Dec 12 - The refund on interest payments for some Northern Rock Asset Management (NRAM) customers highlights rising conduct risks and associated costs for UK retail banks, Fitch Ratings says. As the regulatory focus on business conduct intensifies, expenses to ensure consistent adherence to higher compliance and governance standards and provisions for litigation and customer redress are likely to maintain pressure on bank profitability. The GBP270m NRAM refund highlights the risk of not responding effectively to legislative change. The bank did not correctly implement requirements under the Consumer Credit Act in 2008 that account statements and letters include mandatory wording and information about the amount of credit. We expect banks to strengthen systems, controls and governance to minimise conduct risks, especially as the Financial Services Authority splits under the "twin peaks" regime into the Prudential Regulatory Authority and the Financial Conduct Authority in 2013. Customer redress costs from mis-selling have been a consistent feature of UK bank results since early 2011. Provisions to redress payment protection insurance (PPI) have been significant, totalling over GBP12bn for the industry at end-Q312, and could to rise further. Provisions for redress of interest rate hedging products to small- and medium-sized businesses have emerged during 2012. Although there are fewer potential cases than for PPI mis-selling, provisions for interest rate products redress could also spike if the remediation exercise gains momentum. The LIBOR-fixing scandal that emerged in the summer of 2012 is another indication of the scrutiny banks face in the current environment and that conduct risk may emerge from a number of sources that have yet to be identified. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.