Survey Suggests Corporate Uncertainty over Conduct Risk

Conduct risk has become one of the highest priorities for regulators worldwide, yet there is still great disparity in how firms are defining conduct risk and similarly how regulators are referring to the concept reports Thomson Reuters.

In its just-published ‘Conduct Risk Report 2013’, the information group suggests that firms are responding to an increasing volume of regulatory change, demands and priorities by placing increased importance on conduct risk while working to establish what the concept means for their organisations.

Since the financial crisis, regulators have been working to put policies in place to improve the behaviour of risk management within firms. Although there is no universal definition of ‘conduct risk’, it is generally agreed that the concept encompasses the risks associated with the way in which a firm and its staff conduct themselves. It incorporates matters such as culture, tone from the top, governance, how customers are treated, remuneration of staff and how firms deal with conflicts of interest.

Thomson Reuters Accelus surveyed more than 200 compliance and risk practitioners from financial services firms across the Americas, Europe, Africa, Asia, Australia and the Middle East to find their views on how the industry is defining and dealing with conduct risk. Respondents represented firms from across the financial services sector including banks, insurers and fund managers.

Key findings from the report include:

  • Eighty-four per cent of respondents did not have a working firm-specific definition of ‘conduct risk’.
  • Firms were in broad agreement on what constitutes conduct risk. Culture came out on top (76%), closely followed by corporate governance (74%), then conflicts of interest and reputation (both at 68%).
  • Firms in Europe and Australasia have done the most work to address conduct risk, while the North America and the Middle East have done the least, according to the survey.
  • Most of the changes made have been implemented in the last 12 months, suggesting that firms’ awareness of conduct risk is growing and that the emphasis which regulators are placing on consumer protection and having the right corporate culture is beginning to take hold.
  • Almost two-thirds of respondents have implemented arrangements to deal with conduct risk while just over 50% of the firms surveyed reported having no, or a partly developed conduct risk appetite in place.

“The last 12 months have shown increased focus on conduct risk which is not surprising due to ever-demanding regulatory requirements,” says Chris Perry, managing director, risk, Thomson Reuters.

“Good conduct is good business. The cost of poor conduct is high; not just in terms of enforcement actions, now totaling in the billions of dollars, but also in the reputational damage and the wider erosion in trust that this creates across the industry.

“As the public looks to more transparency in our banks, and banks look to preserve and create value, firms and senior managers need to be able to define and measure what ‘good’ looks like in terms of culture and customer outcomes in order to understand and respond to the implications of the regulatory focus on conduct risk.”


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