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How to Write a Conflict of Interest Policy + Template

Employee conflict of interest policy

Conflicts of interest can cause significant negative repercussions for businesses when allowed to continue unchecked. These include compliance risks, operational inefficiencies, reputational damage and other outcomes. As such, organisations should create a robust employee conflict of interest policy to steer internal stakeholders on how to identify, prevent, manage and report conflicts of interest within their working lives.  

This can help avoid situations such as that of €35 million sanctions for employee personal trading in an EU country. It was a case where three individuals cherry-picked trades, only attributing them to particular funds after they had gained or lost.  

This allowed them to favour some clients over others, creating a conflict of interest that cost some of their clients nearly €50 million. An investigation found that they had failed to act in the best interests of these clients and the businesses for which they worked were fined significant sums (around €35 million collectively). The individuals received bans from working in the sector and individual financial penalties.  

This article provides examples of the different types of conflicts of interest, helps you create your own policy for conflict of interest management and highlights best practices for engaging employees in managing conflicts effectively.  

1. What is an employee conflict of interest?  

A conflict of interest arises when personal interests interfere with an individual’s ability to perform their duties impartially and objectively. This situation occurs when personal gains or relationships could unduly influence the individual’s official responsibilities and decision-making processes. 

Conflicts can occur for a number of different reasons, but all can negatively impact an organisation in different ways. Here are some examples of conflicts of interest: 

Type 

Conflict 

Potential repercussions 

Investments 

An employee could have investments in competitors of their employer or competitors of their employer’s clients.  

Contravention of Article 23 of the Markets in Financial Instruments Directive (MiFID II) to identify and manage conflicts of interest. The employee may make decisions not in the best interests of the employer or client because they benefit their personal investment.  

Nepotism 

Hiring or favouring relatives or friends over other qualified candidates. 

The company does not employ the most appropriate candidate for the role, impacting operational efficiency. 

Confidential information 

Misusing or leaking confidential or proprietary information for personal gain or to benefit someone else. 

Damaging to the reputation of the company and its ability to keep sensitive information safe. This might also contravene the Market Abuse Regulation’s (MAR) rules on insider trading and the unlawful distribution of inside information. 

Role conflicts 

Holding multiple roles or responsibilities that may clash with each other. 

Stakeholders might have to make decisions that affect their responsibilities in another role, affecting their ability to make decisions solely in the interests of one or both organisations.  

Outcomes of these situations can lead to significant compliance penalties and even possible legal action taken against the business or individuals who fail to properly manage conflicts of interest. In addition, by making decisions that are not in the best interests of the company, it can lead to reduced performance, affecting the standing and financial performance of the business.  

2. What to include in an employee conflict of interest policy

Here are the sections that your conflict of interest management policy should contain:  

  • Scope of the policy, detailing to whom it applies. This can include employees and directors, as well as contractors, suppliers and other stakeholders. 
  • Definitions, including what constitutes a conflict of interest, as well as what is deemed to be ‘personal interest’, ‘financial interest’ and other relevant terms.  
  • Policy statements regarding the general principles of the company’s commitment to ethical behaviour and transparency, as well as the compliance requirements placed on employees by both the company and the law.  
  • Disclosure requirements over conflicts of interest both at onboarding and on an ongoing basis. 
  • Procedures for employees to disclose their own conflicts of interest proactively. 
  • Reporting procedures for highlighting conflicts of interest of others, witnessed during the employee’s duties. 
  • Processes for the review and management of conflicts of interest by the organisation.  
  • Confidentiality agreement.  
  • Details on training programmes for stakeholders in relation to the policy. 
  • Consequences of non-compliance with the policy. 
  • Links to related documentation, pertinent to the content of the conflict of interest policy.  

3. How to develop an employee conflict of interest policy 

3.1 Identify conflicts 

To create a robust policy, you need to understand the types of conflicts you might have to deal with. Conduct a comprehensive risk assessment to understand the potential conflicts of interest that could affect your organisation. These could be based on your location, the size of your business and the sector within which you work. For example, for investment firms, an employee’s personal account dealing could cause a conflict of interest with their recommendations to clients.  

Other methods to identify conflicts of interest include engaging with stakeholders within the organisation to understand risks they have previously encountered within the company or sector. Talk to experts, including industry experts and legal advisors for a broader understanding of the risks relevant to your organisation. In addition, set up a reporting channel to allow other employees to report conflicts of interest confidentially.  

3.2 Define your objectives

The policy needs to make clear its purpose, so it is easier for employees to understand the importance and necessity of such a document. When they understand the goal of the policy, they are better placed to adhere to it and meet their obligations.  

Once you know the conflicts that are most pertinent to your organisation, you can define your objectives more clearly. Decide on the overarching aim of the document and communicate that from the start, bearing it in mind as you put together the content of the policy.  

Link this goal to your company’s existing ethical standards to illustrate how it feeds into the compliance culture of the organisation.  

3.3 Outline employee responsibilities

Employees should understand the steps that they need to take to ensure compliance with your conflict of interest policy and, therefore, with the legal requirements on them and the company. Set out your expectations, including: 

  • The need to read, understand and acknowledge the policy 
  • The obligation to disclose potential or actual conflicts 
  • Methods of avoiding conflicts of interest, such as implementing a pre-clearance process for employees’ personal trades and outside business activities 
  • Methods to report violations of the policy 
  • Participation in ongoing training programmes related to conflicts of interest 
  • The requirement to act in a transparent and ethical manner. 

3.4 Establish management procedures

The company should have in place procedures to manage conflicts of interest that arise at work. This includes putting in place a review process to consider the impact of the conflict on the organisation and its stakeholders. This should establish the course of action that should be taken, including moving an employee to other projects, halting the onboarding process or any other satisfactory outcome. The process should also look for ways to prevent further conflicts of a similar nature and to understand if there has been any material impact on the business or its clients.  

In the case of a conflict of interest that has not been disclosed by the relevant party, the management procedure should set sufficient sanctions to dissuade others from failing to disclose such information.  

3.5 Implement disclosure processes

For a conflict of interest policy to work effectively, it should make the process of disclosure as easy as possible. This requires the company to create a procedure that is easy to follow and complete, ensuring that there are no barriers to a stakeholder disclosing a potential or actual conflict of interest.  

Set out the process for disclosing, including standardised reporting templates that help you gather all the information you need for a thorough review and details on the point of contact to which employees report. 

Use the policy to illustrate the timeline for disclosure and follow-up so that employees understand how the process works and what they can expect.  

3.6 Develop training programmes

Set in place a training scheme that will help employees better understand the conflict of interest policy. Regular education sessions will help communicate the message more clearly and allow employees to see how the policy works in action.  

Sessions could include:  

  • An introduction to conflicts of interest, including the most common types likely to be encountered in the company's context. 
  • Step-by-step guidance on disclosure and reporting practices. 
  • Scenarios and case studies relevant to the organisation that show how to identify conflicts of interest in the daily operations of the business. 
  • How to envelop ethics and integrity into decision-making. 
  • Legal and regulatory refreshers to understand the compliance benefits of avoiding conflicts of interest.  

Training on the company’s policy should also be included in the onboarding process to ensure new starters understand their obligations. 

4. Employee conflict of interest policy template 

Here are some examples of how companies design their own conflict of interest policies: 

5. Best practices for engaging employees 

5.1 Make it understandable 

The policy should be clear and concise so that all employees can understand their obligations and the processes for disclosing, reporting and managing conflicts of interest. Adding too much text or legal jargon can disrupt the communication of the message and reduce the impact of the policy, increasing work for compliance teams.  

Consider adding real-world examples of conflicts of interest to make it understandable and relatable.

5.2 Provide comprehensive training 

The policy should explain all the necessary points of your approach to managing conflicts of interest, but you should complement this with training that provides more context on each of the elements of your policy and gives examples of conflict situations.  

This helps increase understanding and recall of the main elements of the policy through workshops, Q&As and other learning methods. Ensure that they have understood the learning materials by engaging them in a short quiz at the end of the sessions.  

5.3 Create a culture of openness 

A speak-up culture that promotes and prizes transparency and the reporting of issues in the first instance is key to a solid conflict of interest policy. If employees fear admitting a conflict of interest or reporting someone else profiting from one, it can cause damage to the business in the long term.  

Create channels of communication for disclosure and reporting, seek out employee feedback on their concerns about speaking up and ensure that your leadership team acts in an open manner, leading the culture from the top. When management and executives are transparent about their own conflicts of interest, this sends a powerful message to employees that the business is serious about its commitment to mitigating conflicts of interest.  

5.4 Communicate proactively  

You need to actively attempt to engage employees to help them understand their obligations and the reasons behind the policy. This means utilising your internal communication channels to their full potential and ensuring that the message reaches all stakeholders.  

Use emails, town hall meetings, webinars and other techniques to ensure that the policy and information about adhering to it are accessible to all relevant parties.  

But do not just broadcast the message. You need to seek out feedback too. It should be a two-way communication process to understand how employees perceive the policy, answer any questions that they have and reveal what adjustments need to be made to increase engagement and enforcement.  

6. FAQs

6.1 Who should be involved in the creation of the conflict of interest policy? 

Senior management, legal counsel, the compliance lead and representatives from key departments such as HR and finance must collaborate to ensure the conflict of interest policy features comprehensive coverage and alignment with both your organisational goals and regulatory obligations. 

6.2 How often should the conflict of interest policy be reviewed? 

The policy should be reviewed annually or whenever there are significant changes in relevant laws or organisational structure to ensure it remains current and effective. Another reason to review the conflict of interest policy is if there is a case that highlights an area in which it is underperforming.  

6.3 What should an employee do if they find themselves in a potential conflict of interest? 

If an employee finds themselves in a potential conflict of interest, they should promptly disclose the situation to their supervisor, the HR department or compliance officer, using the established reporting channels outlined in the policy. The ideal point of contact should be identified in your policy, representing the most effective course of action in your business.  

6.4 What should a conflict of interest company policy include?

A conflict of interest management policy should include definitions of key terms, disclosure requirements, procedures for reporting and reviewing conflicts and enforcement mechanisms, including consequences for non-compliance. 

6.5 What actions can be taken if a conflict is concealed? 

The company should take disciplinary action against parties who conceal conflicts of interest, including warnings, reprimands, termination of employment and legal action, depending on the company’s policies and the severity of the case. 

7. Conclusion

An employee conflict of interest policy should set out your processes for identifying, preventing and managing conflicts of interest in clear terms. All employees should understand their obligations and the reasons behind the rules that the company has in place. 

TradeLog is a conflict of interest management software that enables you to compare employee trades and roles against the client and vendor data you provide. Employees use the platform to request pre-clearance of trades and to ask for approval to hold external roles. TradeLog automatically flags potential conflicts, alerting you to situations where personal interests may clash with those of your clients or business partners. 

Request free demo 

8. References and further reading

 

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