Community
Conduct risk is the latest buzzword in banking. Although there is no standard definition of conduct risk, it is now a regulatory requirement for UK financial services, and it broadly demands that organisations focus on fair customer outcomes and not just shareholder return.
It means operating ethically and responsibly and having the customer’s interests at the heart of the business.
Conduct risk requires moving beyond a box-ticking approach to operational risk. It requires re-alignment of corporate strategy and to these outcomes. It means ensuring that processes are optimised to deliver them. And it means ensuring that the culture of the organisation is directed to achieve them.
Conduct risk covers almost every aspect of the business - everything through planning, product design, operations, marketing and frontline customer service. It requires that employees focus on ‘doing the right thing’, rather than just slavishly following processes if they don’t provide the best outcome for a specific customer.
This is a major shift in mindset for most banks – a recent Thomson Reuters report found that 84% of respondents did not yet have a working, firm-specific definition of “conduct risk”, although most (76%) identified the culture of an organisation as the key component for delivering against the conduct risk requirement.
The FCA has called this out specifically and has identified culture as an essential organisational focus. In a recent speech by Clive Adamson, Director of Supervision at the FCA stated the following elements as key drivers for this:
So what does a focus on conduct risk require from businesses in practice?
I agree with the FCA – it needs to start with leadership and there are four steps to achieving this.
This is no easy task – it entails a whole company programme – but it is achievable.
And the benefits are huge. Aside from fulfilling regulatory requirements, as Chris Perry, MD of Risk at Thomson Reuters suggests, “Good conduct is good business. The cost of poor conduct is high; not just in terms of enforcement actions, now totalling in the billions of dollars, but also in the reputational damage and the wider erosion in trust that this creates across the industry”
Ultimately a focus on purpose and values combined with the drive of a committed leadership team to deliver fair outcomes can only provide solid reputational benefits.
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
Nikunj Gundaniya Product manager at Digipay.guru
11 October
Priyam Ganguly Data Analyst at Hanwha Q cells America Inc
Fang Yu Co-Founder and Chief Product Officer at DataVisor
09 October
Alexander Boehm Chief Executive Officer at PayRate42
Welcome to Finextra. We use cookies to help us to deliver our services. You may change your preferences at our Cookie Centre.
Please read our Privacy Policy.