Financial institutions may talk a lot about "conduct risk," but few actually approach it with a clear definition and focus. Eighty-one percent of respondents in a new survey conducted by Thomson Reuters Accelus say they do not have a working definition of what that specific risk factor encompasses.
The latest edition of the Thomson Reuters Conduct Risk Report follows up on last year’s study by looking at what practical actions firms have taken over the past 12 months. While firms have boosted the time and resources devoted to the management of conduct risk, there is still a significant gap between awareness and implementation of effective policies across a firm, it concludes.
The survey proposes that one reason for the lack of working definitions by respondents is the deliberate decision by regulators to not create an overarching definition of risk, instead leaving it to firms to create a definition that is specific to their own organization. Many of the firms that took part in the survey rated their approaches to conduct risk as either implemented but requiring further work (37 percent), or in development (31 percent); only 14 percent considered their approaches to be “robust and embedded.”
More than 200 compliance and risk practitioners from financial services firms around the world took part in the survey. Other findings include:
67 percent of respondents said the regulatory focus on conduct risk would increase the personal liability of senior managers.
Firms are reacting to enhanced focus from regulators by creating specific teams or employing conduct risk specialists at all levels of an organization.
Global systemically important financial institutions (G-SIFI’s) have appeared to have done more, with only 6 percent reporting no conduct risk-related changes in the past 12 months.
Nearly 40 percent of firms surveyed said there has been implementation of new policies and procedures and nearly 32 percent have undergone training to address conduct risk.
Roughly one-fourth of respondents said they created specific risk conduct teams and 18 percent have introduced board appointments.
Many firms rated their approaches to conduct risk as either implemented but requiring further work (37 percent) or in development (31 percent); only 14 percent considered their approaches to be “robust and embedded.”
The push for a firm’s leadership to drive a compliant approach to all aspects of the business was the biggest change over the past year. Respondents rated it the number one change in Asia (61 percent), Europe (42 percent), the Middle East (50 percent), the U.K. (57 percent) and North America (34 percent More than one-third of respondents from Australia and 27 percent of participants from Africa reported that no changes have been made this year. Eighteen percent of all respondents said no major changes have been made in the last 12 months.
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