Ethics and conduct in corporate finance - Conflicts of inter...

Learning Outcomes

After reading this article, you will be able to explain the importance of ethical conduct in corporate finance, identify and analyse conflicts of interest and insider information scenarios, describe legal and professional prohibitions regarding insider dealing, and evaluate appropriate procedures and safeguards in alignment with ACCA Code of Ethics.

ACCA Advanced Financial Management (AFM) Syllabus

For ACCA Advanced Financial Management (AFM), you are required to understand ethical and governance requirements in financial management roles, with particular emphasis on conflicts of interest and insider information. Make sure you can:

• Recognise and assess ethical and governance responsibilities facing professional accountants in corporate finance contexts
• Identify and explain conflicts of interest between stakeholders, directors, employees, and advisers
• Discuss the legal and regulatory implications of insider dealing and market abuse
• Apply procedures to manage access to confidential or price-sensitive information
• Recommend appropriate ethical frameworks to resolve dilemmas involving conflicts or confidentiality

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following constitutes insider dealing under UK law?
   1. Discussing strategy in a board meeting
   2. Trading shares using unpublished price-sensitive information
   3. Releasing audited accounts on the date of publication
   4. Announcing interim results on a press call

2. What is the first ethical action if you discover a personal connection to a supplier involved in a pending contract decision?

3. True or false? It is acceptable for an employee to share confidential business information with a friend, provided no trading occurs.

4. List two organisational procedures that help prevent insider dealing or conflict of interest breaches.

Introduction

Ethical behaviour and strict professional conduct are compulsory in corporate finance, where decisions can affect shareholders, creditors, employees, markets, and public trust. Accountants and finance professionals regularly encounter dilemmas—especially when personal interests, organisational objectives, or legal obligations are in tension. Having access to confidential or price-sensitive information carries responsibility, and errors in judgement or failures to act correctly may lead to loss of trust, regulatory action, civil or criminal penalties, or career consequences.

This article examines how and why conflicts of interest occur, the risks and legal context of insider information, and the ethical obligations for handling such issues, in accordance with the ACCA Code of Ethics.

Key Term: conflict of interest
A situation where a person’s personal interests, duties, or relationships might improperly influence, or appear to influence, their professional judgement or actions.

IDENTIFYING AND MANAGING CONFLICTS OF INTEREST

Conflicts of interest are common in corporate finance due to overlapping roles, responsibilities, and incentives. Conflicts may be real, potential, or perceived, and can arise between individual and organisational goals, or among different stakeholders.

Typical sources include:

• Financial personal gain versus duties to employer or client
• Close family or social connections with clients, suppliers, or competitors
• An adviser recommending products from which they or related parties benefit
• Simultaneously acting in multiple roles, such as board membership of two entities with interacting interests

If not recognised and managed, such conflicts undermine decision quality, organisational reputation, compliance, and stakeholder confidence.

Key Term: ethical dilemma
A situation where a choice must be made between competing ethical principles or interests, often where options have no clear, risk-free solution.

Worked Example 1.1

A finance officer must shortlist an auditing firm for acquisition due diligence. One firm employs their spouse. How should they proceed?

Answer:
The officer must promptly disclose the relationship to management and withdraw from participating in evaluating bids or making the final selection, to preserve the objectivity of the process and maintain organisational trust.

Exam Warning

Ignoring or failing to disclose a conflict—even if you believe it does not affect your judgement—can breach professional standards and expose you or your employer to disciplinary measures.

INSIDER INFORMATION AND DEALING

Corporate finance professionals often have access to material information that is not yet available to the wider market. If such information could influence investment decisions, it is “inside information.” Using or sharing this for personal advantage is prohibited and illegal.

Key Term: insider information
Non-public information, which, if released, is likely to affect a company’s security price or investor decisions.

Key Term: insider dealing
Buying, selling, or encouraging others to trade securities while in possession of insider information, in breach of legal or regulatory obligations.

Risks, Examples, and Regulatory Controls

Possession of insider information is typical for directors, senior managers, employees, advisers, and external consultants involved in transactions such as takeovers, fundraisings, or restructurings.

Unlawful dealing may occur by:

• Buying or selling shares of a company on undisclosed acquisition activity
• Passing information to family or friends who then trade
• Encouraging colleagues to trade based on non-public results

In the UK, insider dealing is a criminal offence under the Criminal Justice Act 1993 and can lead to imprisonment, confiscation of profits, director disqualification, and disciplinary action by ACCA or employer.

Worked Example 1.2

A senior accountant learns of an impending merger that will boost profits. Before public disclosure, they purchase shares in the target company. Is this acceptable?

Answer:
This is insider dealing—trading based on unpublished price-sensitive information. The accountant must not trade or encourage others to trade until the information is public.

Protecting Confidentiality and Market Confidence

Strong processes are essential for control:

• Restrict access to unpublished price-sensitive information to those who require it (“need to know”)
• Maintain lists of internal and external insiders
• Implement blackout periods and require staff notifications for securities transactions
• Require periodic acknowledgement of insider policies

Rapid communication of material news to the public, where possible, ensures fair access for all market participants.

Revision Tip

Regular reminders, training, and clear reporting lines for suspected breaches help strengthen an ethical culture and compliance.

ACCA ETHICS: HANDLING CONFLICTS AND CONFIDENTIAL INFORMATION

The ACCA Code of Ethics requires strict compliance with principles around integrity, objectivity, confidentiality, and professional behaviour. Professional accountants must declare any actual or potential conflicts as soon as possible, avoid misuse of confidential information, and ensure personal interests do not override duty.

Key Term: confidentiality
The responsibility to protect information acquired in professional work from unauthorised disclosure or misuse, unless legally required.

Key Term: professional behaviour
The duty to act lawfully and in a manner that does not discredit the profession or bring it into disrepute.

Employees are also expected to:

• Seek guidance when in doubt (e.g., from line manager, compliance officer, or ACCA support)
• Remove themselves from decision-making where conflicts arise
• Keep contemporaneous records of actions and decisions in ethical dilemmas

Worked Example 1.3

A treasury analyst is offered a gift by an investment bank during a tender process. What ethical obligations apply?

Answer:
The analyst should report the offer immediately and withdraw from the decision process. Personal incentives from third parties present a clear conflict and pose a risk of perceived or real bias.

ORGANISATIONAL SAFEGUARDS AND PROCEDURES

Sound compliance frameworks reduce risk and help prevent breaches. Key safeguards include:

• Mandatory annual declarations of interests by staff
• Induction and ongoing training on ethical policies
• Policies governing personal share dealing and approval protocols
• Segregation of duties in sensitive transactions
• Whistleblowing channels and audit trails for suspected breaches

Routine review and enhancement of controls is essential as legal and business environments change.

Exam Warning – Safeguards and Procedures

In exam scenarios with competing stakeholder interests and suspected market abuse or conflict, demonstrate application of ethical principles: declare, withdraw, escalate, and document actions meticulously.

Summary

Upholding ethical conduct in corporate finance protects reputation, ensures market confidence, and maintains compliance with law and professional obligations. Conflicts of interest and insider information issues require active identification, transparent reporting, and strict adherence to internal policies and the ACCA Code of Ethics. Individuals must know their obligations and organisations must enforce robust controls.

Key Point Checklist

This article has covered the following key knowledge points:

• How to identify and report conflicts of interest in corporate finance roles
• Definitions and legal implications of insider information and insider dealing
• ACCA Code requirements for professional conduct, confidentiality, and behaviour
• Organisational and personal procedures to prevent breaches involving conflicts or insider information
• The necessity of sound compliance frameworks, training, and escalation protocols

Key Terms and Concepts

• conflict of interest
• ethical dilemma
• insider information
• insider dealing
• confidentiality
• professional behaviour