LONDON/NEW YORK (Thomson Reuters Regulatory Intelligence) - Thomson Reuters has undertaken its fifth annual survey of how financial services firms are managing conduct risk and embedding cultural change policies to meet growing regulatory expectations. The results highlight year-on-year and regional trends, enabling firms to benchmark their approach to the practical implications of culture and conduct risk with the wider industry. The report provides valuable insight into industry challenges and emerging best practices, with the aim to meet ever-increasing regulatory expectations.
Compliance and risk practitioners from more than 600 financial services firms across the world, including G-SIFIs, banks, brokers, asset managers and insurers, took part in the survey, which closed in the fourth quarter of 2017.
-Click (bit.ly/figure-35) to view figure35:What are key challenges to the organization when managing conduct risk in the year ahead?
There is an evolving year-on-year picture on the major challenges for firms when implementing and managing conduct risk in the year ahead. This year’s top five challenges for firms were:
- Changing regulatory environment (56 percent in 2017; 61 percent in 2016)
- Developing the corporate approach to conduct risk (42 percent in 2017; 41 percent in 2016)
- Increased focus on risk and control (41 percent in 2017; 38 percent in 2016)
- Understanding what conduct risk means to the firm (41 percent in 2017; 40 percent in 2016)
- Increased focus on culture and corporate governance (38 percent in 2017; 38 percent in 2016)
-Click (bit.ly/figure-36) to view firgure36: Year-on-year analysis: over the next 12 months I expect the cost of time and resource devoted to conduct risks
The cost of time and resource devoted to conduct risk has remained remarkably similar year on year and continues to show that over the last five years two thirds or so of firms expect to spend either significantly or slightly more on conduct risk in the coming year. As culture and conduct risk ease into becoming business as usual, it might be expected that, absent any major policy changes, then the cost of time and resource will level out.
What is the single biggest conduct risk your firm is facing?:Click (bit.ly/figure-37)
Financial services firms around the world have invested in meeting the evolving regulatory expectations and requirements regarding culture and conduct risk. The approach to culture and conduct risk has continued to evolve with firms still tackling the substantive issues of firm culture, sales practices and how best to consistently demonstrate the required good customer outcomes.
Progress has been made by both firms and regulators in refining their approach to and expectations of the identification, management, measurement and mitigation of culture and conduct risk. Over the five years of the culture and conduct risk survey there has been measurable change with the sense that firms are coming to the end of the implementation phase.
Culture and conduct risk issues are no longer being considered as a separate and distinct area of risk and compliance but rather have moved much closer to being seen as inherent in the business, and treated as such.
The next phase in the development of the approach to culture and conduct risk looks to be tied up in personal accountability, with policy makers and regulators around the world introducing regimes which seek to allocate specific responsibility for risk management to senior managers. In parallel, the moves taken by the FSB (under the aegis of the G20) overtly linking inappropriate incentives to misconduct will again focus on individuals and their actions.
Firms may have reached the end of the implementation phase with regard to culture and conduct risk, but it is a long way from the end of the journey. The capacity to be able to demonstrate a strong positive culture in action as well as the ability to mitigate any conduct risks arising has become a required core competency for firms. By and large, a good start has been made, but it will need to be continuously refined to ensure it remains in line with not only all business activities, but also a continually changing regulatory landscape.
Click (here) to access the full report.
(Stacey English is head of regulatory intelligence and Susannah Hammond is senior intelligence expert at Thomson Reuters Regulatory Intelligence.)
This article was produced by Thomson Reuters Regulatory Intelligence and initially posted on May. 16. Regulatory Intelligence provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 400 regulators and exchanges. Follow Regulatory Intelligence compliance news on Twitter: @thomsonreuters