Guarding against conflicts of interest: where do we stand?

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Conflicts of interest are ubiquitous in the financial services industry, but this does not mean that regulators are prepared to accept conflicts as an unavoidable fact of life. Taken together, the MiFID, UCITS and Market Abuse Directive represent a significant step forward in creating a European regulatory framework for avoiding, managing and disclosing conflicts of interest in investment and ancillary services. Nevertheless, there still needs to be put forward more pervasive legislative intervention in the case of conflicts of interest affecting the activity of credit rating agencies, whose multiple users have divergent interests. Investors and regulators are interested in well-researched, impartial assessments of credit quality, whereas issuers primarily seek favourable ratings. This distinction should allow the Commission to gain a better insight into the incentive structures, including possible conflicts of interest and disincentives to perform proper due diligence, faced by credit originators, credit rating agencies and other market participants.