Managing conflicts of interest of management companies and specialised depositories: regulator’s requirements

The obligations for these institutions to manage their conflicts of interest are introduced by amendments to the law ‘On Investment Funds’ that are to come into force on 2 May 2020. The new requirements stipulate that MCs and specialised depositories must prevent any conflicts of interest that could arise in the course of their licensed activity. It is also stipulated that, under certain circumstances, they may accept a conflict of interest, provided that this corresponds to the client’s interests and that information about such a conflict is disclosed to the client.

The draft ordinance defines key requirements for the procedure to identify conflicts of interest, in particular, situations that could lead to them (e.g., acquiring securities issued by an affiliated entity of an MC or entering into a transaction with an affiliated entity). In addition, the draft document defines conditions when MCs and specialised depositories may refrain from preventing a conflict of interest and requirements for the disclosure of information about a conflict of interest to clients. The document also specifies requirements for the internal procedures of MCs and specialised depositories related to the identification and management of conflicts of interest.

The innovations will serve as an additional measure to ensure the protection of the rights and lawful interests of investors and increase trust in the collective investment market.

The Bank of Russia looks forward to receiving any comments on the draft ordinance until 17 March 2020, inclusive.