An Overview of Conduct Risk
How Does Conduct Risk Manifest and What Are Its Root Causes?
What Are the Driving Forces of and Who Owns Conduct Risk?
Scope and Ownership within the Business
Conduct Risk in Financial Services: Lessons from the Hospitality and Leisure Industry
Ethical Culture: What, Why and How?
Language and Conduct Risk: Limited Language – Big Blind Spots
An Anthropological Perspective on Conduct Risk
Identifying and Measuring Conduct Risk
Risk Appetite Setting and Modelling Conduct Risk
The Effect of Conduct Risk Losses on Reputation
Bringing the Customer Back to the Foreground: The End of Conduct Risk?
Managing Conduct Risk
Closing Comments on the Future of Conduct Risk
Ethics, policy, practice and law all play a part in a firm’s culture and its conduct. We review the challenges for both UK and US banking, identifying the three top root causes of conduct risk. How conduct risk manifests in banking and finance is presented using the example of the author’s previous employer, Washington Mutual Bank. Finally, we make recommendations on reducing misconduct by improving conditions for all employees.
We are still on shaky ground when banking and financial institutions concern themselves with conduct risk and a single definition or a comprehensive set of standards. Despite fines, new regulations and additional training of employees, outsize risks continue to be taken, and bonuses are maintained or increased. Boards of directors have begun to see conduct risk as a large threat, though there is no one definition of it. After the 2007/8 financial crisis exposed large ethical and cultural fissures that drove high risk behaviours, more attention began to be paid to conduct risk. The Financial Services Authority (FSA) “Retail Conduct Outlook 2011” (Financial Services Authority 2011) defined it as “the risk that firm behaviour will result in poo