Defining, Enforcing and Preventing Conduct Risk

An international focus on defining, preventing, and understanding the concept of “conduct risk” has become problematic for financial services organisations in the UK and beyond—in part because the term is not yet clearly defined.

According to the Financial Conduct Authority (FCA), the UK’s regulatory body for financial services organisations, conduct risk is “consumer detriment arising from the wrong products ending up in the wrong hands, and the detriment to society of people not being able to get access to the right products.”   

The Organisation for Economic Co-operation and Development (OECD) published their own report on the principals of conduct risk. The OECD expects their member organisations to integrate these principals into their compliance programmes.

What Conduct Risk Really Means

Essentially, “conduct risk” boils down to the FCA scrutinizing how a financial organisation’s conduct ultimately impacts consumers—with huge fines at stake for organisations that put consumers at risk.

Financial services firms must do business with high regard to treating their customers fairly. That means that firms are going to have to be mindful of whether the FCA will deem their business decisions are being made in the best interest of their customers. 

Proactivity Continues to Win Points

The FCA has gone after companies for a variety of failures to this point—cyber security breaches, inaccurate risk profiles, etc., including Santander UK and many others.

The good news is that the FCA and other international bodies are giving credit to organisations that take a proactive approach to igniting cultural changes that promote good conduct. Outlined in the 2013 report, these cultural changes include:

  1.        Oversight and governance
  2.        Transparency
  3.        Playing an active role in maintaining integrity 

The FCA is rewarding proactive behaviour because their main goal is to prevent issues before they happen, something all risk, ethics and compliance professionals strive to do.

Organisations that have a strong compliance programme centred around creating a culture of ethics, integrity and compliance will be well-equipped to manage conduct risk and show the FCA and other regulatory authorities that they too are taking a proactive approach.

Chat with a solutions expert to learn how you can take your compliance program to the next level of maturity.

Fauxtroversy: Combining or Separating GC and CCO Roles?

Previous/Next Article Chevron Icon of a previous/next arrow. Previous Post

NAVEX Global 2014 Training Benchmarking Report Webinar: Top Takeaways & Questions

Next Post Previous/Next Article Chevron Icon of a previous/next arrow.