Managing conduct risk

We’re taking a look at managing conduct risk – seeing how firms can benefit from added compliance with regulatory changes and give themselves a competitive edge.

The focus on conduct risk has sharpened

First there was Treating Customers Fairly (TCF), the counterpoint to the Financial Services Authority (FSA)’s retail regulatory agenda. Now there is Conduct Risk – a comprehensive regulatory priority that aims to prompt firms into identifying risks along every step of product and business model development.

With the ongoing negative impact of LIBOR fixing and the PPI mis-selling scandal, the financial industry has been under considerable public and regulatory scrutiny of practice, ethics and public accountability. Engaging in proactive conduct risk management can allow firms to separate themselves from ill repute, creating a distinct competitive advantage.

Rising to the challenge of proactive conduct risk means integrating a strategic approach with:

  • Rigorous management of process
  • Intelligent use of data and information
  • Governance, product design and process assurance
  • Alignment of board, corporate and staff commitment to behaviours

These are some of the qualities required to create a strongly managed conduct risk programme.

Why managing conduct risk is a good strategy

The FSA’s Martin Wheatley has warned firms that as the FSA splits into two new regulatory bodies – the Prudential Regulatory Authority (PRA) and the Financial Conduct Authority (FCA) – there will now be a twin peaks system of supervision that will require equal priority on financial institutions’ agendas.

This added focus on conduct risk and accountability means firms will require commitment to conduct risk from all levels. A successful manager in conduct risk should be able to handle the complex interwoven network of risk that criss-crosses governance, product design, assurance and the alignment of board, corporate, and staff commitment and behaviours.

Grovelands’ Permanent and Senior Contract Team Leader, Shaun Buckley, believes conduct risk is a critical area, both for firms and the regulators:

“Dealing with these complex needs requires a strategic, integrated approach to conduct risk management with rigorous management of process and intelligent use of data.

“This kind of approach brings practical business benefits, greater regulatory assurance and a higher compliance with regulatory rulings. In a competitive market with high customer expectations and the depth of reputational damage caused by compliance, it is evident that managing conduct risk is a crucial aspect of customer management.”

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