Boards are accountable for the culture and conduct of their firms but how do they really set the tone and monitor and manage this in reality?
Its not black and white, its hard to quantify and cannot be managed in the same way as other risk areas.
A change in thinking is required to face the conduct and cultural challenges in the financial services sector.
A traditional approach to these areas is not appropriate. At the core, Boards need to make informed decisions. Some "uncomfortable" questions may need to be asked and leaders will need to dig beyond the standard management reporting they receive and delve into the grey, more subjective areas of risk.
Traditional tools to combat misconduct and enhance internal cultures at banks, such as “tone at the top” messages from leadership and compliance surveys, are failing to achieve desired results, says Martin Wheatley, the former chief of the UK’s Financial Conduct Authority. “There is recognition that conduct is an issue but people are still grappling with it ... They are struggling to find a concept and a methodological way to deal with it,” said Wheatley, who had a front-row seat to the industry’s conduct problems when in 2013 he led the newly created FCA, after its predecessor the Financial Services Authority was split in two. “The problem with conduct is that it doesn’t fit into a quantifiable model,” he said. “You can’t have a quantified risk appetite like a VAR figure for conduct risk.”