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.
This infographic highlights key trends that could potentially shape the battle against misconduct at financial services firms in 2017 and beyond. These six key themes highlight how rapidly the world of conduct risk regulation and enforcement is evolving.
This whitepaper explores the challenges that both organizations and regulators have faced in creating a framework to improve behavior and reduce conduct risk at financial services organizations. It also looks ahead to try and predict some important trends that are emerging around attempts by supervisors to prevent misconduct and protect customers.
Anticipate and navigate global regulatory compliance confidently with Thomson Reuters Regulatory Intelligence, providing a focused view of the global regulatory environment and empowering compliance professionals to make well-informed decisions to manage regulatory risk with confidence.
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