What Are the Driving Forces of and Who Owns Conduct Risk?

Sam Lee

Some would argue that conduct risk has been a hot topic ever since the Financial Services Authority (FSA) split into the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) in 2013 and the latter picked it up as its raison d’être. Actually, this is not correct and we shall come on to this assertion later on in the chapter. For now, however, let us pretend that this is the case and that it is regulation that has forced the hand of financial services.

However, there is a lot more to risk, risk management or, more specifically in this case, conduct risk and its management, than the whims of regulators. When you peel away the various layers and the associated noise and protestations that come with regulation, you will see that the case for conduct risk and its management is actually business led. The regulatory angle is merely one dimension or, dare I say, a by-product of the actual driving force.

“New” risk categories emerge from time to time, whether at the higher risk level and therefore more infrequently (such as operational risk as “conceived” by the Basel Committee on Banking Supervision) or at the lower level (such as cyber risk). Conduct risk is a