By Nison Nagdimov, Senior Operational Risk Manager, Citi
What, for you, are the benefits of attending the ‘Risk Americas Convention’ and what have attendees learnt from your session?
The key benefits of attending the “Risk Americas Convention” are the opportunity for risk and business professionals to network and be informed on the growing trends and solutions for top risk concerns in the financial industry.
My session covered conduct risk and focused on changing culture to incentivize and promote good conduct within the workplace. Historically, good conduct has been expected in a professional workplace but not necessarily promoted with business management strategies and solutions. My session focused on the purpose and pitfalls of conduct risk management, business strategies, controls, and training to promote good conduct to better service your company’s customers, shareholders, and all other stakeholders.
In your opinion, how has culture and conduct been addressed by regulators?
Regulators across various jurisdictions have been focusing on conduct risk management given the recent publicly announced findings and issues related to misconduct across the financial industry. As an example, Financial Conduct Authority (FCA) has been established with a key purpose of functioning as a conduct regulator for numerous financial services firms and financial markets in the UK, and the Consumer Financial Protection Bureau (CFPB) and Financial Industry Regulatory Authority (FINRA) have been deeply focusing on malpractices and misconduct monitoring in the US. The regulators are anticipating an effective, well documented and functioning conduct risk management program across financial institutions to identify and mitigate any opportunities for misconduct to protect customers and/or employees, and financial markets.
Regulators have been encouraging a cultural shift in relation to conduct risk by holding leadership accountable for acts of misconduct, including monitoring the incentives and strategies implemented by the leadership, and ensuring the leadership are aware and tracking any potential harm to customers, employees, and/or financial markets the business may face from significant residual conduct risk.
What advice would you give to financial professionals when trying to meet regulatory expectations?
The regulators primary objective in conduct risk is ensuring that the business eliminates any potential opportunities for misconduct that may harm customers, employees, and/or financial markets, and for financial institutions to develop and implement a conduct risk management framework. As such, I would recommend for every financial professional to understand the requirements mandated in their local jurisdiction and ensure a robust, effective conduct risk framework is established in identifying and mitigating any risks tied to misconduct.
Also, I would recommend for every financial professional to assess the implemented business strategies and mandated business goals, and determine the potential risks through worst-case scenarios with their legal and compliance partners.
Without giving too much away, how can tone from the top impact overall company culture?
Leadership of the company should aim to establish a business code of conduct that defines the importance of maintaining good conduct to improve customer experience and encourages market integrity. In addition, leadership should establish strategies and incentives for employees that drive good conduct inherently, and ensure controls are established and executed periodically to mitigate any potential conduct risk arising from business strategies and goals.
Employee training related to promoting good conduct and the defined conduct risk framework should be pushed down from the top as mandatory training, as well as practice of assessing and addressing any customer and employee feedback for risk of potential misconduct.
How do you see the role of culture and conduct developing over the next twelve months?
From a regulatory perspective, the focus on culture and conduct will continue to develop with scrutinized regulatory focus on ensuring a code of conduct is communicated to employees regularly and good conduct practice is established in daily working routine to protect customers, employees, and financial markets. Stringent focus by regulators on a financial institution’s conduct risk framework is anticipated, as well as direct accountability for any conduct related mishaps.
From a business perspective, it is understood across the industry that reputation and customer and regulatory trust is one of the key drivers for business growth. Hence, it is anticipated that businesses will continue to promote and encourage good conduct to build and maintain their reputation, and improve customer experience by identifying and ring-fencing any potential conduct risk challenges.
