Conduct risk continues to be a priority for regulators. Many firms have now made good progress in the development of their conduct risk strategies and frameworks. Global Systemically Important Financial Institutions (G-SIFIs) appear to be leading the pack in terms of effort, however much work is still needed in operationalising their conduct agendas.
A key challenge firms continue to face is the embedding and demonstrating of effective conduct risk management. Many are struggling to assess the best approach to embed the measurement and evidencing of conduct culture and effectively predict conduct outcomes.
FCA Position
The FCA have not set out a definition of conduct risk, or a clear agenda for the progress it expects to see from the industry. There is still no blueprint for firms to follow but fines for poor conduct are mounting. The Regulator is itself investing in state of the art MI and analytics capability and has reminded us that “technological sophistication is not simply a weapon. It is one of our most important defences” (Martin Wheatley, former CEO – FCA June 2014).
Industry forums have however suggested that the regulator is expecting:
The Industry Problem
Financial Institutions are struggling to operationalise their conduct risk strategies and take practical steps forward in developing the Advanced MI and Predictive Analytics insight needed to support, evidence and predict conduct risk outcomes.
In addition, a regulatory centric focus typically misses the opportunity to capitalise on increased revenues and improved business performance by driving the conduct agenda through the eye of the customer.
The below illustrates some of the barriers to resolution:
Advanced MI / Predictive Analytics Technology and the Customer Lens
As mentioned, a regulatory centric focus typically misses the opportunity to capitalise on increased revenues and improved business performance. Basically, if you get your business activities right, by driving the conduct agenda through the eye of the customer, then the result is that the customer will like this and good business follows naturally. Just like we proposed with BCBS239 (get your risk capability and process right, and the regulatory agenda is satisfied by default) the same ethos is true for conduct risk. By building an Advanced MI / Predictive Analytics capability that views business through the eye of the customer, good business practice will follow and the conduct agenda is managed by default.
The steps forward are quite straightforward. In essence, firms need to:
In so doing, firms should venture into the world of state-of-the-art, leading and bleeding edge technologies that can deliver enhanced insight across all relevant facets for the organisation i.e. customer, employee behaviour, operations, market perception and the regulator. Whilst many technologies are not mature, an organisation that chooses to work closely with a new technology will be first to shape it and reap the benefits. Advanced analytics will allow organisations to develop the right capabilities they need to protect their reputations and evidence good conduct to the regulator. Never before has such an array of capability been available in the market place and given the right attitude, much of it is ripe for the taking.
It is true that many firms do not know where to start regarding the plethora of analytics capabilities that are in the market place. If you are struggling in this space then please shout, we have a smart, practical approach that will accelerate the operationalisation of meaningful conduct risk MI and give you immediate value within your conduct agenda.
If you would like to know more the please don’t hesitate to contact us on 0207 0781906.