In July Tracey McDermott, director of supervision, at the FCA, delivered a speech at the British Bankers’ Association Conference. Aimed at the wholesale market, the speech gives clues to the questions all firms should expect to be asked in the context of conduct risk.
First, how do you identify the conduct risks inherent within your business? As with any risk, you cannot hope to mitigate something you don’t know exists.
Second, who is responsible for managing the conduct of your business? The FCA expects firms to be asking themselves how they are encouraging their employees to be and feel responsible for actually managing the conduct of their business.
Third, what support mechanisms do you have to enable people to improve the conduct of their business or function?
The fourth question is about how the board and executive committees gain oversight of the conduct of the organisation. At a basic level, this is about what information the board and executive see, and how they take it into account in their decision-making.
The fifth and final ‘catch-all’ question is, do firms have any perverse incentives or other activities that may undermine any strategies put in place to answer the first four questions?