Making Conduct Risk [Good] Business As Usual

2,101
-1

Published on

Andrew Smart sought to de-mistify some of the market perceptions about Conduct Risk Management and show how to make Conduct Risk Business As Usual. He showed that Conduct Risk Management should not be regarded as a new management framework or process, rather it should be embedded within the business strategy and operational processes.

Published in: Business, Economy & Finance
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
2,101
On Slideshare
0
From Embeds
0
Number of Embeds
4
Actions
Shares
0
Downloads
64
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide
  • 1. Firm Systematic Framework (FSF) –preventative work through structuredconduct assessment of firms.2. Event-driven work – dealing fasterand more decisively with problems thatare emerging or have happened, andsecuring customer redress or otherremedial work where necessary. This willcover issues that occur outside the firmassessment cycle, and will use betterdata monitoring and intelligence.3. Issues and products – fast, intensivecampaigns on sectors of the market orproducts within a sector that are puttingor may put consumers at risk.
  • Business Model Threshold ConditionA new Business Model Threshold Conditionwill demonstrate the importance that weplace on a firm’s ability to put forward anappropriate, viable and sustainable businessmodel, given the nature and scale of businessthat they intend to carry out.Essentially, we will be looking forfirms to base their business model,their culture, and how they run thebusiness, on a foundation of fairtreatment of customers…
  • Making Conduct Risk [Good] Business As Usual

    1. 1. Making Conduct Risk [Good] Business as Usual taking a strategic approach to Conduct Risk Management Scottish IOR Conference 1st November, 2013
    2. 2. Introduction  15 years plus in strategy and risk management  CEO & Founder of Manigent (consultancy)  CEO & Founder of StratexSystems (software)  2006/07 -12 month / 21 organisation research project into the integration of strategy and risk management  2008 - Created the Risk-Based Performance Management methodology during various strategy and risk related engagements in the city Page  2
    3. 3. Agenda  The emerging regulatory landscape  Implementation of a Conduct Risk Management framework  Taking a strategic approach to Conduct Risk Page  3
    4. 4. The emerging regulatory landscape
    5. 5. With the creation of the FCA, Conduct Risk becomes central to the regulatory agenda FCA Objective To make relevant markets work well so consumers get a fair deal. 1. Outcomes 2. 3. 3 Pillars Regulatory Approach Consumers get financial services and products that meet their needs, from firms they can trust; Markets and financial systems are sound, stable and resilient, with transparent pricing information; and Firms compete effectively, with the interests of their customers and the integrity of the market at the heart of how they run their business. CONDUCT RISK Firm Systematic Framework (FSF) Event-driven work Page  5 Issues and products
    6. 6. FCA has a range of new powers  Power to;  ban products or restrict sales  stop misleading financial advertising  tell the public earlier about enforcement action  Better tools to regulate markets “The key difference between the future and now is we (the FCA) are being given the power to shoot first and ask questions later” Martin Wheatley to the Association of British Insurers, September, 2012 Page  7
    7. 7. The FCA has new regulatory tools Business Model and Strategy Analysis Stage 1 Are the interests of customers and market integrity at the heart of how the firm is run? Governance and Culture Sales Processes Stage 2 Post-sales/services and transactions handling Product Design Page  8
    8. 8. What does the FCA really want from firms? “We accept the FSA has not been as effective a conduct regulator as it could have been” “Led in many cases to a tickbox and overly legalistic compliance culture within firms, encouraged by what has been seen as a tick-box regulatory approach” Clive Adamson, Director of Supervision, FCA, 19/4/2013 “We will have a greater expectation of a strategic approach to the conduct agenda and senior management and board engagement in it.” Clive Adamson, Director of Supervision, Conduct Business Unit, FSA, January 2012 “We accept that firms need to be able to generate acceptable returns for shareholders, and have to be financially robust but this is about ‘good profits' rather than profit at any cost - either to firms' own stability or their customers’ best interests.” Martin Wheatley, FCA CEO Page  9
    9. 9. What does the FCA really want from firms? “We will have greater expectation of a strategic  Customers at the heart of youra firm’s business “We accept the FSA has not approach to the conduct agenda and senior been as effective a conduct model and strategy management and board engagement in it.” regulator as it could have been” Clive Adamson, Director of Supervision, Conduct Business Unit, FSA, January 2012 “Led in many cases to a tick A strategic approach with strong senior box and overly legalistic management and board engagement compliance culture within  firms, encouraged by what has been seen as a tick-box regulatory approach” Good profits Clive Adamson, Director of Supervision, FCA, 19/4/2013 “We accept that firms need to be able to generate acceptable returns for shareholders, and have to be financially robust but this is about ‘good profits' rather than profit at any cost - either to firms' own stability or their customers’ best interests.”  Stability and accountability Page  10 Martin Wheatley, FCA CEO
    10. 10. How are you responding to the Conduct Risk agenda? Specific Conduct Risk Management Framework Vs. Embedding Conduct Risk Management into the existing Management approach Which approach has your firm taken? Page  11
    11. 11. How are you responding to the Conduct Risk agenda? To meet regulatory requirements Vs. To truly put customers at the heart of your business What is your firms motivation? Page  12
    12. 12. What we have seen over the last few months  “We have created a Conduct Risk Management framework which adds 175 new indicators to our monthly MI” – Director of Operational Risk  “Conduct Risk is been handled by the compliance team – CEO”  “We don‟t see a real need to change, Conduct Risk is just TCF 2.0” - CRO Specific Conduct Risk Management Framework To meet regulatory requirements Page  13
    13. 13. We believe Conduct Risk represents a big opportunity for your firm and for the Risk Management profession  Embedding Conduct Risk Management into the existing Management approach To truly put customers at the heart of your business Drive strategic and operational change to drive improvements is customer satisfaction and profitability  Embed risk management as a core part of your firm‟s strategic and operational execution culture  Drive improvement across management processes, information and decision-making  Raise your professional profile and that of your team Page  14
    14. 14. Implementation of a Conduct Risk Management framework
    15. 15. Developing a Conduct Risk Management framework is an understandable response by firms Page  16
    16. 16. However, we believe a specific Conduct Risk Management framework is an sub-optimal response Creating a new, specific Conduct Risk Management framework can have a number of potential pitfalls:  Can create significant duplication and confusion  Can significantly increase the amount of data been collected and reporting…but reduce the amount of insight generated  Perpetuates the tick-box approach and culture  Misses the opportunity to:  Drive real business change and improvement  Put risk management (and customers) at the heart of strategic and operational execution Page  17
    17. 17. Taking a strategic approach to Conduct Risk
    18. 18. Strategic An integrated model for Strategy and Risk Management Strategy Map Strategic Risk Map Alignment Business Drivers Initiative Alignment Matrix Appetite Alignment Matrix Process Architecture Initiative Portfolio Operational Risk Map Operational Process Alignment Matrix Page  19
    19. 19. An integrated model for Strategy and Risk Management What our Business Objectives? What our Strategic Risks? Business Drivers Strategic What are our key value drivers? Strategy Map Strategic Risk Map Alignment Are our initiatives aligned? Are we operating within Appetite? Process Alignment Matrix Operational Are our BAU processes aligned? Initiative Alignment Matrix Appetite Alignment Matrix What are our key BAU processes? What are our key change initiatives? What our Operational Risks? Process Architecture Initiative Portfolio Operational Risk Map Page  20
    20. 20. Central to this integrated model for Strategy and Risk Management is the Strategy Map Page  21
    21. 21. The Strategy Map is a leading tool to enhance the communications, execution and monitoring of strategy Improve Shareholder Value To succeed financially, how should we appear to our shareholders? Improve Cost Structure   Cost per Unit • Market and Account Share Enhance Customer Value  Asset Turnover  Customer Profitability  Customer Acquisition  Customer Retention Create Value from New Products & Services New Revenue Sources Customer Satisfaction Customer Solutions Customer Value Proposition Product/Service Attributes Price To achieve our vision, how will we sustain our ability to change and improve?  Increase Asset Utilization Revenue Growth Strategy Product Leader To achieve our vision, how should we appear to our customers? To satisfy our shareholders and customers, what business processes must we excel at? Shareholder Value ROCE Productivity Strategy Quality Time Operations Theme Low Total Cost Relationship Function Service Customer Management Theme Image Relations Brand Innovation Theme Regulatory and Society Theme Human, Information, and organisational Capital Strategic Competencies Strategic Technologies Page  22 Climate for Action
    22. 22. Financial Customer Internal Process Learning & Growth Deliver Revenue Growth The Strategy Map articulates how an organisation creates value Objective Statement of what strategy must achieve and what’s critical to its success KPIs How success in achieving the strategy will be measured and tracked Targets The level of performance or rate of improvement needed Initiatives Key action programs required to achieve Priorities Sustainable Growth Objective KPIs Targets Initiatives Drive sales execution Drive sales execution YTD % Increase in income “Their fees are clear and fair” “We align our incentives to our appetite & desired behaviours” Page  23 25%  Implement new sales process
    23. 23. Financial Customer Internal Process Learning & Growth Deliver Revenue Growth However, to create value, risktaking must be aligned to strategy… Objective Statement of what strategy must achieve and what’s critical to its success Appetite How much risk are we willing to run to achieve the objective? Exposure How much risk are we currently running? Alignment Is our current risk-taking aligned to appetite? Sustainable Growth Objective Appetite Exposure Alignment Drive sales execution Drive sales execution Moderate High Over-exposed “Their fees are clear and fair” “We align our incentives to our appetite & desired behaviours” Page  24
    24. 24. Financial Customer Internal Process Learning & Growth Deliver Revenue Growth “Their fees are clear and fair” Sustainable Growth Drive sales execution Effective risk management supports value creation and value protection... Objective Statement of what strategy must achieve and what’s critical to its success The threats and opportunities (risks) exist which may impact achievement of objectives Objective Risks Drive sales execution “We align our incentives to our appetite & desired behaviours” Page  25 Risks  Mis-selling resulting in reputation loss Thresholds The appetite and tolerance thresholds used to monitor risk Mitigation The activities undertaken to manage risk Thresholds Mitigation  Appetite  Tolerances  Controls  Initiatives  Policy & procedures  Processes
    25. 25. Learning & Growth Internal Processes Customer Financial The Strategy Map can be used to demonstrate the role customer outcomes play in the firm‟s strategy Drive Shareholder value Deliver Revenue Growth “Their fees are clear and fair” Drive sales execution “We leverage our data to deliver positive customer outcomes Information Capital Control Costs “Their solutions continue to meet our changing needs” “We received good value” Continuously seek to understand client needs Deliver outstanding customer service @ POS “We sell the right products, to the right people, the right time” Cultural Capital Page  26 “We have quick, convenient access to our financial info” Ensure effective Complaints handling “We align our incentives to our appetite & desired behaviours” Human Capital
    26. 26. Having clear and achievable financial Drive Shareholderis critical to ensure the firm is objectives value Deliver Revenue and will be around to provide on-going service sustainable Control Costs Growth Customer Financial The Strategy Map can be used to demonstrate the role customer outcomes play in the firm‟s strategy Internal Processes By convention,are clear customer outcomes are expressed“Their solutions you would have quick,hear is phases “We like to “Their fees “We received good continue to convenient and customers use to describe your firm and meet our value” yourfair” products/services access to changing needs” our financial info” Deliver outstanding Learning & Growth Ensure effective To deliver financial and customer outcomes, we must be clear about the key processes customer service Continuously seek to Complaints Drive sales execution @ POS understand client handling which will enable us to deliver those outcomes. needs “We leverage our data to “We sell the right “We align our Underpinningpositivedelivery of the key processes,the right the customer financial and customerappetiteincentivesis outcomes deliver products, to to our & desired outcomes people, the right time” behaviours” the organisational culture. Information Capital Cultural Capital Page  27 Human Capital
    27. 27. „Slice‟ the Business Strategy by Customer Perspective to get a „Conduct Risk‟ view Page  28
    28. 28. Customer related processes and initiatives are aligned to customer objectives via alignment matrix‟s Page  29
    29. 29. Learning & Growth Internal Processes Customer Financial The Strategy Map can be used as a starting point in the definition of risks & controls related to customer outcomes Deliver Revenue Growth “Their fees are clear and fair” Drive sales execution “We leverage our data to deliver positive customer outcomes Information Capital Page  30
    30. 30. Use the same approach at an operational level to wrap a risk & controls framework around customer related processes (and initiatives) Processes KPIs Risk Appetite Actions Key Risks KRIs Actions From a Conduct Risk perspective, define, manage and monitor key customer processes, such as New Product Development, Sales Execution, Customer service, Complaints handling etc. Assessment Events KCIs Key Controls Actions 31 Page  31 Assessment Certification
    31. 31. Apply the RACI model at a Strategy and Operational level to clarify and embed accountabilities for Customer outcomes “The doers” Those people working on delivering the objective, managing the risk or applying the control. “The buck stops here” P “Keep in the picture” Those with Yes/No authority related to the objective, risk or control. “Keep in the loop” Position(s) that need to know about decision or action related to the objective, risk or control. Those involved prior to decisions or action related to the objective, risk or control. Page  32
    32. 32. Line of Sight Dashboards which require Accountable sign-off reinforce a culture of accountability Page  33
    33. 33. Using existing management „tools‟, Conduct Risk can be embedded within your existing management approach What our Customer Objectives? What our Conduct Risks? Business Drivers Strategic What drives customer value? Strategy Map Strategic Risk Map Alignment Are our initiatives aligned to customer outcomes? Is our Conduct Risk Appetite aligned to our Strategy? Process Alignment Matrix Operational Are our processes aligned to customer outcomes? Initiative Alignment Matrix Appetite Alignment Matrix What are our key BAU processes? What are our key change initiatives? What our Conduct Risks? Process Architecture Initiative Portfolio Operational Risk Map Page  34
    34. 34. Why take a strategic approach to Conduct Risk? Our experience (with Financial Services and non-Financial Services firms) shows the benefits of taking a strategic approach:  Significant improvements in Board and Senior Management engagement  Significant improvements in Management Information and Insights – shaping the focus on the „vital few‟  Improved regulatory engagement  Activities to deliver your Conduct Risk requirements have the additional pay-off of driving real business value  Enables the CRO/Risk Team to demonstrate real business value via enhanced risk management practices Page  35
    35. 35. Integrating Strategy & Risk Management an Introduction to Risk-Based Performance Management
    36. 36. Risk-Based Performance Management (RBPM) is a holistic and integrated approach to strategy execution and risk management What are we trying to achieve? What is our Risk Appetite? Strategy Management Appetite Are we on track? Performance Management Risk Management Governance & Communications Culture Page  37 Are we operating within appetite?
    37. 37. The Risk-Based Performance Management (RBPM) methodology is based on seven management disciplines Business Drivers Capital Income 2. Manage Performance 1. Set Strategy Appetite Share Price ? 5.Governance 4. Appetite Alignment 3. Manage Risk Shareholder Value Reputation Appetite 7.Culture 6.Communications Economic value add Page  38 Profit ?
    38. 38. The Risk-Based Performance Management (RBPM) roadmap can be used to guide the implementation of an effective response to the Conduct Risk agenda Execution Formulation Define Strengths & Weaknesses Define Strategic Goals Define Business Drivers Define Strategic Risks Define Risk Appetite Define Strategic Objectives Define the Strategy Define the Business Model Define Strategic Controls Align Risk Appetite & Strategy Define Indicators Define Processes Define Initiatives Define Operational Risks Define Operational Controls Executive Board Page  46 Assess Risks & Controls Monitor Appetite Alignment
    39. 39. Contact details Andrew Smart CEO Manigent & StratexSystems Email: andrew.smart@manigent.com Blog: www.riskbasedperformance.com Web: www.manigent.com | www.stratexsystems.com LinkedIn: http://uk.linkedin.com/in/ajsmart Twitter:@AndrewJSmart Page  47

    ×