Policy on Managing Conflicts of Interest
In the context of its activities, FIN-XO Securities Inc. (FIN-XO) is committed to ensuring that the interests of its customers always have precedence. Moreover, as a securities brokerage firm and member of IIROC, FIN-XO must ensure effective management of any situation which could give rise to a conflict of interest.
The organizational structure of FIN-XO is designed to effectively control conflicts of interest:
- FIN-XO declares to its clients the important conflicts of interest about which an investor would expect to be informed;
- FIN-XO delivers a protocol of conflict of interest to every new account. Also, the FIN-XO account application form contains a statement of principal which is delivered to every client;
- The reference "related issuer’s security" is written on the client’s notice of execution when transactions are done on investment products on which FIN-XO is considered as a related issuer;
- A referral arrangement to clients is also given to any client who is referred under such an arrangement. Notice of the referral arrangement is provided to the client in writing before any services are provided to him/her.
Despite the above means of control, no firm or employee is free from conflicts of interest. This policy therefore aims to provide tools to identify, monitor and manage conflicts of interest.
At all times, FIN-XO employees recognize the primacy of client interests. This policy aims to enable them to identify, investigate, appropriately correct or avoid, whenever possible, any situation that could give rise to an actual, potential or apparent conflict of interest. This policy aims to raise awareness among employees with respect to an honest and responsible conduct. Every employee should be concerned, at all times, of potential conflicts of interest and of their impact on the interests of FIN-XO’s clients.
To these ends, this policy provides a definition of what constitutes a conflict of interest and sets out the obligations of FIN-XO employees as to such conflicts. It then provides examples of conflicts of interest that FIN-XO and its employees may face.
The primary objective of this policy is to increase employee awareness with regards to the primacy of client interests.
Precisely, this policy aims to help appropriately identify, prevent and resolve any condition that would constitute a real and potential conflict of interest. This policy also helps determine when and how certain material conflicts of interest that cannot be avoided or resolved should be communicated to the concerned clients.
Employees may need to refer to the following regulations:
- IIROC Rules, particularly Rule 42;
- Regulation 31-103 respecting Registration Requirements, Exemptions and Ongoing Registrant Obligations, particularly sections 13.4 and following;
- Policy Statement to Regulation 31-103 respecting Registration Requirements, Exemptions and Ongoing Registrant Obligations, particularly the part pertaining to articles 13.4 and following of the Regulation 31-103;
- IIROC Notice 12-0107 – Client Relationship Model – Implementation;
- IIROC Notice 12-0108 – Client Relationship Model – Guidance; and
- IIROC Notice 12-0109 – Know your client and suitability – Guidance.
A conflict of interest arises when the interests of different people, including those of a client and those of FIN-XO or any of its employees (representatives, directors, officers, partners, staff members, agents) are inconsistent or divergent. A conflict of interest may be real, potential or apparent.
Precisely, a FIN-XO employee is in a conflict of interest when in a situation, of any kind whatsoever, which encourages him (real), could encourage him (potential) or could be perceived as encouraging him (apparent) to act in his personal interest or that of another person, including a person related to him.
Obligations of FIN-XO and its employees regarding conflicts of interest
OBLIGATION TO IDENTIFY CONFLICTS OF INTEREST
Conflicts of interest can take many forms and can occur in various contexts. It is impossible to make an exhaustive list of all situations that could give rise to a conflict of interest and all employees of FIN-XO, whether or not registered representatives, must exercise judgment and take all reasonable steps to identify conflicts of interest, whether apparent or real.
OBLIGATION TO EVALUATE THE CONSEQUENCES OF CONFLICTS OF INTEREST
FIN-XO and each of its employees must evaluate the consequences of any real, apparent or potential conflict of interest in order to determine its significance. Employees must be aware of the circumstances leading to conflicts of interest in order to understand how they may affect their relative importance and lead to different measures to avoid or resolve them. All conflicts of interest must be identified and evaluated by employees with the same level of attention. No employee should assume that a situation, activity or way of doing is automatically acceptable or legal, simply because others in the financial services industry act or proceed in this way.
OBLIGATION TO NOTIFY THE COMPLIANCE DEPARTMENT
When an employee identifies an actual, potential or apparent conflict of interest, he must notify the Compliance Department, without delay and in writing. The same stands for any other situation which may reasonably be expected to interfere with the employees’ duties and obligations towards FIN-XO or its clients or with their ability to provide them with objective and impartial advice.
Each employee has an obligation to follow up on issues relating to conflicts of interest, by transmitting them to the supervisor. The supervisor who is informed of such a situation must then take the necessary steps to deal with it or to inform the Branch Manager.
Thenceforth, the Compliance Department has an obligation to evaluate the situation and, if necessary, to provide FIN-XO’S senior management members with their recommendations regarding the considered conflict of interest, so that they may take the necessary actions.
OBLIGATION TO AVOID CONFLICTS OF INTEREST
Real, potential or apparent conflicts of interest between FIN-XO or any of its employees and a client that cannot be addressed in a fair, equitable and transparent manner, consistent with the best interests of the client, must be avoided. In such a situation, informing the client of the conflict’s existence and obtaining his consent are not adequate alternatives. This obligation may have as a consequence that the relevant service ceases to be provided or that the business relationship with the client be discontinued.
OBLIGATION TO RESOLVE CONFLICTS OF INTEREST
The obligation of FIN-XO employees is not limited to identifying conflicts of interest and notifying the Compliance Department of their existence. Employees also have an obligation to resolve conflicts of interest, together with their immediate supervisor or with the Branch Manager and the members of the Compliance Department.
The management of conflicts of interest is based on the fundamental principle of primacy of client interests. In all cases, the real, potential or apparent material conflicts of interest must be resolved in a fair, equitable and transparent manner, consistent with the best interests of the client.
Depending on the circumstances, FIN-XO and its employees must clearly inform affected clients of the general nature and source of a conflict of interest. Such is the case when a client, reasonably placed in the same circumstances, would expect to be informed of the existence of the conflict. This is in addition to any other method used to manage conflicts.
How information should be given to the client may vary depending on situations or circumstances affected by a conflict of interest. The terms of disclosure are defined in consultation with the Chief Compliance Officer.
Disclosure to clients must be manifest and drafted accurately, clearly and explicitly. It should explain the conflict and its potential effect on services to clients.
Disclosure must be made quickly. Wherever possible, it should be done before the product or service associated with the conflict of interest is sold or supplied to the client. If necessary, the information may be transmitted back to the client later.
Some conflicts of interest may involve confidential or commercially sensitive information, or information amounting to inside information under the provisions of securities regulation relating to insider trading, thereby making the disclosure inappropriate. Employees must be sensitive to this problem and notify their supervisor, their Branch Manager or the Compliance Department where appropriate, in order to assess whether other methods can be used to treat the conflict fittingly.
Examples of conflicts of interest
There are several types of conflicts of interest. Although it is not possible to provide an exhaustive list of all conflicts of interest that may arise, the following sections provide examples of real, potential or apparent conflicts of interest that FIN-XO and its employees may face, as well as certain measures to manage said conflicts. Employees must use their judgment to identify any real, apparent or potential conflict of interest that may occur and that is not listed in this policy.
POTENTIAL CONFLICTS OF INTEREST BETWEEN A CLIENT AND AN EMPLOYEE
Although the following list is not exhaustive, it contains examples where a client's interests and those of an FIN-XO employee may conflict:
- The transmission and/or use of privileged or confidential information. Employees who receive privileged or confidential information, whether from a client or a third party, in the normal course of business or otherwise, shall in no circumstances share this information or use it for their benefit or the benefit of another person;
- A conflict of interest may also arise whenever FIN-XO or any of its employees is likely to make a financial gain or to avoid a financial loss at the expense of a client with respect to securities. It is forbidden for employees to give trade orders that conflict with the interests of clients;
Entering into a personal financial transaction with a client is prohibited. Among other things, a FIN-XO employee cannot borrow money, extend a loan or credit, or engage in any other similar financial transaction with a client. It is also prohibited for an employee to accept to be a client’s beneficiary or to receive a gift from a client if such appointment or gift is made because of the personal relationship established with the employee in the context of his employment;
An employee gives or receives, directly or indirectly, a benefit, pecuniary or otherwise, that could influence his decisions. Employees are prohibited from placing themselves in such a situation. Some benefits, however, remain acceptable. Benefits that are negligible in value, that do not consist of money or negotiable securities, and which are part of accepted business practices may be acceptable. Such is the case for meals, business gatherings, tickets to events, participation in conferences or souvenirs, provided they are neither significant nor frequent enough to create undue influence. Employees are therefore called to exercise their best judgment and, when in doubt, to contact their supervisor, their Branch Manager or Compliance Department personnel;
No employee shall act as the promoter of any issuer, as defined in the securities regulations;
No employee, alone or with others, shall purchase or otherwise acquire, directly or indirectly, an inoperative company (“shell”) in order to obtain financing on public markets;
POTENTIAL CONFLICTS OF INTEREST BETWEEN A CLIENT AND FIN-XO
Although the following list is not exhaustive, it contains examples where a client's interests and those of FIN-XO may conflict:
Potential conflicts of interest may arise due to the FIN-XO’s proximate contact with related or connected issuers. As part of its activities, FIN-XO can purchase or sell securities of connected issuers on behalf of its clients, exercise its discretion to purchase or sell such securities under discretionary management agreements, or make recommendations on them;
- Potential conflicts of interest can also arise in the context of relations between FIN-XO and other issuers that are neither connected nor associated, such as trusts, partnerships, host structures or conduits that issue commercial paper backed by assets. This is particularly important if FIN-XO or its affiliates sponsors, conceive, underwrite or invest the securities of such issuers;
POTENTIAL CONFLICTS OF INTEREST BETWEEN AN EMPLOYEE AND FIN-XO
A situation is prone to generate a conflict of interest between an employee and FIN-XO when it may interfere or conflict with the employee’s duties towards FIN-XO or when it may otherwise be capable of impeding the exercise of independent judgment, or jeopardize his duty of loyalty to FIN-XO. Each employee is expected to exercise judgment in order to identify such situations. Although the following list is not exhaustive, it contains examples where an employee's interests and those of FIN-XO may conflict:
An employee engages in outside business activities. Such a situation may give rise to a conflict of interest, particularly because of the compensation received, the duty of loyalty and the time that must be devoted to it. Conflicts of interest may arise when an employee serves on the board of directors of a company. Employees are prohibited from exercising an external activity, hold an interest in any business or participate in any association which may interfere or conflict with their duties towards FIN-XO or that may otherwise be likely to impede their independent judgment. Employees must submit in writing to the Branch Manager their intention to work in another activity by completing the “Other professional activities, officer and director” Form (Appendix 15). The Branch Manager will submit the request to the President, Executive Vice President or Chief Compliance Officer for approval;
- When an employee is in an important conflict of interest, he must, after notifying in writing the Compliance Department, abstain from voting or making a decision on any matter concerning this situation and avoid influencing the vote or decision relating thereto. He must also withdraw from the meeting for the duration of discussions and from the decision-making process regarding this situation. A reference to the declaration of conflict of interest and to the withdrawal from the meeting is then recorded in the minutes of the meeting;
- Personal exchange trading activities conducted steadily during normal business hours are incompatible with the normal functions of an employee. Each employee must devote the time and attention reasonably required for the exercise of his normal duties.