Conduct Risk in Financial Services FreePDF


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We have all heard about it, and many people have discussed it: Conduct Risk is the buzz phrase in the financial services world today. Throughout the recruitment job boards and ringing around the recruiters offices abound the titles of "Conduct Risk Managers" or "Head of Conduct Risk"; but very few seem to know what this involves precisely.

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Conduct Risk in Financial Services FreePDF

  1. 1. Conduct Risk: What Is It? On January 24th 2014 Mark Carney, Governor of the Bank of England told bankers at a meeting in Davos that CONDUCT is replacing capital as the key risk facing the industry. After progressing in building up their capital buffers against potential shocks since the financial crisis, firms need to improve their behaviour to regain public trust, Carney said.
  2. 2. Conduct Risk: The Regulatory Definition There is obviously a great deal of information available including reasons for failure and fines that point you in the right direction, however, try to enter a Boolean search (containing the search term in inverted commas) for "Conduct Risk" into the handbook search box and you will find that it is not specifically defined in the regulator's handbook and nothing can be found between “COND” and “conflicts of interest policy” in the Glossary.
  3. 3. Conduct Risk: Impacted Areas From the various speeches and publications, a number of focus areas become evident and include; • Aligning business models to fair treatment of customers • Complaints handling • Product development, governance & intervention • Remuneration and reward policies & Incentives • Financial Promotion withdrawal and prohibition • Conflicts of interest • Wholesale • Business Continuity
  4. 4. Conduct Risk: Conduct Risk is not new and stems from not only the scandals and mis-selling debacles but is rooted in the Treating Customers Fairly (TCF) initiatives and echoed throughout the rules in COBS, MCOBS and ICOBS. It would appear that the definition of the term is excluded within the FCA handbook and glossary purposely to make it a reflective and subjective term defined by each company.
  5. 5. Why Do You Need To Assess Conduct Risk In Your Business? 1. To ensure the success of your business as a properly managed entity. 2. To plan for potential extreme events by identifying possible risks. 3. To focus your resources to manage probable risks effectively. 4. To assist in controlling business costs.
  6. 6. Why Do You Need To Assess Conduct Risk In Your Business? 5. Strengthens business management: If you know the risks, you can implement multiple processes to reduce the probability of the risks affecting the business. 6. To gain the edge you need over your competitors. 7. Enabling you to demonstrably increase your brand presence in the market. 8. Avoid financial losses in your business by understanding where risks may lay. 9. To demonstrate to the regulator and stakeholders you are doing it
  7. 7. The Changes FSA: Rules/Principles Based – Reactive/Passive FCA: Judgements & Outcomes Based – Intensive/ intrusive Firms decided best method to achieve outcomes (TCF) Judgement about Senior management Decision Making Process Regulatory Intervenes to ensure firms take action for required outcomes Focussed on processes and procedures Focus on Governance, Outcomes & Behaviour Management responsible for identifying and developing controls for risk Senior Management to demonstrate adequate systems and controls implementation Regulator will proactively identify risks and act to prevent crystallisation Greater emphasis on systems and controls to demonstrate Governance, Outcomes & Behaviour Evidence of risk identification, measurement and decision making process Judgement/Opinion on adequacy of controls Defined actions from risks
  8. 8. Where Can I Get More Information? Simply click on this link to get our Free PDF download We have 20 pages crammed with information. “Making Compliance Work”