Conduct risk refers to risks attached to the way in which a firm, and its staff, conduct themselves. Conduct risk can apply to a whole range of cases, but it essentially comes down to the approach taken in organizations to the way in which their executives and employees conduct their business, and there are two sides to it. On the one hand, there is the question whether they conduct their business in compliance with legal requirements, so there is a compliance element to it, but there is also the wider issue of conducting their business in an ethical and socially responsible fashion.
A poor internal risk culture and breaches in compliance programs are typically at the root of the cause. In the case of benchmarks such as LIBOR, there was a fundamental failure of internal compliance programs to ensure that the submitters were insulated from pressures from their own trading desks. These compliance programs simply were not robust enough to guard against the corruption of key benchmarks, and this appears to be a systemic problem, where financial institutions have not taken their responsibilities seriously enough.
Wolters Kluwer Financial Services provides assistance to global banks to help manage controls and workflows, covering the key regulatory changes, anti-bribery and anti-corruption programs. We help firms connect its op risk information to an actual risk and control framework.
OneSumX for Conduct Risk helps firms pass the use test, by allowing click-through from a report on a single event or decision to the risk policy underlying it – vital as regulators around the world throw more and more weight on the question of whether companies can prove that they are taking risk considerations into account in their everyday business decision making, rather than treating risk management simply as a compliance issue.