Conduct Risk: What Is It?

On January 24th 2014 Mark Carney, Governor of the Bank of England told bankers at a meeting in Davos that CONDUCT is replacing capital as the key risk facing the industry. After progressing in building up their capital buffers against potential shocks since the financial crisis, firms need to improve their behaviour to regain public trust, Carney said.

Conduct Risk: The Regulatory Definition

There is obviously a great deal of information available including reasons for failure and fines that point you in the right direction, however, try to enter a Boolean search (containing the search term in inverted commas) for "Conduct Risk" into the handbook search box and you will find that it is not specifically defined in the regulator's handbook and nothing can be found between COND and conflicts of interest policy in the Glossary.

Conduct Risk: Impacted Areas

From the various speeches and publications, a number of focus areas become evident and include; Aligning business models to fair treatment of customers Complaints handling Product development, governance & intervention Remuneration and reward policies & Incentives Financial Promotion withdrawal and prohibition Conflicts of interest Wholesale Business Continuity

Conduct Risk:
Conduct Risk is not new and stems from not only the scandals and mis-selling debacles but is rooted in the Treating Customers Fairly (TCF) initiatives and echoed throughout the rules in COBS, MCOBS and ICOBS. It would appear that the definition of the term is excluded within the FCA handbook and glossary purposely to make it a reflective and subjective term defined by each company.

Why Do You Need To Assess Conduct Risk In Your Business?

1. To ensure the success of your business as a properly managed entity. 2. To plan for potential extreme events by identifying possible risks. 3. To focus your resources to manage probable risks effectively. 4. To assist in controlling business costs.

Why Do You Need To Assess Conduct Risk In Your Business?

5. Strengthens business management: If you know the risks, you can implement multiple processes to reduce the probability of the risks affecting the business. 6. To gain the edge you need over your competitors. 7. Enabling you to demonstrably increase your brand presence in the market. 8. Avoid financial losses in your business by understanding where risks may lay. 9. To demonstrate to the regulator and stakeholders you are doing it

The Changes
FSA: Rules/Principles Based Reactive/Passive
Judgement/Opinion on adequacy of controls

FCA: Judgements & Outcomes Based Intensive/ intrusive

Judgement about Senior management Decision Making Process Regulatory Intervenes to ensure firms take action for required outcomes Focus on Governance, Outcomes & Behaviour Regulator will proactively identify risks and act to prevent crystallisation Greater emphasis on systems and controls to demonstrate Governance, Outcomes & Behaviour Evidence of risk identification, measurement and decision making process

Firms decided best method to achieve outcomes (TCF)

Focussed on processes and procedures Management responsible for identifying and developing controls for risk Senior Management to demonstrate adequate systems and controls implementation Defined actions from risks

Where Can I Get More Information?

Simply click on this link to get our

Free PDF download

We have 20 pages crammed with information.
http://www.complianceconsultant.org/conductrisk.html

Making Compliance Work