Meeting the Challenge of Conduct Risk - Not Just Now But in the Future


The Financial Conduct Authority (FCA) has made it quite clear how it believes firms should manage their conduct risks. This is one of its central tenets, a clear means by which it marks itself as different to the Financial Services Authority (FSA).

Because the FCA has put the management of conduct risk in firms so high up on its agenda, firms have had to respond to different degrees. Some have had to completely overhaul their culture, whilst others have reclassified their conduct risks and increased their importance. Simultaneously, the FCA has been asking firms to evidence that they have not only identified all aspects of their conduct risks, but that these are being properly managed.

This is something that permeates through every level of the firm. As far as training is concerned, firms have to make sure the training and competency programme is up to date for those in roles captured under the T&C Sourcebook.

However, it goes deeper than that. Firms must demonstrate that right through the organisation, the right culture is in place; and this, through the activities of the staff, is driving the right outcomes for customers. If you want a quick definition of the management of conduct risk, there it is.

So, training is more important than you might think. Take a look at the following:

Board and Senior Management: Those who sit on the board and its relevant committees need to understand what conduct risk is, and what messages they need to be communicating throughout the rest of the firm. To do this, they need to properly understand what the key conduct risks are in their firm, and therefore, how important it is that they are managed. Training is key here, as quite often, those on the board may need help to understand this particular requirement, amongst others on their busy agendas. In particular, the FCA is placing increasing importance on behavioural economics – trying to understand why customers behave the way they do when buying or changing financial products or services. This is something that is crucial for the board to understand, to make sure that the firm responds in the right way when introducing new products or services, and considering how existing customers are treated.

Approved Persons:  Many of these will also be board members, but not all of them. Once someone has been approved to carry out a controlled function, the firm needs to make sure these people maintain an understanding of changes in the regulatory landscape, together with any significant developments they need to be aware of in their capacity as an approved person. Many firms require their approved persons to refresh their fitness and propriety statements regularly; one of the questions being whether or not their CPD requirements have been met, if applicable. As part of this training cycle, the importance of ensuring a clear understanding of how these individuals are expected to manage conduct risk is essential. After all, these are the people who are personally accountable in the eyes of the FCA.

Risk and Compliance Functions: These are the lynchpin functions when it comes to ensuring firms identify, manage and mitigate their conduct risks. It is these functions that the rest of the organisation look to in order to help them understand what exactly conduct risk is and what they have to do to satisfy the FCA. But the people in these functions need to be trained too. The compliance function needs to understand what the FCA requires of firms (as well as emerging trends and themes), and how to translate these into a suitable set of controls. The risk function needs to understand conduct risk so it can ensure that the risks are rated correctly and the owners understand their responsibilities.

First line functions: These are the people who are ultimately responsible for implementing the controls. Many will be captured under the T&C framework, and natural turnover of staff means there will always be new people to train and take qualifications, not to mention the supervisors who have to maintain their own competent status.

Conduct risk is also something that needs to be considered by the product development teams and business lines. Firms need to demonstrate they are developing new products that do not drive unfair outcomes, that are easy to understand and do not have overly-complex terms and conditions. Additionally, remuneration and incentive structures have to be designed and maintained so they do not drive any sales bias, and conflicts of interest arising from business activities have to be properly managed. None of this can happen if the people involved are not trained in their regulatory responsibilities.  

So, without appropriate training and development taking place at all levels, no firm will be able to claim that it is managing its conduct risks effectively. This means that firms will not be able to evidence the appropriate controls to the FCA. There is also a seriously increased risk that the right customer outcomes will not be achieved. Either way, this is bad news for firms, seriously increasing the risk of regulatory sanction.

Thankfully, help is at hand. Whether it is conferences you are looking for, webinars, forums, exam programs or workshops, these can be accessed through Industry Events Online. And because these cover a wide range of subjects, training programmes can be devised for people in many different roles.

Also, the search facility means that training and development plans can be constructed proactively and quickly.

So there are two key benefits – access to many training opportunities and a saving in management time.

And with IEO adding more and more training providers all the time, those benefits are just going to keep getting better.

If you are a training provider and you have not yet signed up, why not find out about the benefits of doing so.

 

Martyn Oughton    

By Martyn Oughton a Professional Member of the International Compliance Association (ICA).  Martyn now writes a regular blog for Industry Events Online focusing on the importance of training in all aspects of compliance. Read Martyn's other publications at Martyn's Writers' Residence website.

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