Risk Management Update Profile – Identifying Conflicts of Interest for Broker-Dealers

At the end of each month, Core Compliance & Legal Services, Inc. (“Core Compliance”) publishes a Risk Management Update (RMU), an in-depth article written by one of our staff members on a current relevant topic in the compliance, securities and investment industry. In late December 2013, Core Compliance’s Brooke Freitas wrote and released an RMU that addresses one of the most fundamental aspects of the financial industry – conflicts of interest – and discusses how broker-dealer firms around the US are mitigating such situations within their business practices.

The basis of the RMU revolves around a recent report issued by the Financial Industry Regulatory Authority (FINRA) on conflicts of interest practices within several large US broker-dealer firms. To frame this discussion, Freitas defines a conflict of interest as “when, in any relationship, there exists a duty of care or trust between two or more parties.” She proceeds from this definition to outline several conflicts regulations in the US, including Rules 15c1-5 and 15c1-6 of Section 15(c) of the Securities Exchange Act of 1934, as well as identifying 3 key types of conflicts of interest: 1) General Conflict, 2) Supervision and Compliance Conflict, and 3) Research-related Conflict. The RMU concludes with a list of examples on how to avoid conflicts of interest in your firm, along with an emphasis on the most important element of conflicts of interest – an effective and straightforward disclosure statement between the firm and its client.

To read a PDF of the article “Identifying Conflicts of Interest for Broker-Dealers,” please click here. To browse our RMU library, including insightful articles on a wide range of industry topics, please click here.

For more information, or for assistance on other compliance topics, please contact us at (619) 278-0020 to schedule a consultation call.

GENERAL DISCLAIMER: Information contained within this blog does not create a business-client relationship, and none of the content of this blog can be deemed to be consultive business advice.

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