When a bank markets a property fund that will purchase property from its subsidiary, what is required before proceeding?

• A. Not sell until after purchase.
• B. Seek written confirmation from potential investors that they are aware of the conflict of interest and still want to proceed.
• C. Provide a 30-day cooling off period.
• D. Central Bank permission.

Answer: (B)

When a fund being marketed by a bank is set to buy property from a subsidiary, a conflict of interest exists because the fund’s assets would be transacted within the same corporate group. Regulators require clear disclosure of this conflict and that investors consciously consent to it. The correct approach is to obtain written confirmation from potential investors that they are aware of the conflict and still want to proceed. This ensures investors understand the related-party risk and are making an informed choice, rather than being unaware of a potential self-dealing situation.

Other options don’t address the core issue. Regulatory permission from the central bank isn’t typically required solely for related-party transactions, a cooling-off period is not a standard remedy for this scenario, and simply delaying the sale until after the purchase doesn’t provide the necessary informed consent.