BRG held a webinar on Seven Practical Steps towards Mastering Conduct Risk on 8 December in conjunction with the British Bankers Association.
A key message from the webinar was that the often-bandied phrase “conduct risk appetite” is a misnomer (i.e., a firm can’t set a tolerance for customer detriment or market failure; by inference, both must be zero).
That’s not to say things won’t go wrong; they will, but that’s different. When things go wrong, the board must move swiftly to rectify the situation. This is where values, culture and tone at the top matter most.
Other key messages for managing conduct risk included:
- Press on with practical compliance: boards and senior executives need a hands-on approach including clear responsibilities and apportionment; they must also ensure their people are competent.
- Understand your customer’s view: find out (independently) what your customers accept and expect, both now and in the future—it’s ok to use “big data”, but you must observe real customers too!
- Appreciate the regulator’s view: read what the regulators are reading—for example, behavioural risk (especially on biases and rule-gaming), Financial Service Ombudsman and Data Commissioner findings, consumer attitudes research—and importantly, understand the growing impact of regulatory convergence (e.g., Consumer Finance Protection Bureau and Australian Securities and Investment Commission conduct-related fines and sanctions).
- Start product design to the benefit of your customers: involve risk and compliance managers early on; consider the entire lifecycle of a product/relationship, not just point-of-sale.
- Hire, train, and keep high-quality people: intuition is good—listen to your employees.
- Set incentives for doing right by customers: profit should take care of itself!
- Take a forward-looking view: Assess new risk and consider new measurement tools; improve horizon scanning, including causal analyses of conduct prosecutions; use a behavioural lens to read through to different aspects of your business.
If you are interested in a copy of the slides, email firstname.lastname@example.org.
Also see our white paper The Behavioural Regulators’ Agenda.