In the wake of the 2008 financial crisis, regulators saw it as necessary to create more accountability in the financial sector to prevent ineffective supervision and oversight, including in the areas of risk management, product governance, and unethical behaviour.
Nick has extensive experience as an SMR across Operational Risk and Resilience topics through his previous role as Chief Country Officer at a Tier 1 Investment Bank.
In the wake of the 2008 financial crisis, regulators saw it as necessary to create more accountability in the financial sector to prevent ineffective supervision and oversight, including in the areas of risk management, product governance and unethical behaviour.
In the UK, this took the form of the Senior Managers and Certification Regime (SM&CR) and the conduct risk rules. The former sought to extend regulatory accountability to senior management within financial institutions. With the latter having the objective to align the behaviour of individuals within firms to the wider interest of consumers and market stability. As part of this, the regulators required firms to address five “conduct questions”.
Since the introduction of the rules in 2015, Conduct Risk has received ever-increasing attention from both the regulators and the industry. In the period between 2008 and 2018, conduct failings have cost global banks a total of £377 billion (Conduct Costs Project | Bayes Business School (city.ac.uk)), continuing to rank top amongst priorities at regular intervals. For example, the outbreak of the Covid-19 pandemic brought Conduct back into focus as firms asked themselves how they could monitor their employees’ behaviours in a world of remote working.
Recently, the FCA’s latest Consumer Duty has brought Conduct risk back into the spotlight through the introduction of a sixth individual conduct rule: “Act to deliver good outcomes for retail customers”. The implications of this change are far-reaching, requiring firms to review their training, policies and procedures, and monitoring tools to ensure staff fulfil this new obligation. The rules apply in a reasonable and proportionate way, ensuring that accountability from the top affects the cultural change that is required in order to ensure good outcomes are achieved by all retail customers.
As a response to this, many firms have taken the opportunity to refresh their existing conduct risk frameworks to ensure that the newest conduct rule is properly embedded and delivers the desired change in behaviours. The refresh includes creating additional training, updating Senior Manager Regime Policies and embedding clear communication lines so that the new requirements are understood by all employees.
In addition, firms are looking at ways of leveraging new technologies to enhance the monitoring of conduct risk. Consumer Duty is part of the FCA’s broader shift to becoming a more data and outcome-driven regulator. Firms should therefore consider what Conduct Risk MI they can use to evidence how they are delivering good outcomes, managing risk, and ensuring that individuals in positions of authority are considering the Duty in their decision-making.
Firms should also review their governance processes to ensure there is clear ownership and escalation processes for conduct-related issues.
The FCA’s 3-year plan makes it clear that employee conduct will remain an area of focus for the foreseeable future. Firms that seize the opportunity to refresh their approach to conduct risk should be better aligned to implement future regulatory changes.
How Delta Capita can help
Our team comprises senior industry practitioners and former C-suite banking executives who have been personally accountable for multiple FCA regulatory initiatives, including the development and embedding of conduct risk frameworks for global financial institutions.
We can support you in refreshing your Conduct Risk framework, including reviewing your governance processes and helping you develop MI metrics to help you monitor your risk. We have also developed a series of accelerators to support your conduct risk refresh, including training scenarios, scripts and templates. To find out more, contact Delta Capita and speak directly to one of our experts.