2018年-FCA英国金融行为监管局_5_conduct_questions_industry_feedback_2016_21页_338kb

5 Conduct Questions Summary

Introduction

Conduct risk is a major contingent risk for wholesale banks, often affecting client outcomes, business sustainability, and market integrity. The FCA emphasizes the importance of proactive management and culture improvement as part of its supervisory approach. The 5 Conduct Questions are part of the FCA's strategy to assess and improve conduct risk management across the industry, with the goal of embedding these practices into business-as-usual operations.

Assessing Firms' Progress

• Significant progress has been made in identifying and managing conduct risk.
• Firms recognize that maintaining a strong reputation for conduct benefits their business.
• Some UK-focused initiatives are now being applied internationally.
• Frontline business areas are taking more ownership of conduct risk.
• Conduct risk can arise across the entire organization, not just in front office functions.
• The FCA encourages firms to continue improving their programs and embedding them throughout the organization.

Design of Conduct Risk Change Programmes

More Effective Programmes

• Tailored to the firm's size, business model, and geographic reach.
• High-level CEO sponsorship and Board engagement.
• Involvement of senior executives in program design.
• Comprehensive coverage of front office, control, and operational functions.
• Detailed roll-out plans with clear short-term and long-term goals.
• Integration into strategic and operational risk management frameworks.
• Standardized conduct risk self-assessment processes.
• Firm-wide taxonomy for conduct risk types.
• Forums for cross-business line risk comparison.
• Regular Board-level discussions on conduct, culture, and implementation.
• Internal audit actively engaged in early monitoring.
• Training, promotion, performance, and remuneration linked to conduct and culture.

Less Effective Programmes

• One-off or short-term projects.
• Compliance or COO as the sole driver.
• Narrow focus on set principles, not comprehensive risk assessment.
• Disjointed efforts across business units.
• Excluding significant functions or areas.
• Not considering cross-functional conduct risk.
• Limited focus to front office, with little involvement from other support functions.

Question 1: Identifying Conduct Risks

• Conduct risk is defined as actions or behaviors that may harm clients, damage reputation, or undermine market integrity.
• Three main approaches: top-down, bottom-up, and reverse-engineered.
• Most firms use a combination of top-down and bottom-up methods.
• In-house approaches are preferred, though some use external consultants.
• Conduct risk identification sessions also serve as training and awareness tools.
• Conduct risk can occur across all functions, not just front office.

Question 2: Encouraging Staff Responsibility

• Clear communication of expectations is essential.
• 'Tone from the top' is a key factor, with firms using various methods to reinforce values and expectations.
• Conduct is a business priority, with CEO video messages, posters, and campaigns used to highlight its importance.
• Conduct Week and similar awareness programs are common.
• Firms use real-life examples, including case studies and past incidents, to educate staff.
• The SMCR has reinforced individual responsibility for conduct.
• Conduct policies and supervisor attestations are in place.
• Some firms have introduced internal exams and 'skip-level' sessions to engage staff directly.

Question 3: Support for Conduct Improvement

• Firms develop Conduct Risk Management Information (MI) with metrics on employee behavior and policy breaches.
• MI includes data such as missed training, customer complaints, and compliance exceptions.
• Some firms have set risk tolerances and created limits to monitor breaches.
• Training programs focus on ethical decision-making, leadership, and conduct-specific skills.
• Internal audits and stand-alone audits are used to evaluate conduct programs.
• Recruitment includes assessments of conduct and culture, such as situational judgment tests.
• Escalation frameworks are tested using internal scenarios, and anonymity is ensured in reporting.
• Firms are increasingly using 360° feedback and transparent examples of conduct-related promotion decisions.

Question 4: Board and ExCo Oversight

• Conduct and culture are included in regular Board and ExCo agendas.
• Conduct Risk Committees ensure ongoing oversight and effective implementation.
• External client surveys and internal staff feedback are used to assess conduct.
• Boards and ExCos consider the conduct implications of strategic decisions.
• Some firms proactively manage exit processes to avoid customer harm and ensure smooth transitions.

Question 5: Assessing Other Activities

• The question is broader than just appraisals, remuneration, and promotion.
• Firms consider internal and external horizon scanning and root causes of conduct issues.
• Some firms have developed scorecards to link conduct metrics with performance, strategy, and culture.
• A few firms have performed wider analysis, considering factors like performance pressure, restructuring risks, and client behaviors.
• The FCA encourages all firms to assess the impact of other activities on conduct risk in the future.

Next Steps for the FCA

• The FCA will continue to hold Annual Conduct Meetings (ACMs) with large firms.
• The next focus will be on Question 2, especially in light of the SMCR and its extension to all FSMA-authorised firms.
• The FCA will also examine the impact of technology on conduct risk, as it can both mitigate and create new risks.

Conclusion

The 5 Conduct Questions provide a framework for wholesale banks to assess and improve their conduct risk management. While progress is evident, the FCA emphasizes the need for ongoing focus, coordination, and evolution of these programs to ensure long-term effectiveness.