Understand and manage conduct risk

Conduct Risk

Discover how organizations can use information, technology, and training to improve their conduct risk profile.

A Chinese military band conductor prepares to perform before the opening ceremony of the National People's Congress at the Great Hall of the People in Beijing March 5, 2007.
REUTERS/Jason Lee

What is conduct risk?

Conduct risk is often defined as risk to the delivery of fair customer outcomes, or to market integrity. In other words, conduct risk touches every part of an enterprise framework.

Conduct risk management integrates with enterprise risk – whether it is ensuring compliance to new conduct risk rules, managing conflicts of interest, preventing market abuse, or building robust audit procedures around new product development processes.

Adopting conduct risk management

Experts agree that the first step to improving an organization’s risk culture is to adopt a strong conduct risk management framework. Implementing the key elements of any risk program is considered best practice, requiring an organization to:

  • Assess conduct risk across the organization
  • Establish a dedication to conduct risk that is signed off by the board
  • Measure and monitor key conduct risk metrics
  • Educate and train staff about conduct expectations
  • Manage and communicate about conduct risk.

The challenge of conduct and regulatory change management

The volume and velocity of regulatory change can make embedding a risk culture even more challenging. Organizations with good risk cultures are finding significant benefits in the form of enhanced business performance, as well as improved relationships with supervisory authorities. However, to do this successfully organizations need to:

  • Understand the regulatory environment for locations and products
  • Monitor and effectively manage regulatory change
  • Create policies and procedures, focusing on conduct risk outcomes
  • Ensure staff are trained on new policies and regulations that impact their roles
  • Engage with supervisors for regulatory examinations.

Conduct and the product life-cycle

For many organizations, the strongest evidence of conduct risk is within the product life-cycle. From the development of a new product, all the way through sun-setting activities, conduct risk needs to be actively managed. Organizations must:

  • Make conduct risk considerations into new product development
  • Evaluate and control sales incentive programs
  • Ensure customer onboarding processes are fully compliant
  • Monitor product suitability actively at all client relationship stages
  • Educate staff on product suitability issues and enable a risk-aware approach.

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