Compliance Tyler, MD of the Conduct Mind looks at conduct risk drivers.
In order to properly define Conduct Risk, the firm must first understand how Conduct Risk arises. Defining Conduct Risk can be driven by the following three risk factors:
1. Inherent factors: A combination of supply-side market failures (e.g., poor provision of information by firms) and demand-side weaknesses (e.g., biases), which are often exacerbated by low financial capability among consumers.
2. Structures and behaviours: Structures, processes and management (including culture and incentives) that have been designed into, and become embedded in, the financial sector, allowing firms to profit from systematic consumer shortcomings and from market failures.
3. Environmental factors: Long-running and current economic, regulatory and technological trends and changes that affect decisions made by firms and consumers