Chartis

Spotlight on Conduct Risk Management - Turning Words into Action

March 2017 • Ref RR1706
Research Report
Number of pages: 19
Single user license: Subscription Only
Number of figures and tables: 8 
 

Overview

In January 2017, Deutsche Bank was fined $630m for failings in its anti-money-laundering (AML) controls. This was one of several recent fines in an increasingly long line of penalties imposed on financial institutions (FIs) for failing to manage their conduct risk. Put simply, conduct risk is the gap between how an FI wants its employees to behave, and how they actually do. If this gap gets too big, then the institution is not managing its conduct risk properly.

Unsurprisingly, global banks have been sharpening their focus on conduct risk, acknowledging the need to address it, and introducing conduct risk programs with a particular focus on the way customers are treated. In parallel, global regulators, in an attempt to realign the banks’ moral compass, continue to implement conduct risk regulations and guidelines, and impose large fines.

For FIs, building a comprehensive approach to managing conduct risk will be a challenge. For most, it will involve fundamental changes to the way they operate. Above all, most institutions will need to undergo a deep cultural shift, away from safeguarding the firm’s interests to protecting those of its customers. But by addressing the pain points, putting the right systems in place and nurturing the right attitudes, FIs can start to tackle conduct risk effectively.

This report, an update to Chartis’s previous conduct risk management reports, analyzes the industry’s focus on conduct risk, and the steps FIs are taking – and should take – to implement effective conduct risk management frameworks.