Showing posts with label conduct risk advisors. Show all posts

Tuesday, 1 April 2014

FCA Risk Outlook 2014 - http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/fca-risk-outlook-2014/

http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/fca-risk-outlook-2014/

The FCA Risk Outlook 2014 sets out FCA’s approach to assessing risks to their objectives. It analyses the fundamental causes of risk and how these affect the financial services market and its participants.

Source: http://www.fca.org.uk/risk-outlook

Wednesday, 19 March 2014

Overview of Conduct Risk - http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/overview-of-conduct-risk/

http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/overview-of-conduct-risk/

Conduct risk is one of the hottest topics in financial services but what exactly is it? This great article from Jane Walshe of the Compliance Complete service of Thomson Reuters Accelus explores the various definitions of the concept, which can be hard to pin down, put forward by regulators and international standard setting bodies.

More: http://blogs.reuters.com/financial-regulatory-forum/2014/03/19/conduct-risk-an-overview/

Monday, 17 March 2014

Speaker on Jersey International Business School CPD Plus Seminar Series 2014-15 Programme - http://www.chaordicsolutions.co.uk/blog/from-our-risk-management-consultants/speaker-at-jersey-international-business-school-cpd-plus-seminar-series-2014-2015-programme/

http://www.chaordicsolutions.co.uk/blog/from-our-risk-management-consultants/speaker-at-jersey-international-business-school-cpd-plus-seminar-series-2014-2015-programme/

Our Senior Partner, Robert J Toogood, has been invited to be a speaker on the Jersey International Business School CPD Plus Seminar Series 2014-15 programme. Robert’s session is entitled “Risk Management – Bringing Order to a Chaotic World”.

CPD Plus Seminar Series 2014–2015

Jersey International Business School has a reputation for delivering high quality training solutions. The CPD Plus Seminar Series has a legacy of providing essential updates for professionals delivered by internationally recognised experts. This series will comprise twelve monthly sessions including eleven seminars of 60 minutes followed by a 15 minute Q&A, plus one highlight event.

More Details: http://www.jerseyibs.com/CPD-Series/CPD-Plus-Seminar-Series-2014-2015/

FCA Risk Outlook 2013 - http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/fca-risk-outlook-2013/

http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/fca-risk-outlook-2013/

The FCA Risk Outlook 2013 will set out the FCA’s approach to assessing conduct risks to our objectives. It analyses the drivers of conduct risk and how these factors impact financial services and its participants.

Source: http://www.fca.org.uk/your-fca/documents/fca-risk-outlook-2013

Thomson Reuters Survey Highlights Companies’ Uncertainty Around Conduct Risk - http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/thomson-reuters-survey-highlights-companies-uncertainty-around-conduct-risk/

http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/thomson-reuters-survey-highlights-companies-uncertainty-around-conduct-risk/

Thomson Reuters, the world’s leading source of intelligent information for businesses and professionals, announced on 22 January 2014 the findings of a new survey which shows that although conduct risk has become one of the highest priorities for regulators worldwide, there is still great disparity in how firms are defining conduct risk and similarly how regulators are referring to the concept. According to the Thomson Reuters Conduct Risk Report 2013, firms, in response to an increasing volume of regulatory change, demands and priorities are placing increased importance on conduct risk while working to establish what the concept means for their organizations.

Thomson Reuters Accelus surveyed more than 200 compliance and risk practitioners from financial services firms across the Americas, Europe, Africa, Asia, Australia and the Middle East to find their views on how the industry is defining and dealing with conduct risk. Respondents represented firms from across the financial services sector including banks, insurers and fund managers.

Key findings from the report include:

84 percent of respondents did not have a working firm-specific definition of “conduct risk”.

Firms were in broad agreement on what constitutes conduct risk. Culture came out on top (76%), closely followed by corporate governance (74%), then conflicts of interest and reputation (both at 68%). Firms in Europe and Australasia have done the most work to address conduct risk, while the North America and the Middle East have done the least, according to the survey.

Most of the changes made have been implemented in the last 12 months, suggesting that firms’ awareness of conduct risk is growing and that the emphasis which regulators are placing on consumer protection and having the right corporate culture is beginning to take hold.

Almost two-thirds of respondents have implemented arrangements to deal with conduct risk while just over 50% of the firms surveyed reported having no, or a partly developed conduct risk appetite in place.

“The last 12 months have shown increased focus on conduct risk which is not surprising due to ever-demanding regulatory requirements,” says Chris Perry, managing director, Risk, Thomson Reuters. “Good conduct is good business. The cost of poor conduct is high; not just in terms of enforcement actions, now totaling in the billions of dollars, but also in the reputational damage and the wider erosion in trust that this creates across the industry, as the Thomson Reuters Trust Index reveals,” added Perry. “As the public looks to more transparency in our banks, and banks look to preserve and create value, firms and senior managers need to be able to define and measure what “good” looks like in terms of culture and customer outcomes in order to understand and respond to the implications of the regulatory focus on conduct risk.”

What is Conduct Risk

Since the financial crisis, regulators have been working to put policies in place to improve the behavior of risk management within firms. Although there is no universal definition of conduct risk, it is generally agreed that the concept encompasses the risks associated with the way in which a firm and its staff conduct themselves. It incorporates matters such as culture, tone from the top, governance, how customers are treated, remuneration of staff and how firms deal with conflicts of interest.

The survey shows that over 84% of firms reported the absence of a working definition of conduct risk indicating the infancy of the field. When respondents were asked their view as to what the key components are to conduct risk, culture was the most important (76%) followed by corporate governance (74%) then conflicts of interest and reputation (both at 86%). Remuneration was also shown as a key component to conduct risk, meaning the way in which staff are rewarded and incentivized to behave in the right way are significant factors that contribute to a firm’s culture.

Progress to address Conduct Risks

The results show that the majority of firms around the world have begun to address conduct risk. Most of the changes have been implemented in the last 12 months indicating that firms’ awareness of conduct risk is growing and the emphasis which regulators are placing on corporate culture and consumer protection is beginning to take hold.

Over the last year, half of the firms surveyed have reassessed their approach to culture. South America had the highest change rate with 67% of respondents indicating change and 65% in Australasia. By contrast, only 35% of firms in North America and 38% of firms in the Middle East had reconsidered their approach to culture in the last 12 months.

Since the financial crisis of 2008, remuneration and incentive practices have become increasingly controversial. A recent review conducted by the UK Financial Conduct Authority found that sales rewards and incentive schemes were likely to have exacerbated the risk of poor sales practice. According to the survey, 66% of firms said that they had reviewed their approach to incentives since 2008, the majority of which (48%) had done so in the last 12 months. Just over half of firms had made changes to their remuneration policy, a third of them in the last 12 months. A further 10% of firms plan to make changes in the next 12 months.

Finally, 22% of firms surveyed said that their organization had not made any changes to address conduct risk. Again, the results show many regional variations with 50% of firms in the Middle East and 1/3 of firms in North America saying they had made no changes. By contrast only 11% of firms in Europe and 12% in Australiasia had done nothing to address conduct risk.

Measuring Conduct Risk

In order for conduct risk to be effective, organizations need to establish and be able to monitor and progress good outcomes for customers. The survey shows that the most popular way to measure good outcomes is by the analysis of complaints with the majority saying this was undertaken through compliance monitoring programs. 25 % reported that they did not do any specific analysis of customer outcomes.

Monitoring conduct risk is extremely important to gauge the success and failures of an approach. The majority of respondents said there was a healthy degree of assessment by risk management functions. Corporate governance (42%), the treatment of customers (39%) and financial capabilities (34%) were the top three issues that were captured in monitoring programs.

Board involvement is also critical to the successful implementation of conduct risk. The survey showed that boards did set the appropriate cultural and governance message with 83% of respondents responding positively. Board focus on conduct risk has also increased in the last year in 44% of firms—this is largely driven by greater regulatory focus in the area.

For a copy of the Thomson Reuters Conduct Risk Report 2013, visit: http://info.accelus.thomsonreuters.com/2013ConductRiskSurveyReport Thomson

Source: http://accelus.thomsonreuters.com/press/thomson-reuters-survey-highlights-companies-uncertainty-around-conduct-risk

Conduct risk for insurers: responding to a fundamental shift in regulatory expectations - http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/conduct-risk-for-insurers-responding-to-a-fundamental-shift-in-regulatory-expectations/

http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/conduct-risk-for-insurers-responding-to-a-fundamental-shift-in-regulatory-expectations/

Twenty-two CEOs and senior executives from across the UK insurance industry were interviewed to understand their views on, and response to, the FCA’s Conduct Risk agenda. Participants covered a broad representation of the industry, including life insurers, general insurers, health insurers and composites.

This report presents our findings from the research and outlines the actions we believe insurers need to take in order to respond to the FCA’s main areas of concern.

This is a joint report from Oliver Wyman and the Chartererd Insurance Institute.

Source: http://www.cii.co.uk/knowledge/underwriting/articles/conduct-risk-for-insurers/29099

Financial Conduct Authority: Risk Outlook and Business Plan 2013 - http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/financial-conduct-authority-risk-outlook-and-business-plan-2013/

http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/financial-conduct-authority-risk-outlook-and-business-plan-2013/

The Financial Conduct Authority (FCA) has published its Financial Risk Outlook and Business Plan 2013-2014. These are the organisation’s first publications in its new identity ahead of legal cut-over from the former Financial Services Authority on 1 April 2013.

The FRO sets out the FCA’s approach to assessing conduct risks within financial services. It identifies three primary drivers of conduct risk: inherent factors (such as supply-side failure); behavioural factors (such as mis-selling); and environmental factors (such as the general economic climate). As well as identifying broad risks across financial service, the FRO details five priority risks for the coming year:

Product design;

Distribution channels;

Payment and product technologies;

Risky funding strategies; and

Poor customer understanding of risk and return.

Alongside the FRO, the FCA has published its 2013-14 Business Plan. The plan, which is underpinned by the FRO, shows how the FCA expects to manage risks it has identified while meeting its objectives, which are to:

Secure an appropriate degree of protection for consumers.

Protect and enhance the integrity of the UK financial system.

Promote effective competition in the interests of consumers.

This briefing looks at both publications and focuses in particular on the FCA’s approach to risk, the identified key risks and how they will be tackled.

Source: http://www.cii.co.uk/knowledge/policy-and-public-affairs/articles/cii-briefing-fca-financial-risk-outlook-business-plan-2013/25138

Conference Board Governance Center Report - Risk Oversight: Evolving Expectations for Boards - http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/conference-board-governance-center-report-risk-oversight-evolving-expectations-for-boards/

http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/conference-board-governance-center-report-risk-oversight-evolving-expectations-for-boards/

This Directors Notes report from the Conference Board Governance Center (January 2014) discusses evolving expectations for board oversight of management’s risk appetite and tolerance and the challenges boards face in meeting them. It also recommends steps to implement a board-driven, objective-centric approach to risk governance.

Source: http://www.financialstabilityboard.org/publications/c_140206w.pdf

Financial Stability Board (FSB) releases Guidance for More Effective Supervision of Risk Appetite and Risk Culture at Financial Institutions - http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/financial-stability-board-fsb-releases-guidance-for-more-effective-supervision-of-risk-appetite-and-risk-culture-at-financial-institutions/

http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/financial-stability-board-fsb-releases-guidance-for-more-effective-supervision-of-risk-appetite-and-risk-culture-at-financial-institutions/

The Financial Stability Board (FSB) has recently published (November 2013) two papers to assist supervisors in strengthening risk management practices at financial institutions:

1. Principles for an Effective Risk Appetite Framework – finalised document;

2. Guidance on Supervisory Interaction with Financial Institutions on Risk Culture – for public consultation and questions for public consultation.

These papers form part of the FSB’s initiative to increase the intensity and effectiveness of supervision, which is a key component of the policy measures to address systemically important financial institutions (SIFIs) that were endorsed by the G20 in November 2010 to address the problem of firms that are “too big to fail”. Supervisory expectations for firms’ risk management functions and overall risk governance frameworks are increasing, as these were areas that exhibited significant weaknesses in many financial institutions during the global financial crisis.

The Principles for an Effective Risk Management Framework were issued for public consultation in July 2013 and have been revised in light of the comments received during that consultation. Respondents generally supported the overall direction of the draft Principles, but sought more clarity on the extent to which a financial institution’s risk appetite should be cascaded to individual legal entities and business units. The responses to the public consultation are available on the FSB’s website.

The level of risk appetite that a financial institution sets will be influenced by its risk culture, in other words the institution’s attitude toward and acceptance of risk. The FSB is therefore issuing today for public consultation a Guidance Paper to assist supervisors in assessing the risk culture at financial institutions.

Julie Dickson, Superintendent of Canada’s Office of the Superintendent of Financial Institutions and Chair of the FSB Supervisory Intensity and Effectiveness Group, noted that “The Principles and Guidance aim to support well-informed and forward-looking risk decisions by institutions, and to assist the understanding, by both the financial institution and the supervisor, of the institution’s risk culture, in particular whether it supports appropriate behaviours and judgements within a strong risk governance framework.”

Background

In October 2011, the FSB Supervisory Intensity and Effectiveness (SIE) group published a progress report which noted that effective, measurable and actionable risk appetite frameworks have not yet been widely adopted by financial institutions. It concluded that the development of an effective risk appetite framework needs attention by both firms and supervisors and recommended that supervisors should discuss expectations for what a “good” risk appetite framework entails and how to supervise against these expectations.

In light of these findings, the FSB conducted a Peer Review on Risk Governance, published in February 2013. The review recommended that the FSB, in collaboration with relevant standard setters, develop guidance on the key elements contained in an effective risk appetite framework and establish a common nomenclature for terms used in risk appetite statements. Given the critical role risk culture plays in ensuring that effective risk governance endures through changing environments, the report asked the FSB to explore ways to formally assess risk culture, particularly at global SIFIs (G-SIFIs).

The FSB has been established to coordinate at the international level the work of national financial authorities and international standard setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts.

The FSB is chaired by Mark Carney, Governor of the Bank of England. Its Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

For further information on the FSB, visit the FSB website, http://www.financialstabilityboard.org/.

Source: http://www.financialstabilityboard.org/press/pr_131118.htm

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