Conduct Risk Behavioural Effects

INTRODUCTION:

As stated by the FCA culture change within firms is essential to restore trust and integrity to Industry. Firms’ behaviour, attitudes and motivations must be about good conduct; Consumers Firms and individuals must take responsibility for their part in creating markets which work well and offer a better outcome for consumers. Failure to adequately maintain the appropriate level of conduct not only exposes the organisation to regulatory fines/penalties, it also knocks its public reputation that ultimately affects Total Shareholder Returns.

Appropriately, many firms have created conduct risk units to define and implement a conduct risk framework accompanied by appropriate systems and processes backed up with suitable competences, governance rules and edicts.

One of the major factors for conduct risk is individuals, specifically the employees. The first step to understanding and addressing behavioural factors giving rise to conduct risk issues is to identify the influences on employee psychology. Below we have categorised these influences into themes each of which has a tangible measure that can be used to predict the degree of conduct risk mitigation, and ultimately, influence Return on Investment and Total Shareholder Returns:

‘he impact of the Enterprise Themes can be further amplified with the use of Catalysts such as Training and Diversity.

By proactively addressing the Enterprise and Emotional Themes, an organisation would materially affect Organisational ‘Culture, Ethics, Values and Risk (of which Conduct, and Operational risk are a subset). Firms need to evolve in order to address the fundamental causes that give rise to conduct risk, and for that matter, a vast plethora of other risks that may arise throughout the operational cycle.

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The diagram below shows the relationship between the Enterprise & Emotional Themes and Catalysts.

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