records
No conflict
• keep a copy of the conflict check on every client file, but
• not necessary for fee earner to report the result of the conflict check
Clear-cut conflict
• neither of the client conflict exceptions apply• fee earners should:o advise the client/s that we cannot acto retain a copy of the conflict check on fileo notify the COLP using CM
Conflict/ confidentiality issues
Compliance Manager will record the details and decision regardless of whether the decision is positive or negative
38
Instructions after conflict arises
Part 8
39
Instructions after conflict arises
Examples:
•joint clients disagree about the conduct of the matter
•investigations reveal the involvement of a third party which gives rise to a conflict
•potential complaint or negligence claim against the firm
•companies merge or be taken over
•individuals become incapacitated, die or assign interests
40
Instructions after conflict arises (cont)
When there is a material change:
•further conflict check
•acceptance of instructions will apply with necessary modifications
•report to the COLP immediately
41
Instructions after conflict arises (cont)
When we cease to act:
•ensure the issue is handled sensitively
•update clients with decisions or deadlines promptly
•possibly suggest a third party to take on client’s matter
•ensure our policy is not infringed when referring client’s matter to third parties
•comply with policy for introductions to third parties
42
Summary
Part 9
43
Summary
• Conflicts of interest policy preserves and upholds responsibilities of all staff on conflicts of interests
• Two categories of conflict of interest: o own interest conflicto client conflict
• Issues related to confidentiality governed by SRA Code of Conduct 2011
• Generally duty of confidentiality takes priority over disclosure
• Conflicts situations determined on a case-by-case basis
• Apparent conflicts must be rejected and reported immediately
• Important to report an interest for record keeping
• You may be liable to disciplinary action if you fail to comply with our policy
44
Final comments
• Any questions?
• Email to [email protected]
• Update your training records in Compliance Manager