73. Conflicts of interest can arise when one unit in a conglomerate, such as a bank, lends to a non­bank parent or to another entity within the group; or where an insurer is required to place money within the group rather than investing more widely in other more appropriate assets. In these circumstances, there is a danger that the bank (or insurer) will make its lending (or investment) decisions outside the usual approval processes and that these decisions may result from, or lead to, conflicts of interest. This danger can be particularly acute in a loosely structured financial conglomerate and in conglomerates where matrix management is practised (i.e. where lines of accountability are organised on a functional basis spanning a number of different corporate entities, in contrast to a pyramid structure within each corporate entity).

74. The potential for conflicts of interest in a financial conglomerate is heightened when investors with substantial holdings in the conglomerate have contractual relationships with businesses in the group. In many financial conglomerates ­ although not necessarily confined to them ­ there is a distinct possibility that shareholders' interests may conflict with the interests of creditors, particularly those whom the supervisor has a duty to protect.