Fidelity Conflicts of Interest Policy

Introduction

Conflicts of interest exist in all businesses and at all firms. Nevertheless, at Fidelity International, we recognise that our business is, above all, based on a contract of trust with our clients and we have a duty to manage those conflicts and treat all our customers fairly. 

Fidelity International and its subsidiaries (“Fidelity”) have a regulatory and fiduciary duty to never put itself in a position where its own interest result in an irreconcilable conflict with its duty to its clients or where its duty to one client results in an irreconcilable conflict with its duty to another client or clients.  To that end, Fidelity will ideally avoid conflicts of interest. However, where this is not possible, and recognising that potential conflicts of interest will arise from time to time, Fidelity will take all reasonable steps to identify, record, manage and where required, disclose actual or potential conflicts of interests and have in place a policy relating to conflicts of interest.

Governance and Monitoring 

The Fidelity Board has approved the Fidelity Corporate Conflicts of Interest Policy (“the Policy”), which sets out the global minimum standards to mitigate material risk of damage or harm to the interests of a client arising from competing obligations or motivations of Fidelity or its clients. In order to prevent such a risk, conflicts are identified through various means, including regular interviews with the business heads, awareness training and internal reviews. The Policy is reviewed annually, or more frequently if necessary, to ensure it remains fit for purpose and compliant with all applicable laws and regulations. Changes to the Policy must be approved by the Global Conflicts Committee (“GCC”) and the Policy is sent to external auditors on an annual basis who confirm that it was reviewed and the relevant approvals were obtained.

A Conflicts Register is maintained to ensure that significant conflicts have been identified, managed and recorded and the relevant mitigating controls, where appropriate, are documented. The Register is reviewed by Fidelity’s Compliance departments in conjunction with the relevant business areas with changes to the Register shared with the GCC on an annual basis.

Fidelity has established the GCC which is responsible for overseeing the Policy and the overall corporate conflicts framework. The GCC is a global committee comprising of senior management which meets at least three times a year to review any new or amended material conflicts. Day-to-day effective implementation of the Policy rests within the respective first-line business areas. They are assisted by the Audit & Risk Committees, Internal Audit and oversight groups as necessary with escalation and reporting to the GCC.

Related Policies and procedures

Fidelity operates under a Code of Conduct and Ethics Policy which serves as an overarching Group Policy that highlights Fidelity’s expectations with regard to ethical behaviour and conduct. The Code encompasses various policies including the Personal Conflicts and Trading Policy, the Gifts and Hospitality Policy and Whistleblowing Procedure (together “the Code”).

• The Personal Conflicts and Trading Policy covers:
  • Personal conflicts, including personal relationships, outside business activities and directorships
  • Personal account trading obligations and restrictions, including those for individuals that have access to Fidelity’s proprietary information or sensitive inside information
  • Reporting violations and suspicions
  • Safeguarding of price sensitive information and notification to Legal/Compliance 
• The Gifts and Hospitality Policy covers:
  • Reporting relevant gifts given or received (or obtaining pre-approval if a gift is with a government employee) and potentially returning/surrendering/declining if inappropriate or excessive
  • Obtaining pre-approval for giving or receiving entertainment
  • Reporting relevant corporate promotional gifts and obtaining pre-approval for other such gifts
  • Obtaining pre-approval for relevant promotional activities, sponsorships, travel and accommodation and corporate political and charitable donations
• Fidelity has a whistleblowing procedure that encourages staff to report any conflicts of interest, including staff that may be aware of unreported/undisclosed outside business activities.  Fidelity uses an independent third-party whistleblowing reporting system which provides staff, clients, suppliers and members of the public the ability to raise anonymous reports if they are aware of a conflict of interest or any other type of whistleblowing concern.

All employees must adhere to the Policy and the Code and receive awareness and training to reinforce that clients’ interests must always come before those of Fidelity or its employees. The Code is monitored and includes a full sanction and disciplinary process in the event of a violation.

Potential Conflicts of Interest

Included below are some examples of actual or potential conflicts of interest that Fidelity may face.  It is important to note that sustainability, or environmental, social and governance (“ESG”) matters are integrated into the Fidelity investment approach.  Unless specifically mentioned, the below conflicts are homogeneous between sustainability and non-sustainability products.

1. Personal Trading 

Fidelity employees may face conflicts of interest when transacting for their own personal accounts as they could benefit from trading in the same securities which are also held or traded by a Fidelity client account.  Fidelity employees are therefore subject to the Personal Conflicts and Trading Policy which is based on the principle that no employee may benefit from their knowledge of a client’s affairs, and places restrictions on all staff, in particular those with access to Fidelity’s proprietary information, including information about Fidelity’s client accounts, or sensitive inside information. Restrictions include disclosing accounts and holdings, obtaining pre-trade approval for many personal transactions (including those conducted by immediate family), and placing personal trades through a broker that has agreed, in writing, to supply Fidelity with duplicate contract notes and/or statements. Employees must confirm this information at the time of hire and annually thereafter. Investment Professionals and others who have access to Fidelity’s proprietary information or sensitive inside information must also confirm transactions quarterly.

2. Gifts and Hospitality

On occasion, Fidelity employees may receive gifts and/or hospitality from external parties which could have the appearance of affecting, or may potentially affect, the judgement of such employees, or the manner in which they conduct business. Fidelity employees may not give or receive gifts and hospitality from external parties which could potentially negatively influence their actions towards the quality of service and products provided to clients. As such, Fidelity’s Gifts and Hospitality Policy sets out obligations and restrictions governing both the receipt and provision of business gifts and hospitality.

3. Outside Business Activities and other Personal Conflicts

Fidelity employees that have outside business activities or other personal conflicts (e.g. personal relationships) are also governed by the Personal Conflicts and Trading Policy. Outside business activities such as directorships, trustee positions, additional paid jobs, business ventures etc. must receive prior approval. Such positions may cause a conflict as they could influence the employee’s decision-making at the expense of clients' interests. Approval is therefore dependent on whether the conflict can be adequately managed. Similarly, close personal relationships with a third-party that either does or is trying to do business with Fidelity or works for a client or in the industry, or personal relationships with someone in a significant position in a firm that is under Fidelity’s investment universe, requires disclosure and prior approval.

4. Investing

The majority of Fidelity’s investing is on behalf of its clients. However, Fidelity also invests as principal. To manage these potential conflicts, Fidelity has processes and procedures in place to support its clients’ products and accounts. It is also possible that a Fidelity product or account will own securities issued by a client. In all situations, Fidelity’s investment decisions will be guided by what it regards as the best interests of the relevant product or account.

5. Trade Allocation and Best Execution

A conflict of interest may arise if Fidelity’s client orders are not fully executed when aggregated with those of other products or accounts managed by Fidelity.  When performing client transactions in securities, Fidelity will combine orders if it is in the overall best interests of clients. If there is insufficient liquidity resulting in a partial completion of the order, securities will be allocated across all clients participating in the block trade. To manage a potential conflict of unequal allocation from a trade, Fidelity maintains a Trading Desk Policy which ensures the consistent and fair application of allocations. Allocations are performed on a pro-rata basis, based on the size of the order. The system allocation algorithm is automatically applied for every trade, subject to three lines of oversight – the Trading Desk supervisor, Compliance and Internal Audit.

In selecting brokers to effect portfolio transactions for Fidelity accounts or products, Fidelity has the fiduciary duty to seek to obtain best execution.  When executing client orders, the trading desk takes all sufficient steps to achieve the “best possible result” for those orders. To achieve this, the trading desk has in place policies and supporting procedures which are designed to help the trading desk obtain the best result. This is done by taking into account the nature of the order, the priorities associated with the order and the nature and conditions of the market in question. The trading desk aims to achieve the most favorable balance across a range of sometimes conflicting factors.

6. Transactions between Portfolios (Cross Trades)

Fidelity may undertake cross trades involving client accounts in which a security is sold from one account and bought for another account. Fidelity has policies and procedures designed to achieve fairness and will only undertake such cross trades when it believes it is in the best interests of all clients involved. 

7. Material Non-Public Information
Fidelity may obtain material non-public information in connection with its investment-related activities. To prevent wrongful trading, Fidelity has adopted policies and procedures to prevent all dealings in those securities for clients and employees for so long as Fidelity holds the non-public information. A client’s account may therefore be unable to trade such securities until the restriction is lifted, which could disadvantage the client’s account.

8. Regulatory and Issue Specific Limits

As a result of regulatory and issuer-specific limits applying to the ownership of securities of particular issuers, Fidelity limits investments in the securities of such issuers. Similar limitations apply to futures and other derivatives, such as options. In addition, Fidelity may limit investments relating to a certain country or in an issuer operating in a specific regulated industry, when investments, in the securities of issuers domiciled or listed on trading markets in that country or operating in that regulated industry, above certain thresholds is impractical or undesirable. The aforementioned limits and thresholds may apply at the account level or in the aggregate across all accounts and products managed or owned by Fidelity. 

Also, for investment risk management and other purposes, Fidelity generally applies internal aggregate limits on the amount of a specific issuer’s securities owned by all such accounts, although such limits may vary for certain accounts established to develop performance track records. In connection with the foregoing limits and thresholds, Fidelity limits or excludes clients’ investment in particular issuers, futures, derivatives and/or other instruments (or limits the exercise of voting or other rights) and investment flexibility may be restricted. In addition, to the extent client accounts already own securities that directly or indirectly contribute to such an ownership threshold being exceeded, Fidelity generally sells securities held in such accounts to bring account-level and/or aggregate ownership below the relevant threshold. If any such sales result in realised losses for client accounts, those client accounts may bear such losses depending on the circumstances.

9. Voting

Fidelity recognises the importance of managing potential conflicts of interest that may arise when voting by proxy. Fidelity has therefore adopted and implemented Proxy Voting policies and procedures that are designed to reasonably ensure that proxies are voted in the best interests of its clients and in accordance with its fiduciary duties. Fidelity has an in-house Sustainable Investing Team who work closely with its investment teams and who are responsible for conducting its voting activities. Information is derived from a variety of sources including proxy voting advisory services, but all voting decisions are made in accordance with Fidelity’s policies and procedures. Voting instructions are generally processed electronically via a proxy voting agent.

If a Fidelity account or product holds an investment in more than one party to a transaction, Fidelity will always act in the interests of the specific account or product in question. In instances where there is a conflict with Fidelity’s own interests, Fidelity will either vote in accordance with the recommendation of its principal third-party research provider or, if no recommendation is available, it will abstain or not vote at all. Fidelity will not vote at shareholder meetings of any Fidelity products unless specifically instructed by a client or where it is required to protect its clients’ interests. Fidelity has a procedure for escalating voting decisions when conflicts or controversial issues are identified during the voting process and the Chief Investment Officer acts as final arbiter.

Currently, Fidelity does not apply client proxy voting policies, but we do support clients who wish to implement their own custom voting policies through a segregated mandate.

10. Research Material

Fidelity develops proprietary research material for its own use which is not made available to the public. Nevertheless, Fidelity places certain controls around its research process.  If any research analyst has a personal interest in a stock on which he or she is commenting, that must be disclosed within the research note. In addition, the Code contains specific provisions requiring research analysts to manage any possible conflicts.  Research is issued simultaneously across Fidelity for the benefit of all client products.

11. Management of Multiple Accounts

The management of multiple products and accounts may give rise to potential conflicts of interest if the products and accounts have different objectives, benchmarks, time horizons, and fees as a portfolio manager must allocate their time and investment ideas across multiple products and accounts.  For example, Fidelity could take opposite positions (i.e. long / short) in the same security across accounts, and a position in one account could affect the value of an opposite position in another account.  In the case of a proposed takeover, there may be a conflict between products holding the shares of the acquirer and those holding the shares of the takeover target.  Fidelity will not favour the account of one client over the account of another client to further its own interests or the interests of one client over the interests of another.

12. Investment in Fidelity Products

Conflicts may arise where investment guidelines for client accounts authorise transactions in units or shares of Fidelity products as such investments could benefit Fidelity (e.g. through increased revenue) or certain clients to the detriment of other clients. Similar conflicts can also arise if Fidelity recommends its own products to clients when providing investment advice. Policies and procedures are in place to ensure that Fidelity products are only used where deemed to be in the best interests of the client or explicitly where a client instructs Fidelity to restrict the entire or part of the investment universe to Fidelity products.

13. Products with a sustainable objective

Conflicts may arise where products have sustainability as part of the investment objective. There might be a conflict between the financial performance and the non-financial performance. This is also relevant to the remuneration of the portfolio managers of these products. As safeguards, the financial and non-financial indicators are measured and discussed equally at the Quarterly Fund Reviews (QFRs) and reported at least annually within regulatory reports. In addition, the remuneration of portfolio managers includes non-financial indicators. 

14. Capacity Management

In exceptional instances, there can be capacity constraints for particular products or investment strategies which can give rise to potential conflicts between clients. Fidelity adheres to a capacity management framework, which is forward looking and actively reviews capacity factors on an on-going basis. Should a potential conflict arise, Fidelity aims to treat all clients fairly.

15. Product Bias

There is a potential conflict which could result from commercial pressure to give preference or priority to Fidelity products over third-party products, whether funds, exchange traded funds or investment trusts, for inclusion on Fidelity’s fund platforms or best buy lists. Fidelity has a robust framework in place that ensures that the same standards and criteria are applied to both Fidelity products and third-party products when they are considered for inclusion (or remaining) on the platform or on the best buy lists.

16. Remuneration Practices

Conflicts of interest may arise where a firm’s remuneration practices incentivise its employees to act in a manner that is beneficial to the firm and which may result in the employee not acting in the best interest of the firm’s clients. Fidelity operates a variety of remuneration models for its employees. All models are agreed with Human Resources and the Remuneration Committee to ensure compliance with legal and regulatory requirements, and to ensure that client interests are protected at all times.

17. Different services and different business channels

Fidelity, as a global company, offers many different business services to clients across different channels. Fidelity aims to treat all clients fairly, although this may not always be the same treatment and where different outcomes can be achieved, it ensures the conflicts are disclosed clearly. This potential conflict is managed by separate terms and conditions, and on the basis of different client propositions, which are made clear to clients and their advisers in client materials and/or agreements.