Monaco’s Compliance Frameworks: A Guide to Managing Conflicts of Interest in Banking Sector

In an effort to strengthen its regulatory framework, Monaco’s banking sector has implemented strict guidelines to manage conflicts of interest, ensuring the protection of investors and regularity of transactions.

Regulatory Background

The country’s financial activities are governed by Law No. 1.338 of September 2007, which requires authorized companies to comply with prudential and good conduct rules. The Sovereign Order No. 1.284 of September 2007 implementing Law No. 1.338 further emphasizes the importance of adhering to rules of good conduct, including the avoidance of conflicts of interest.

Defining Conflicts of Interest

A conflict of interest is defined as any professional situation where a person’s discretion or decision-making power may be influenced by personal considerations or pressure from a third party. This includes situations where:

• The bank or an individual related to it stands to gain financially at the expense of the client.
• They have an interest in the outcome of a service provided.
• They are encouraged to prioritize the interests of another client.

Identifying and Managing Conflicts of Interest

To identify potential conflicts of interest, banks must establish an effective management policy and implement measures to detect and manage them. The Bank’s Compliance Department plays a crucial role in detecting conflicts and ensuring compliance with regulatory requirements. Banks are required to:

• Segregate tasks and activities to minimize the potential for conflicts of interest.
• Report any public or private mandates held by members of the Board of Directors and Authorized Management, specifying why they do not believe they are affected by conflicts of interest.

Principles Guiding Conflict Management

The management of conflicts of interest is guided by two fundamental principles:

• Primacy of Client Interests: The client’s interests must take precedence over those of the bank or individual linked to it.
• Principle of Proportionality: Where a conflict arises, banks must prioritize the interests of the client with whom they have made the longest-standing commitments.

Role of the Head of Compliance

The Head of Compliance is responsible for managing conflicts of interest and ensuring compliance with regulatory requirements. The department specialized in this area provides guidance on managing conflicts and recording them in a specific register.

Conclusion

By implementing these measures, Monaco’s banking sector aims to ensure transparency and fairness in its operations, protecting the interests of investors and promoting a stable financial environment.