3 Tips to Manage Conflicts of Interest in Investment Banking

Conflicts of interest are the bane of most investment banking transactions. Whether the conflicts are real or perceived, they could jeopardize an investment banker’s reputation and legal compliance. Often, conflicts of interest arise when an investment bank has more than one interest in a deal. For instance, if the bank works for both the corporation issuing securities and the investor buying them, a conflict of interest could arise.

Thankfully, there are many smart ways to prevent or manage conflicts of interest. For instance, you can use software for investment bank transactions to identify, assess, and report on conflicts more easily and efficiently. Likewise, a deal flow platform offers you a 360-degree client view for making informed decisions. Below are some tips on how to manage conflicts of interest in investment banking.

1. Establish an information barrier

For the sake of independent investment research, consider controlling the flow of confidential information across your organization.

More specifically, make sure only the senior management or those who make investment decisions have access to material, non-public information about the client being researched. For instance, if the client shares material, non-public information with your bank, you should protect that information from people or groups in your organization that could try to influence the independent research. That way, you’ll build an information barrier to prevent departments or individuals in your organization from creating a conflict of interest.

2. Centralize data

Often, investment banks need to collate data from multiple sources manually. This takes a lot of time and effort. For instance, the bank may need to dedicate resources to search and find relevant data from different databases. Thanks to software for investment bank dealings, now you can centralize your bank’s data and create a single source of information for your conflict management team. Plus, your conflicts team can quickly conduct a search on your deal flow platform and dig up non-disclosure agreements and material, non-public information about the borrower or corporations issuing securities. Modern software tools allow you to glean useful information from a centralized database, making it easier to conduct due diligence on your clients. 

3. Ensure regulatory compliance

The SEC requires that investment banks disclose certain information regarding their investment banking transactions in order to prove that they are 1) not violating the code of ethics and 2) not hiding any information that could create potential conflicts of interest. For instance, if your bank is a stakeholder of the company for which you are issuing securities, or you made any equity investments in the company, or you received any payment from the company in the past year; you must disclose that information. However, keeping all the necessary compliance information, including your client communication and commitments, in traditional excel sheets could be cumbersome. Add to that the risk of data loss and data manipulation, and it becomes even more difficult to ensure compliance. Thankfully, software for investment bank compliance provides a better solution. The right investment banking software can help you store and organize the company data that you might need for regulatory compliance.