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The ethics and conduct risk challenge for US banks

US banks needing to address conduct risk and conduct regulation can learn from the UK experience.

Overview

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"US banks, facing a new regulatory approach which will require sweeping changes in bank conduct, can learn from the experience of UK banks."

Key Findings

"Financial services firms that do not embrace this change not only open themselves up to large regulatory fines but also to legal actions in the form of lawsuits filed on behalf of their customers."

UK regulators have focused on five key bank conduct risk themes, and we expect US regulators to follow the same path in conduct regulation.

Key areas include:

  • Cultural change—A poor culture may reflect a firm’s emphasis on incentives for short-term profits, or a focus on rapid growth at the expense of customer benefit.

  • Personal accountability—Employees need support in understanding their responsibilities, and senior managers need support in taking responsibility for what occurs within the firm.

  • Misselling—Many business models, strategies and operating models can lead to bad customer outcomes due to embedded conflicts of interest.

  • Market conduct—Regulators’ attention is widening from insider trading to address other types of information leakage and conflict of interest.

  • Information and social media—The Securities and Exchange Commission is looking into the use of social media for product promotion while UK regulators are reviewing digital advice to make sure customers’ information needs are met.

Recommendations

Banks that have been successful in the conduct risk regulation change process have had certain features in common, including:

  • Involvement of senior leadership. Strong and visible senior leadership commitment helps push through change at big, complex organizations.

  • Careful gap analysis. Banks should understand where gaps exist between the current state, and where they want to be.

  • Operating model change. Firms should be prepared to make changes in how they operate, to be customer-centric and to establish and maintain desired behaviors.

  • An effective change management process. Good change management includes regular communication with stakeholders as well as effective training.

  • Considered customer behavior. Firms can use intelligence gathered on customer behavior to redirect promotions toward positive outcomes.

  • Effective use of technology. End-to-end solutions can support conduct monitoring and production of management information while helping change staff and customer behavior.

  • Investing in programs driving a strong culture. An analysis of current culture is the starting point for determining how to effect change.


Authors
Bjørn Pettersen

Bjørn Pettersen
Managing Director, Accenture Finance & Risk Services

With a focus on risk management and compliance, Bjorn has led high profile risk- and regulatory-focused consulting engagements, business strategy and operating model transformations, in addition to merger integration assignments for clients on the journey to high performance.

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Rafael Gomes

Rafael Gomes
Senior Manager, Accenture Finance & Risk Services

Rafael serves as the Conduct Risk Offering lead for Finance Services Consulting in the United Kingdom. His client engagements cover compliance transformation, conduct and ethics, and behavioral analytics in banking and capital markets.


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Anne Godbold

Anne Godbold
Manager, Accenture Finance & Risk Services


Anne has deep experience in conduct, anti-bribery and corruption, fraud investigations, anti-money laundering and sanctions compliance as well as conduct-related regulations and regulatory guidance.


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