Conduct risk and the impact of Covid-19

Andrew Sheen and Peter McCormack

Contents

Foreword

Preface

Introduction

Introduction to Part I: The origins of non-financial risk management

1.

The complete history of operational risk regulation (abridged)

2.

Financial institutions and non-financial risk: Learning from the corporate approach

3.

The painful financial side of NFR

4.

“Risk management is about managing risk” and “It’s all about people”: Psychology might be more important than models

5.

The confusion of Babel: What’s in the name NFR – taxonomy

Introduction to Part II: Governance of non-financial risk management

6.

“It’s the culture, stupid”: Risk culture as the key building block of NFR management – and why some banks have come through the Covid-19 pandemic better than others

7.

Do you know who is who? Three lines of defence in the context of NFR

8.

Herding cats? NFR divisions as truly diverse units

9.

“Just do it!”: Partially self-organising governance structures for NFR frameworks

Introduction to Part III: Tools and instruments for non-financial risk management

10.

A risk by any other name: Identification, classification and agendas

11.

Old but gold? Mastering the RCSA despite Covid-19

12.

Biases in scenario analyses and how to mitigate them

13.

When scenarios are not severe enough: Stress testing for non-financial risk

14.

Ending NFR in NFR: From Excel sheets to professional IT systems for NFR management

15.

Breaking up with risk management: Using the power of controls for good not the prevention of evil

Introduction to Part IV: Focus areas of non-financial risk management

16.

It won’t be over after Covid-19: Pandemics and operational resilience

17.

Dealing with IT complexity and innovation: Delivering business resilience and customer outcomes

18.

Protecting the new gold: Information security

19.

Conduct risk and the impact of Covid-19

20.

From lawsuits to models: Compliance risk and financial crime

21.

Others are doing it cheaper: But can they really? Opportunities and risks in outsourcing

22.

Managing reputation and stakeholders

Introduction to Part V: The future of non-financial risk management

23.

ESG risk as a new (and very important) trigger for NFR

24.

Looking into the crystal ball: What will NFR management look like in 2030?

25.

This time will be different: An alternative future of NFR management

26.

Right time, right place: The drive for change in operational and non-financial risk

It is difficult, if not impossible, to think of an element of everyday life that has not been impacted by the Covid-19 pandemic in one way or another, including conduct in financial institutions. To understand the impact of Covid-19 on conduct, we must first examine the notion of conduct as a risk and the way in which its perception in financial institutions has changed since the 1980s. This inevitably leads to a discussion of some of the reasons for that change and acknowledgement of the conduct concerns that were evident. In addition, this chapter will also address the attempts by regulators to resolve the issue and some more recent developments in the UK.

We then focus on the impact Covid-19 has had on conduct in many financial institutions and how specific conduct issues were impacted by the pandemic. In particular, the chapter focuses on three key impacts of Covid-19: the risks from the acceleration of customer’s online activity; the increasing number of staff working from home; and the risks to customer’s data and firm data. Finally, we draw out what this means for firm’s management of conduct and how conduct changes should have impacted the management of operational risk

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