Conduct risk is at the core of a new approach to regulating financial services, behavioural regulation, whose new agencies and public prosecutors have spread rapidly across the world. Its prosecutors intervene assertively to challenge financial service providers to show clear evidence of a new customer-centric approach, which understands and responds to the hidden drivers of customer behaviour. The prosecutors use their unprecedented powers to levy very large fines and even to imprison wrongdoers - as often for not taking precautions as for any active wrongdoing. Providers’ product design, risk-taking, and selling must all perform with transparent good intent. Conduct Risk Management is a tool for recognizing, acting on, and predicting conduct risk impacts in regulated business. Not merely defensive, it also gives managers better ways to protect and enhance the value of their enterprise.
From a qualified behavioural scientist with more than 20 years’ experience in financial markets, Conduct Risk Managementsees beyond econometric and other ’box-ticking’ traditional tools of risk management. Whilst protecting senior managers, it also helps all staff to make positive use of conduct risk to promote behaviour which the regulator will accept as ’good’. Good behaviour is good business: besides keeping conduct regulators happy, a healthy, human-focused risk culture builds enterprise value.
The new conduct regulations personally affect every manager in financial services - and their suppliers - with new regulations making senior managers liable to imprisonment for failures in organizational conduct. Conduct Risk Management sets out plainly what practitioners need to know to understand the regulator’s intentions, to prove compliance, protect competitiveness and maintain licence to operate.
