5 Conduct Questions – Conducting ourselves properly?

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In 2019 the FCA embarked on engagement work entitled 5 Conduct Question Programme, an exercise to establish, across wholesale banks, how effective firms had been at embedding the desired changes among staff. In case you haven’t come across them before “The 5 Conduct Questions” are;

  1. What proactive steps do you take as a firm to identify the conduct risks inherent within your business?
  2. How do you encourage the individuals who work in front, middle, back office, control and support functions to feel and be responsible for managing the conduct of their business?
  3. What support (broadly defined) does the firm put in place to enable those who work for it to improve the conduct of their business or function?
  4. How does the Board and ExCo (or appropriate senior management) gain oversight of the conduct of business within their organisation and, equally importantly, how does the Board or ExCo consider the conduct implications of the strategic decisions that they make?
  5. Has the firm assessed whether there are any other activities that it undertakes that could undermine strategies put in place to improve conduct?

Roundtables with cross sections of staff from the business in 18 wholesale banks were hosted and the findings released in September 2020, delayed by Covid and adapted to take into account the new operating models.

As you review these, just ask yourself “Is that true of my firm?”….

Whilst the FCA got good engagement and saw lots of good practice the report highlights to other firms outside of wholesale banking, patterns of behaviour which should not be repeated or allowed to continue. As you review these, just ask yourself “Is that true of my firm?”….

  • Identification of conduct risk remains weak – generally staff members were better at identifying conduct risk with hindsight, rather than at the time, in the moment and reporting it as such, often after the risk it had already emerged.
  • Remuneration and performance assessments – encouraging steps had been made but some firms had taken insufficient steps to analyse trends and develop governance feedback loops.
  • Culture, Safety and Leadership – some firms admitted that they were still dealing with pockets of resistance to cultural change between regions, business areas and professional disciplines. Persistent lack of day to day speaks up and challenge. Unhelpful layers of management meant cascaded messages were distorted.
  • Purpose, Principles and Values – staff still unclear about the firms’ core purpose and how their roles contribute to that.

How do you avoid making some of the mistakes of wholesale banking? I would go back to the 5 conduct  questions and direct them at your own firm. We can’t lay all the sins of Financial Services at the wholesale banking door! The FCA closes the Executive summary with the following keys for consideration;

  1. Have staff members had sufficient training to be able to identify conduct risk in their day-to-day roles beyond general awareness?
  2. Does the firm’s overall framework for identifying and mitigating conduct risk reflect adequate, bottom-up exercises to understand those risks?
  3. Do staff members understand how their own roles and responsibilities can potentially create conduct risk or harm for the customers, the firm or markets?
  4. Are messages from the top, including corporate purpose and values, translated in a meaningful way to the specific roles and responsibilities, targets and objectives at the individual and unit level across the firm?
  5. Is enough being done to support line managers in their efforts to enable their teams to perform at their best?

An exercise to explore these before the regulator knocks at the door is probably time well spent, especially post Covid!

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Through our award winning training and consultancy partnership FSTP LLP we hope to become a trusted provider of services to client firms across Financial Services. Specialties: Training and consultancy, project and interim management from regulatory issues through to management development and board services. Chartered Member of the Chartered Institute of Securities & Investment

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