Conduct, Not ‘Conduct Risk’

Ariane Chapelle

In the aftermath of the financial crisis, and at the height of the PPI mis-selling scandal, the former UK Financial Services Authority (FSA) was broken up, giving way to the Financial Conduct Authority (FCA), which is responsible for monitoring the financial services industry with regards to business conduct. Prudential questions are now directed by the Prudential Regulation Authority (PRA), part of the Bank of England. Eighteen months on, the details and motives of the FCA’s approach to conduct issues are a vital consideration for UK regulated firms.

The orthodoxy in risk management is that damage to reputation is not a risk but a consequence. The same applies to conduct risk. Even though in its early publications the FCA referred to “conduct risk”, its view has now progressed to recognise the concept of conduct rather than “conduct risk”.

This is not just a semantic issue. Treating conduct as an issue ultimately giving rise to adverse impacts, rather than being a risk category in its own right, bears important consequences in the way it is organised and managed. In particular, crystallised conduct issues can arise from incidents classified in any of the seven Basel

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