Defining, Enforcing and Preventing Conduct Risk


An international focus on defining, preventing, and understanding the concept of “conduct risk” has become problematic for financial services organisations in the UK and beyond—in part because the term is not yet clearly defined.

According to the Financial Conduct Authority (FCA), the UK’s regulatory body for financial services organisations, conduct risk is “consumer detriment arising from the wrong products ending up in the wrong hands, and the detriment to society of people not being able to get access to the right products.”   

The Organisation for Economic Co-operation and Development (OECD) published their own report on the principals of conduct risk. The OECD expects their member organisations to integrate these principals into their compliance programmes.

What Conduct Risk Really Means

Essentially, “conduct risk” boils down to the FCA scrutinizing how a financial organisation’s conduct ultimately impacts consumers—with huge fines at stake for organisations that put consumers at risk.

Financial services firms must do business with high regard to treating their customers fairly. That means that firms are going to have to be mindful of whether the FCA will deem their business decisions are being made in the best interest of their customers. 

Proactivity Continues to Win Points

The FCA has gone after companies for a variety of failures to this point—cyber security breaches, inaccurate risk profiles, etc., including Santander UK and many others.

The good news is that the FCA and other international bodies are giving credit to organisations that take a proactive approach to igniting cultural changes that promote good conduct. Outlined in the 2013 report, these cultural changes include:

  1.        Oversight and governance
  2.        Transparency
  3.        Playing an active role in maintaining integrity 

The FCA is rewarding proactive behaviour because their main goal is to prevent issues before they happen, something all risk, ethics and compliance professionals strive to do.

Organisations that have a strong compliance programme centred around creating a culture of ethics, integrity and compliance will be well-equipped to manage conduct risk and show the FCA and other regulatory authorities that they too are taking a proactive approach.

We cover the seven steps organisations can take to create a culture of ethics, integrity and compliance in our recent whitepaper. The principles outlined in this paper provide a helpful construct to follow for establishing and maintaining a proactive ethics and compliance program that addresses conduct risk as well. 


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© NAVEX Global | Attorney Advertising

Written by:


NAVEX Global on:

Popular Topics
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.