Just one in five financial service firms have a working definition of conduct risk and a third have declined a potentially profitable business opportunity due to culture and/or conduct risk concerns, according to study by Thomson Reuters.

The study of 750 financial service firms found that only 21 per cent had a working definition of conduct risk in 2017 – compared to 36 per cent the previous year. According to Thomson Reuters, the decline could be due to “the practical difficulties faced by any firm as they have begun to tackle the question”.

However a far higher portion of firms in the global systemically-important financial institutions (G-SIFIs) category – 68 per cent – had a working definition of conduct risk. The survey found that there is a growing perception that the regulatory focus on culture and/or conduct risk will increase the personal liability of senior managers – and this perception is even greater among the G-SIFI category, see chart below.

The firms in the survey said they use the following indicators to assess and measure culture and conduct risk:

• compliance monitoring results
• internal audit results
• staff opinion surveys
• complaints analysis

And the study also found that:

• Almost a third (29 per cent) reported having declined a potentially profitable business opportunity due to culture and/or conduct risk concerns. This was 37 per cent for G-SIFIs.
• Almost half (48 per cent) consider culture and conduct risk to be intrinsically linked, with culture as a critical factor in managing conduct risk.
• More than half of firms (55 per cent) had an embedded framework or had implemented their firm’s approach, although additional work and resources were needed. This was 68 per cent for G-SIFIs.

Several other findings are shown in the chart below, including a sustained high level of focus on conduct risk at board level; and the perceived components of conduct risk: