2018年-FCA英国金融行为监管局_5_conduct_questions_industry_feedback_2017_29页_401kb

5 Conduct Questions Summary

Core Content

The FCA introduced the 5 Conduct Questions programme in 2015 as part of its strategy for supervising wholesale banks. The programme aims to prompt and support internal initiatives to improve conduct in a systematic and comprehensive manner, enabling firms to challenge themselves and benchmark their efforts across the industry. The second report, published in April 2018, provides an update on industry progress, focusing on the second year of implementation.

The report discusses the FCA's ongoing supervisory activity, including observations on price transparency, technology and cyber risk, and outreach efforts. It also outlines the FCA's next steps, including expanding the programme across the entire wholesale banking sector and continuing engagement through various channels.

Main Points and Observations

1. Conduct Risk Programmes

• Overall Design and Effectiveness: Leading firms have integrated conduct risk frameworks into all aspects of their operations, with clear risk appetite, accountability, and alignment with strategic risk management.

• Effective Design Features:

  • Visible board and CEO sponsorship
  • Senior executive involvement in programme design
  • Business-led ownership of the initiative
  • Front-to-back programmes covering all functions
  • Integration with strategic or operational risk frameworks
  • Standardised self-assessment processes
  • Read-across between business units and functions
  • Full integration of training, promotion, performance, and remuneration with conduct and culture objectives

• Less Effective Design Features:

  • Over-reliance on Second Line of Defence units (e.g., Compliance)
  • One-off or short-term projects (1-3 years)
  • Top-down risk identification without bottom-up input
  • Overemphasis on controls rather than cultural drivers
  • Excluding key business units or functions from risk identification
  • Narrow focus on client-facing activities

2. Staff Engagement and Responsibility

• Tone from the Top: Most firms have strong top-down communication, but some lack clarity or consistency. Examples include CEOs unable to explain messaging and NEDs not trained on conduct and culture.
• Leadership Behaviour: Leadership that acknowledges partial responsibility and promotes a supportive culture is more effective. Conversely, overly punitive approaches can undermine staff morale and fairness.
• Accountability: Business heads are increasingly responsible for managing conduct risk, with some firms ensuring staff are accountable for their actions. Some have introduced systems like Conduct Flags or Red/Yellow Flags for tracking breaches.
• Team Responsibility: Firms are encouraging staff at all levels to take ownership of conduct, using tools like scenario-based training and public recognition of good conduct.

3. Support for Conduct Improvement

• Recruitment: Conduct and culture attributes are being considered in hiring, with firms training managers to assess candidates on these aspects.
• Training and Development: Firms are developing tools and training to improve conduct awareness, including online platforms and scenario-based learning.
• Performance and Remuneration: Some firms are incorporating conduct into performance assessments and remuneration decisions, rewarding both outcomes and behaviours.
• Feedback Loops: Firms are creating mechanisms to incorporate new risks into training and improve transparency in the process.

Key Information

• Conduct Risk Definition: While the FCA does not provide an explicit definition, most firms have developed their own by 2017. Some definitions still lack a focus on outcomes and harm, prioritizing rules and best practices.
• Risk Identification Approaches:
  • Top-down models are common but less effective
  • Bottom-up models and integrated front-to-back process mapping are more effective
  • Reverse-engineered approaches are still underutilized
• Remuneration Reform: Leading firms have started to reward both what staff achieve and how they achieve it, while others are still in early stages of implementation.
• Outreach Activities: The FCA launched the CEO Roundtable to discuss conduct risk with top executives and has engaged with industry organizations and conferences to promote communication and collaboration.

Next Steps for the FCA

• Continue annual conduct meetings with larger firms, with attention reflecting their progress.
• Expand the 5 Conduct Questions programme to include more segments of the wholesale banking sector, such as Asset Management and Trading Venues.
• Encourage firms to integrate conduct risk into Enterprise-Wide Risk Management Frameworks.
• Focus on improving the understanding and management of conduct risk in relation to market integrity and effective competition.

Conclusion

The FCA's 5 Conduct Questions programme is a key tool in promoting conduct risk management across the wholesale banking sector. While progress has been made, many firms still need to refine their approaches, improve cultural engagement, and ensure that conduct risk is managed holistically. The FCA continues to provide feedback and guidance to support this ongoing effort.