High profile scandals and enforcement actions around the world have elevated the stature and scale of the compliance function across our industry. This could be seen as, perhaps, one of the few good outcomes of the financial crisis. Yet compliance is moving into unchartered waters. The focus on personal liability as an enforcement priority is sending a chilling message to boardrooms and compliance teams alike, just as regulators are also shifting focus from rules-based compliance to concepts which are harder to measure, none more so than culture and conduct risk.
But measure is exactly what we must do. This week at our 10th annual Compliance & Risk Summit in London, the UK’s Financial Conduct Authority (FCA) enforcement director Tracey McDermott spoke to a packed house of 500 compliance professionals. Ms McDermott’s message is that conduct and culture will be key indicators used to assess if the customer is being treated fairly.
Conduct risk was not even on the radar of most compliance officers three years ago and its exact meaning is still not strictly defined. What we do know is that conduct risk is not market, credit, liquidity or operational risk; it is more about the way that firms and their staff conduct themselves. For compliance teams this means traditional quantitative-based analysis around the compliance of rules won’t suffice in assuring boards and regulators that their firms have done the right thing by the customer. (more…)