Conduct risk (or misconduct risk) refers to the risk arising from inappropriate or unethical behavior of employees with regard to customer welfare or market integrity. In the past, it was treated as part of operational risk, but given its enormous implications, most economies now consider it a standalone risk. UK’s Financial Conduct Authority (FCA) monitors the conduct of banks with the twin objectives of protecting consumers and enhancing the integrity of the financial system. In this article, we examine FCA’s guidelines on the mitigation of conduct risk and propose an approach to ensure compliance.
Conduct Risk Management: The Journey Ahead
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