Firms Seeking Clarity on Conduct Risk

Managing and mitigating conduct risk continues to be one of the highest regulatory priorities, yet financial services firms remain unclear about what conduct risk is and how to address it reports Thomson Reuters.

This lack of clarity, coupled with recent regulatory actions, appear to be driving concern about personal liability consequences.

The Thomson Reuters ‘Conduct Risk Report 2014/15’ follows up on last year’s study by looking at what practical actions firms have taken and what changes and progress have been made over the past 12 months.

The results show an increased focus by regulators on the behaviour of firms and how they conduct their business. Firms have boosted the time and resources devoted to the management of conduct risk, yet there is still a significant gap between awareness and implementation of effective policies across a firm.

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 gain insight into how the industry is defining and responding to conduct risk. Respondents represented firms from across the financial services sector including banks, insurers, and fund managers.

Key findings from the report include:

  • Sixty-seven per cent of respondents said the regulatory focus on conduct risk would increase the personal liability of senior managers.
  • Eighty-one per cent of respondents still do not have a working definition of “conduct risk”; only a slight decrease from 2013 when 84% of respondents reported not having firm specific definitions.
  • Firms are reacting to enhanced focus from regulators by creating specific teams or employing conduct risk specialists at all levels of an organisation.
  • Global systemically important financial institutions (G-SIFI’s) have appeared to have done more, with only 6% reporting no conduct risk-related changes in the past 12 months.

“We’re seeing regulatory bodies all over the world strengthening their guidelines and enforcement when it comes to conduct risk,” said Andrew Neblett, managing director, enterprise risk management (ERM) at Thomson Reuters.

“Interest around conduct risk has grown significantly over the last year, and will continue to be a focus point for regulators throughout 2015. Financial firms are going to have to continue to take tangible steps towards managing and enforcing compliance processes or else they will be subject to steep penalties and fines.”

The full report may be accessed here


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