Last week I was privileged to perform the keynote session at the American Bankers Association Compliance Conference in Orlando, Florida. Amongst the sessions provided to the 1800 attendees, a common theme emerged. Although these compliance officers were highly familiar with every nuance of the most complex banking regulations, the monster in the room was a newer problem: Conduct Risk, or, as most corporate compliance officers would call it, ethics and culture problems.
An article published by Banking Technology notes the global interest in this issue:
“This interest has not been confined to UK regulators. The OECD has published a report on conduct risk principles, which it expects all members to integrate into their regulatory approach, and the HKMA has issued a paper on the topic, echoing the language and approach of the FCA. A nascent international consensus seems to be forming on the importance of ‘conduct risk’ as a concept in the emerging post-crisis regulatory landscape.”
The article goes on to note that there is one major problem: nobody quite agrees on what conduct risk means or where its boundaries are set. Does conduct risk refer to technical requirements relating to mis-selling financial products to consumers that they don’t need or can’t use? Perhaps it is broader than that, referring to a culture that supports doing the legally permissible thing without considering the appropriateness or correctness of the action for the bank and consumer.
Ever since the scathing reports were published about the problems, in the US, at Wells Fargo Bank banks have been put on notice that their regulators are paying attention to culture issues like never before. One expert noted to me that the Financial Conduct Authority in the UK has been far ahead of US banking regulators in reviewing culture and conduct risk issues. Many US banks are struggling with how to measure this most nebulous of risks. It is difficult to quantify culture and the metrics associated with it can seem difficult to identify.
Perhaps we’re entering an exciting era where the best practices, culture surveys and messaging that has been developed within the corporate arena can cross over into financial services to help those professionals deal with a much-less-quantifiable but much more insidious risk. I for one, hope so, and am happy to help.