Summary Conflicts of Interest Policy
“A firm must manage its conflicts of interest fairly, both between itself and its customers and between a customer and another client.” - Financial Conduct Authority
Little Square Capital is committed to conducting our business with integrity and according to proper standards. This document summarises the policy adopted by Little Square Capital Limited or its subsidiaries or affiliates (collectively "LSC") for compliance with the requirements of the Financial Conduct Authority (the "FCA") in the United Kingdom and for compliance with the requirements under Article 20 of the Market Abuse Regulation in the European Union relating to the management of conflicts of interest in connection with investment recommendations.
LSC has put in place certain processes and procedures to meet our obligations to maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps to identify, monitor and manage conflicts of interest. This document provides key information designed to enable you to understand the measures we may take to identify and manage conflicts of interest and safeguard your interests.
This Policy has been prepared for compliance with the FCA's conduct of business rules, and the European Market Abuse Regulation order and is not intended to create third-party duties or rights that would not already exist if the policy was not made available, nor does it form part of any contract between any client and LSC.
Conflicts of Interest Policy
Our Conflicts of Interest Policy sets out how we will:
• Identify circumstances which may give rise to conflicts of interest entailing a material risk of damage to your interests;
• Establish appropriate mechanisms and systems to manage those conflicts; and
• Maintain systems designed to prevent actual damage to your interests through any identified conflicts.
What are “conflicts of interest”?
This Policy is designed to fulfil the firm’s obligations under SYSC 10, COBS 12 and Principle for Business 8 of the FCA Handbook, the first two of which implemented the Markets in Financial Instruments Directive (“MiFID”). Conflicts of interest are defined in the context of FCA rules as any conflicts which arise between:
• The firm and a client; or
• A client and another client
When the firm is carrying out activities which are regulated by the FCA or ancillary services.
A conflict of interest under MiFID is a conflict that arises, in any area of our business, in the course of providing you with a service which may benefit us (or another client for whom we are acting) whilst potentially materially damaging your interests where we owe a duty to you. There may be conflicts where we (or anyone connected to us including an affiliate):
• Are likely to make a financial gain (or avoid a loss) at your expense;
• Have an interest in the outcome of a service provided to the client, or a transaction carried out on their behalf, which is materially different from the interest of that client;
• Have a financial or other incentive to favour the interests of one client over another;
• Carry on the same business as the client; or
• Is likely to receive an inducement whatever the form, from a third party in relation to services providing to you, other than standard fees or commissions for that service.
MiFID II requirements
Article 23 of the MiFID II Directive addresses conflicts of interest. The main change from MiFID 1 is that investment firms must take all appropriate steps to identify and prevent conflicts of interest in relation to receipt of inducements from third parties or by the firm's own remuneration and other incentive structures.
• SYSC 10 requires firms to have in place “appropriate” rather than “reasonable” steps to identify and manage conflicts – this has increased the burden on firms in this area.
• MiFID II bans independent advisers and portfolio managers from receiving any (non-minor) monetary or non-monetary benefits from third parties when dealing with retail and professional clients.
Identification of conflicts of interests
We have carried out an exercise to identify where potential conflicts of interest may exist in our business and have established measures we consider appropriate to monitor, manage and control the potential impact of those conflicts. For the purposes of identifying the types of conflicts of interest that may arise while providing investment and ancillary services or a combination thereof and whose existence may damage the interests of a client, the firm considers any of the following situations, whether they are as a result of providing investment or ancillary services or investment activities or otherwise:
• the firm or relevant person is likely to make a financial gain, or avoid a financial loss, at the expense of the client,
• the firm or relevant person has an interest in the outcome of a service provided to the client or of a transaction carried out on behalf of a client which is distinct from the client’s interest in that outcome,
• the firm or relevant person has a financial or other incentive to favour the interest of another client or group of clients over the interest of the said client,
• the firm or relevant person carries on in same business as the client,
• The firm or relevant person receives or will receive from another other than the client, an inducement in relation to a service provided to the client in the form of a financial gain, goods or services – other than the standard fee or commission for that service.
Nature of conflict and measures
Personal Account Dealing (please see the separate Personal Account Dealing policy)
The risk arising is that staff who are party to privileged information concerning investments with which we deal may trade on information which is unknown to the client for personal gain.
The firm has a restricted investor list to counter this and a policy whereby staff members are only able to invest after the investment has been made available to the general public. In addition, all personal investments must be approved by the CEO, or immediate deputy prior to their taking place.
Gifts (please see the separate Gift policy)
This covers the risk that any gifts or hospitality provided by a third party may materially influence a recommendation provided to the client.
Inducements (please see the separate Inducement policy)
This covers the risk of material inducements being given or offered which may conflict with a duty of care owing to a client.
Remuneration (covered within the Gift policy)
This deals with the risk that remuneration policy may encourage staff to take account of their own earnings from a potential transaction rather than the best interests of the client. The firm should put in place a policy whereby all staff receive the same level of commission regardless of the project the client invests in. All staff are aware of their obligations to act in the client’s best regardless of personal benefit.
Managing and Recording Conflicts of Interest
The procedures and controls that Little Square Capital follows regarding conflicts of interest are as follows:
• effective procedures to prevent or control the exchange of information between the relevant persons where the exchange of such information may harm the interests of one or more clients
• separate supervision of relevant persons whose principal functions involve carrying out such activities on behalf of, or providing services to, clients whose interests may conflict, or who otherwise represent different interests that may conflict, including those of the company/firm
• the removal of any direct link between the remuneration of relevant persons principally engaged in one activity and the remuneration of, or revenues generated by, different relevant persons principally engaged in another activity, where a conflict may arise in relation to those activities
• measures to prevent or limit any person from exercising inappropriate influence over the way in which a relevant person carries out investment or ancillary services and/or activities
• measures to prevent or control the simultaneous or sequential involvement of a relevant person in separate investment or ancillary services or activities where such involvement may impair the proper management of conflicts of interest
• segregation of duties that could give rise to conflicts if carried out by the same individual
• to monitor and report on all compliance procedures above to the Board of Directors
• establishment of a “four-eyes principle” in relation to the supervision of the firm’s activities
Accordance with SYSC, the firm annually carries out a review and maintains a record of the types of activity carried out from which conflicts of interest may arise.
If it appears for any reason that the conflict cannot be reasonably managed so as not to prejudice the best interests of the client, this will be disclosed.
Policies and Procedures
We have well established internal policies and procedures designed to manage potential conflicts of interest.
These policies and procedures, which are designed to ensure the required level of independence, are subject of ongoing monitoring and review processes and may, where relevant, include, but are not limited to the following:
Little Square Capital clearly defines Chinese Walls between the ‘public’ side functions (investment consulting, sales and research) and its ‘private’ side functions (e.g. Corporate Finance, Mergers & Acquisitions, Equity and Debt Capital Markets), utilising physical segregation where appropriate.
Personal Account Dealing
Little Square Capital clearly sets out policy related to personal account dealing requirements applicable to relevant persons in relation to their own investments. In short, we do not allow any personal account trading in shares of companies to which we provide services, or any related companies, with all personal dealing to be approved by the senior directors prior to taking place. Details available in the LSC Personal Account Dealing Policy.
Gifts and Benefits
Little Square Capital defines policy to manage the registration of the solicitation, offer or receipt of certain benefits and to limit the giving or receiving of inducements. Details available in the LSC Gift, Hospitality and Charitable Spend Policy.
We enforce procedures which control the exchange of information between our employees and/or parts of our business where interest of one client may conflict with the interests of another client with our own interests.
Separate supervision and segregation of function
Where appropriate, we will arrange for the supervision and/or functional segregation of our employees and/or parts of our business carrying out activities for clients whose interests may conflict, or where the interests of our clients and our own interests may conflict. These steps are designed to prevent the simultaneous involvement of a relevant person in separate services or activities where such involvement may impair the proper management of conflicts.
Where there is no other means of managing an identified conflict or where the measures in place do not, in our view, sufficiently protect your interest, the conflict of interest will be disclosed to you to enable an informed decision to be made by you as to whether you wish to continue doing business with us in that particular situation. Disclosure of Conflicts of Interest to clients is permitted only as a measure of last resort.
Little Square Capital maintains a record of all activities where a conflict of interest has arisen or may arise.
All firm employees will be given training on how to be aware of conflicts of interest and how to report any new or future conflicts.
Failure to Comply
Failure to comply with this Policy and procedures outlined above may result in disciplinary procedures being invoked.
New Business Approval
The Firm has a New Business Approval program which consists of a vetting and approval process designed to ensure Conflicts of Interest related to new business initiatives are identified and addressed appropriately.
Declining to Act
Where we consider we are not able to manage the conflict of interest in any way we may decline to act to you.
Escalation of Conflicts
Where employees identify a matter, business proposition or process which gives rise to a conflict of interest that may not be currently being managed by the embedded conflicts management framework, the potential conflict should be escalated to the senior directors or the Head of Compliance.
Where such a conflict is identified, Compliance should be notified and will advise on the appropriate step which should be taken to manage the conflict ensuring that relevant stakeholders are included on any relevant discussions.
The outcome of such discussions will vary depending on the particular circumstances but may include, inter alia:
The implementation of additional policies or controls to manage the conflict;
An amendment to a business practice or proposal in order to manage the conflict;
Information barriers/boxes or deal trees being established;
Disclosure to the client
LSC having to withdraw from a certain business or role in a transaction.
Amendments to the Policy
We annually review this Policy and should any amendments be made which may materially affect the way in which the firm would handle conflicts of interest on behalf of a client, the client shall be notified in writing of the nature of the changes. The client will also be provided, on request, with an up-to-date copy of the conflicts of interest policy statement.
The responsibilities contained within this document will be reviewed on an annual basis by the senior directors and any changes made if appropriate.
If you would like further details regarding our Conflicts of Interest Policy please contact Little Square Capital at email@example.com.