Conflict of interest management rules

I. Introductory provisions

1. Subject matter and objective of the Internal Directive

PETRISK a.s., with its registered office at Michelská 1552/58, 141 00 Prague 4, ID No.: 26706245 (hereinafter referred to as the “Company“), as an independent intermediary within the meaning of Act No. 170/2018 Coll., on the Distribution of Insurance and Reinsurance (hereinafter referred to as the “ICR“) and within the meaning of the relevant official communications of the CNB, applies the following rules for identifying and managing conflicts of interest in the Company (hereinafter referred to as the “Conflict of Interest Management Rules“).

This Internal Directive contains the main principles and procedures for identifying and managing conflicts of interest within the Company and persons who are linked to the Company by property or otherwise, in particular for identifying potential conflicts of interest, avoiding conflicts of interest and managing conflicts of interest that may arise.

The aim of the Conflict of Interest Management Rules is to ensure that the interests of the Company’s customers and potential customers or third parties (e.g. cooperating financial institutions, etc.) are not harmed when the Company provides insurance.

The Vice-Chairman of the Company’s Board of Directors, in cooperation with the Compliance Officer, shall review the Conflict of Interest Management Policy at least annually and take appropriate action to correct any deficiencies.

Definition of some terms

• “Bound agent” means a bound agent within the meaning of the ITA.
• “Employee” means a person who is in an employment relationship with the Company (employment contract, work performance agreement, work activity agreement) or other similar relationship.

This Internal Directive is addressed to all employees, tied agents (“TAs”), statutory representatives and employees of tied agents, as applicable, and other persons working with the Company (collectively, “Employees”).

2. Cases of conflict of interest in the Company

The Conflict of Interest Management Rules contain rules for identifying and managing conflicts of interest between:

• Company, its shareholders, its statutory representatives, employees and tied agents and the Company’s customers and potential customers;
• by a person who controls the Company, is controlled by the Company or a person controlled by the same person as the Company, and their respective statutory representatives and employees, and the Company’s tied agents and customers and potential customers, if any;
• persons performing part of the Company’s activities on the basis of an outsourcing contract and the Company’s customers and potential customers;
• customers or potential customers of the Company with each other.

II. Procedures for identifying and managing conflicts of interest

1. Identifying conflicts of interest

In identifying and assessing conflicts of interest, the Company shall take into account whether the Company or a person referred to in the preceding article of this Internal Directive in the provision of financial services:

• has a different interest in the outcome of the service or the mediated transaction from that of the customer or potential customer;
• has an interest in the outcome of a service or a brokered deal that has the potential to affect the outcome to the detriment of the customer;
• can gain financial benefit or avoid financial loss at the expense of the customer;
• has a financial or other incentive (motivation) to put the interests of another customer or group of customers ahead of the interests of that customer;
• is in the same business as the customer;
• receives or receives an incentive in the form of monetary or non-monetary benefits or services from a third party in connection with a service provided to a customer.

All organizational units and Employees of the Company are obliged to participate in the identification and management of conflicts of interest and in the event that a conflict of interest threatens or has arisen, they are obliged to inform the Vice-Chairman of the Board of Directors of the Company and the person in charge of compliance.

Where a conflict of interest cannot be avoided, the Company shall always put the interests of the customer ahead of its own interests or those of the persons referred to in Article 2 of this Internal Directive. If there is a conflict of interest between customers, the Company shall ensure a fair resolution for those customers. In the event that an equitable solution cannot be provided, the Company may refuse to provide the service to the customer.

2. Procedures to limit the potential for conflicts of interest

The Company has established and continually updates effective procedures to limit the potential for conflicts of interest that are appropriate to its size and organisational structure and the nature, scale and complexity of its activities and the risk of damage to customer interests. These procedures are governed in particular by this Directive and the related internal regulations of the Company.

As part of the effective management of conflicts of interest, the Company:

• specify, in relation to specific financial services provided by the Company, the circumstances which constitute or may give rise to a conflict of interest which carries a risk of damage to the interests of one or more customers;
• defines the procedures and measures to be taken to effectively prevent and manage conflicts of interest; to avoid damage to the interests of the customer;
• the Company has set up an organisational structure in which the unwanted flow of information and its possible misuse leading to damage to the interests of one or more customers is effectively prevented;
• prevents or limits the ability of third parties (e.g. cooperating financial institutions) to exercise undue or unwarranted influence over the manner in which Workers provide financial services[1];
• as part of the internal control system, provides supervision and ongoing control (including compliance officers) of Employees offering and providing financial services on behalf of the Company[2];
• establishes a policy on the acceptance and provision of gifts or other benefits, clearly defining the conditions under which gifts and benefits may be accepted or provided and the procedures to be followed in accepting and providing gifts and benefits;

3. Disclosure of conflicts of interest

The Company primarily seeks to prevent conflicts of interest by taking organisational and administrative measures.

A company must not rely excessively on disclosing conflicts of interest to customers instead of taking organisational and administrative measures that will effectively prevent them from arising. Over-reliance on disclosure of conflicts of interest to customers as a last resort to manage conflicts of interest is considered to be a failure of the Company’s procedures to limit the potential for conflicts of interest.

Disclosure of conflicts of interest to customers is a measure that will only be used where the measures taken by the Company to prevent and manage conflicts of interest are not sufficient to ensure with reasonable certainty that the risk of damage to customers’ interests will be avoided.

In such cases, the Company is obliged to inform the customer of the conflict of interest before providing the financial service. The notice shall include:

• information that the organisational and administrative measures put in place by the Company to prevent or manage the conflict of interest in question are not sufficient to ensure with reasonable certainty that risks of damage to the interests of the customer will be prevented;
• a specific description of a given conflict of interest that arises in the provision of financial services;
• an explanation of the general nature and source of the conflict of interest;
• an explanation of the risks to the customer arising from conflicts of interest and the measures taken to mitigate the risks.

The information is provided in sufficient detail to enable the customer to make an informed decision about the financial service in which the conflicts of interest arise. The Company shall provide the customer with the information in a durable medium (written, electronic) or on the Company’s website.

4. Main cases of conflict of interest

Conflicts of interest within the Company are associated with insurance brokerage:

In the context of insurance brokerage, there is a conflict of interest between the Company, or the Employee providing the said services on behalf of the Company, and the customer, where the Company is motivated to broker an insurance contract on the basis of a contract concluded with the insurance company, which entitles it to a commission for brokering the insurance contract.

This is a case of a conflict of interest that cannot be effectively avoided. The company shall inform the customer prior to the conclusion of the insurance contract of the nature of its remuneration provided by the insurance company in connection with the insurance or change of insurance being arranged.

The Company manages this conflict of interest by strictly adhering to the rules of professional care in the provision of insurance to customers, where a proper assessment of the customer’s requirements, objectives and needs is a prerequisite, and by adhering to the Company’s internal rules for the remuneration of the Company’s Employees.

The Company informs the Customer that the Company’s Bound Agents are remunerated out of the fees paid to the Company by insurance companies.

Offering investment life insurance

The company is not an insurance intermediary, which is also a person authorised to provide investment services, and should, in accordance with the duty to act with professional care, take into account in particular the fact that if the interested party is only interested in investment or even savings, investment life insurance is not an appropriate product in this case, as it is an insurance product, not a savings or investment product, and avoid arranging such a product for the client.

The company currently does not provide its customers with investment (reserve) life insurance, but only risk life insurance.

5. Remuneration of Employees

The rules for managing conflicts of interest related to the remuneration of the Company’s Employees are regulated in more detail by a separate internal regulation[1].

III. Incentives

1. Definition of an incentive

A specific case of conflict of interest is the so-called incentives. The Company may not accept, offer or provide a fee, remuneration or other monetary or non-monetary benefit (incentive) in the provision of financial services that may lead to a breach of the Company’s duty to act with professional care (competently, honestly, fairly and in the best interests of its customers) or a breach of the duty to properly manage conflicts of interest.

An inducement includes unusual remuneration for a service rendered or any provision of an unjustified advantage of a financial, material or immaterial nature.

The Company approaches the management of incentives in the same way as for other conflicts of interest. This means that the Company ensures that incentives are identified, takes measures to prevent their occurrence and, where appropriate, manages them effectively, taking into account the differences in the legal regulation of incentives in different areas of insurance intermediation.

Checking compliance with incentive-related obligations is part of compliance activities. The Company is obliged to keep documents and any communication with the customer regarding incentives in accordance with a specific internal regulation[3].

In general terms, the Company distinguishes between the following categories of incentives that it may grant or receive.

1. Customer incentives

Incentives that are paid by, on behalf of, or to the customer for whom the financial service is intended.

Benefits to the customer, if offered or provided by the Company in connection with the provision of the services in question, must not interfere with the Company’s obligation to provide a financial service to the customer with professional care.

2. Operating incentives

Incentives which may be accepted and will enable the provision of the services in question, or which are necessary for that purpose, and which are permissible where their nature does not conflict with the duty to act with professional diligence.

These incentives include:

• payments for accounting, legal and tax services;
• costs associated with the fulfilment of obligations towards the Czech National Bank (administrative fees, etc.) and towards customers (printing of information notices, etc.);
• postage and other communication charges;
• fees associated with maintaining a bank account;
• training required by law (e.g. AML);
• the Company’s liability insurance premiums.

3. Other incentives

Other non-operating incentives paid to or for a third party, or provided by or for a third party, which are permissible subject to compliance with the conditions set out in the relevant legislation.

The Company maintains a list of specific types of incentives and will provide details of each incentive upon customer request.

Internal performance within the Company, which includes e.g. remuneration of Employees (tied agents), branch equipment, etc., is not an incentive. The receipt or provision of an incentive by the Company’s Employees outside this relationship is attributable to the Company.

2. Gifts and other benefits

The Company and its Employees may accept gifts and other monetary and non-monetary benefits (e.g. gift certificates, discount coupons, tours, cultural events, etc.) from third parties only if they do not interfere with the duty to provide financial services with professional care and do not interfere with the proper management of conflicts of interest. All gifts and benefits offered must be communicated in advance to the Company’s management, which, in cooperation with the Compliance Officer, shall assess their compliance with the principles set out in this Internal Directive and inform the Employees of their admissibility.

The maximum value of such benefit provided to one Employee shall generally not exceed CZK 2,500.

The provisions shall not apply to small non-monetary benefits, in particular in the form of marketing and training materials and educational and social events of cooperating financial institutions, which do not interfere with the proper management of conflicts of interest.

An employee may make gifts to customers on behalf of the Company in the form of marketing and promotional items that have been approved in advance by the Vice Chairman of the Board of Directors or the Company’s Compliance Officer.

The employee may not provide any personal gifts or other benefits to customers. On behalf of the Company, only those benefits may be provided to customers and in an amount that has been approved in advance by the Company’s Vice Chairman of the Board (e.g., waiver or discount of entry fees, free provision of additional services or other benefits).

Acceptance or provision of a gift or benefit by an Employee in violation of the above rules will be considered a material breach of employment duties.

3. Rules on the acceptance and provision of incentives for investment services in life insurance

An incentive is permissible if it is intended to contribute to improving the quality of the service provided and does not conflict with the Company’s duty to act with professional care.

The incentive serves to increase the quality of service provided to the customer, provided that all of the following conditions are met:

The Company is required to comply with the above requirements on an ongoing basis throughout the time it provides or receives the incentive.

In this context, the Compliance Officer shall keep records, inter alia, that the incentive accepted or provided by the Company serves to improve the quality of service provided to the customer by:

1. Maintain an internal list of all types of incentives received by the Company from third parties in connection with the provision of services;
2. It records how incentives given or received by the Company, or incentives it intends to use, enhance the quality of service provided to customers;
3. Keep records of the measures taken to ensure that the incentive does not conflict with the Company’s duty to act competently, honestly and fairly and in the best interests of the customer.

The Company shall disclose to the Customer information about incentives received from or provided to third parties both before and after the provision of the service.

If the Company has not been able to determine in advance the amount of the incentive to be accepted or provided and has instead communicated to the customer the method of calculating that amount, it will also subsequently provide its customers with information on the exact amount of the incentive it has accepted or provided.

The Company does not currently provide life insurance investment services to its customers.

4. Minor non-monetary benefits

In connection with the provision of financial services, the Company may receive so-called minor non-monetary benefits.

The following benefits are considered to be minor non-monetary benefits if they are justifiable and reasonable and are of such a magnitude that they are not likely to influence the Company’s behaviour in a way that is detrimental to the interests of the customer:

1. Information or documents relating to an insurance service that are of a general nature or tailored to the requirements of a particular person and reflect the situation of that customer;
2. Participation in conferences, seminars or other training events focused on the implementation and features of a specific financial product or financial service;
3. refreshments of small value offered during a business meeting or conference, seminar or other training event as referred to in point 2; or
4. other minor non-monetary benefits, a list of which will be published by the Czech National Bank on its website; such benefit must enhance the quality of the service provided to the customer and, given the overall level of benefits provided by one person or group of persons, be of such a scale and nature that it is unlikely to adversely affect the Company’s performance of its obligation to act in the best interests of its customers.

Minor non-monetary benefits are generally disclosed by the Company to the customer before the provision of the investment service, other non-monetary benefits are valued and disclosed separately.

5. Rules on the acceptance and provision of incentives for reserve-created life insurance

The Vice-Chairman of the Company’s Board of Directors, in cooperation with the Compliance Officer, shall always assess in advance whether a particular type of incentive or system of incentives accepted or provided by the Company has a detrimental effect on the quality of service provided to the Customer and, for this purpose, shall carry out an overall analysis thereof, taking into account all relevant factors that may increase or decrease the risk of a detrimental effect and the organisational and administrative measures adopted by the Company in the area of conflict of interest management, taking into account in particular the following criteria:

(a) whether the incentive or incentive scheme may encourage the Worker to offer or recommend a particular insurance product or service when the Worker could offer the customer a different insurance product or service that would better meet the needs of that customer;

(b) whether the incentive or incentive scheme is based exclusively or predominantly on quantitative commercial criteria or whether it takes full account of appropriate qualitative criteria reflecting compliance with applicable law, the quality of service provided to customers and customer satisfaction;

(c) the value of the incentive paid or received in relation to the value of the product and services provided;

(d) whether the incentive is paid wholly or mainly at the time of conclusion of the insurance contract or throughout the term of the contract;

(e) the existence of an appropriate mechanism to recover the incentive in the event of the product being discontinued or bought out at an early stage or in the event of damage to the customer’s interests;

(f) the existence of some form of floating or contingent limit or factor increasing the value of another type upon the achievement of a certain target defined on the basis of sales volume or sales value.

These principles are reflected, inter alia, in the internal regulations governing the remuneration of Employees and the related commission and career schedules and contractual documentation concluded between the Employee and the Company.

6. Forms of specific incentives in the Company

In concrete form, the Company accepts the following incentives for insurance brokerage:

Fee (negotiation/acquisition commission, follow-up commission, etc.) paid to the Company by the insurance company for arranging the conclusion of the insurance contract and related activities (follow-up care of the insurance contract, etc.).

The customer is informed about these incentives in accordance with a specific internal regulation of the Company[4].

IV. Final Provisions

Prague, 14.03.2023

For PETRISK a.s.

Mgr. Eduard Bartek – Vice-Chairman of the Board of Directors

[4] The Company’s internal regulation “Insurance Mediation Rules”