the main reasons for developing Colombia’s financial system based on separated, specialized legal vehicles has been the prevention of conflicts of interest. However, experience (including the 1998-99 crisis and the mini-2002 TES crisis) has shown that this approach is more formal than substantial, especially with the development of financial conglomerates under a common control and decision-making process. Regulations for the prevention of conflicts of interest cannot therefore be primarily based on formal criteria like the separation of businesses between companies and the appointment of different professionals for each one, but rather via an adequate set of relevant regulations.

**In the case of Colombia, there are two major problems with regulations covering conflicts of interest** . Firstly, such regulations (as recorded in the EOSF) appear fragmentary, with varying levels of detail depending on the type of financial institution, and do not fully address all the relevant issues of substance (e.g. “Chinese walls” between certain activities within institutions, sharing of client databases across institutions, nature of prudential framework and supervisory responsibilities vis-à-vis outsourcing providers etc.). Secondly, anecdotal evidence suggests that the understanding and interpretation of these regulations differs across individuals and companies, resulting in the adoption of different policies – for example, the extent to which certain services (e.g. Treasury, legal, accounting etc.) can be shared across financial entities of the same group via Service Level Agreements and under what conditions.

**Good international practice points to the development of regulations that clearly lay out a set of general principles covering the prevention of conflicts of interest.** This would require regulations formulating general principles regarding the prevention of conflicts of interest, with clear rules about which activities and conduct can be considered permissible and how. A substance-over-form principle should be applied in this context in order to avoid excessively formal, over-detailed or incomplete approaches. A different but related issue that should also be clarified in this process is the one related to outsourcing and the delegation of responsibilities (“ _delegación de profesionalidad_ ”), which is based on the idea that there exist ‘core’ financial activities that cannot be transferred / delegated to other companies as that would imply the transfer of authorization for that activity. In the case of Colombia, such activities currently include fund management, which therefore has to be undertaken in-house. The two issues are related in case where outsourcing is conducted between companies of the same financial conglomerate, where existing conflicts of interest can be exacerbated.

**It has also become good international practice to promote self-regulation by companies and groups in a context of transparency and public disclosure** . The prevention of conflicts of interest cannot be based exclusively on external regulations, but must also provide market-based incentives for financial companies and groups to establish and enforce their own codes of conduct, allowing more detailed rules to be formulated that adjust the external general principles to the specific circumstances of each case. Transparency and public disclosure of these codes of conduct can be very helpful in order to convince market participants and the general public that conflicts of interest are effectively and professionally addressed.

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