Is Conduct Risk Just a UK Worry?

Transparency, sustainability, governance, good practices, clear selling process…. All these buzzwords sound familiar, right?  They seem to apply in every banking market.

Here’s one that doesn’t: conduct risk. You can read about conduct risk nearly every day in the UK, where many of the top banks have been tarnished for PPI misselling, LIBOR fixing and other bad practices. This has led the Financial Conduct Authority to tackle conduct risk head on.

Given the problems banks are facing in other markets, you’d think conduct risk would be a universal focus. But it isn’t. Outside the UK, the term is rare, and fewer banks are focused on creating a systematic way to prevent the kind of fraud, waste and abuse that leads to catastrophic fines, losses, lawsuits and reputational damage.

This has to change. To provide excellent service and a fantastic customer experience, all financial institutions must manage their conduct to reduce or mitigate the risk of errors and mistakes. 

A proper risk assessment is a good way to start. Then, once the areas or workflows are identified, put controls in place. No rush if there’s no regulator asking you to change it or defining the rules of engagement — yet. Just control it. A dashboard with KPIs definitely helps.

Then, once you identify the risks and measure activity properly, you can implement changes in an intelligent way. Are there gaps exposing the institution to claims of wrongdoing? Could one mistake lead to more and make the problem bigger? Is it worthwhile taking action to change the process (balance between risk and reward)? Can you identify any priorities that would justify the investment? Can you see “where’s Waldo” — a.k.a. the hidden person or role responsible for your risk?

That’s a lot of questions and action items. But once you create a system for controlling conduct risk, it’s easy to define and execute changes. And when your local regulator copies what the FCA is doing — it’s just a matter of time — you will be ready.

For more information, see our new white paper, Turning Conduct Risk Into Competitive Opportunity.