Over one-quarter of firms have turned down a potentially profitable business opportunity due to culture or conduct risk concerns. What else has our annual, in-depth Culture and Conduct Risk survey revealed about compliance trends?
- The Culture and Conduct Risk survey involved compliance and risk practitioners from more than 600 financial services firms.
- Nearly half of firms now have a working definition of conduct risk, a threefold increase since 2013.
- Almost one-quarter of firms have deployed, or intend to deploy, a regtech/fintech solution to help the management of culture and conduct risk.
Compliance and risk practitioners from more than 600 financial services firms across the world, including banks, brokers, asset managers and insurers, have taken part in our fifth annual Culture and Conduct Risk survey. The survey found that nearly half of firms now have a working definition of conduct risk, a threefold increase since 2013.
The survey is a valuable and trusted resource. Last year’s edition was read by more than 5,000 firms and global systemically important financial institutions (G-SIFIs), regulatory bodies, law firms and consultancies.
From the rise of artificial intelligence to cryptocurrencies, the wave of technological innovation creates both opportunities and challenges for firms and regulators alike.
One-quarter of firms reported implementing software solutions to manage and report on specific conduct risks, an increase from 15 percent in the prior year.
In addition, 23 percent of firms and over one-quarter of Global Systemically Important Financial Institutions (G-SIFIs) have deployed, or intend to deploy, a regtech/fintech solution to help the management of culture and conduct risk.
Regtech solutions are increasingly impacting how firms manage compliance.
In 2017, Regulatory Intelligence published the findings from its second annual report on Fintech, Regtech and the Role of Compliance.
Among the key findings was the shift in opinion over the benefits fintech innovation may have on firms.
The majority believe that the successful deployment of fintech/regtech should drive up efficiency and effectiveness, allowing more time to focus on value-added activities.
Five-year progress report
Over the five years of the survey, there have been persistent challenges in the creation of a separate working definition of conduct risk.
This year sees the highest percentage of firms who have a separate working definition of conduct risk, almost trebling from results in 2013. This rose to 66 percent among G-SIFIs.
That said there has been global consistency in firms’ views of the key components of conduct risk.
Culture, ethics and integrity, corporate governance and tone from the top, and conflicts of interest have all held their place as the top three components of conduct risk.
Top 3 risk challenges
In the report, the top three conduct risk challenges for the board were identified as:
- Establishing and embedding an appropriate culture
- Adapting to an ever an changing regulatory environment
- The development of metrics and management information.
Measuring culture and conduct risk has also proved challenging for firms. With no single or quantitative measure to rely on, firms are using a wide range of indicators used to assess culture, including compliance monitoring results, internal audit results, staff opinion surveys and complaints analysis.
Impact on strategy and the boardroom
Conduct risk continues to influence boardroom decisions. Three-quarters of firms told us they are taking conduct risk factors into account when discussing their business strategy.
This has led to at least 28 percent of firms deliberately discarding potentially profitable business opportunities due to culture and / or conduct risk concerns.
The perception that the regulatory focus on culture and/or conduct risk will increase the personal liability of senior managers remains high (70 percent). This is most evident in firms in Asia, with a 10 percent increase from 2016 (77 percent in 2017).