Be fit for future
Are you in? Conduct - it's everyone's responsibility
Social and regulatory expectations on conduct are not static. They evolve in tandem with the rise of new technologies.
As leadership looks to the future it will have to go beyond minimum legal requirements and prioritise society’s ethical expectations. It must avoid issues like inappropriate incentives that are likely to cause conflicts of interest for customers’ best interests.
Businesses must apply analytical techniques to better understand and predict customer outcomes. Not only will management benefit from these insights, they will deliver to the rising regulatory expectations on conduct.
Are you in? Conduct - it’s everyone’s responsibility
Find out where your sector sits
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Unlock the power of your data to take action, and deliver better customer outcomes.
Understanding how to achieve good outcomes is key to managing conduct. In risk-laden competitive times, being able to predict and understand what happens at the coalface opens strategic opportunities.
At a time of tension between eroded trust and heightened customer expectations, now is the time to use conduct analytics. Asking smart questions of data does not only create the potential for better stakeholder outcomes, it also creates the foundation for more cost effective, predictive and preventative monitoring and supervision.
At its most basic, the right analytics can have an immediate impact:
Improve remediation of known vulnerabilities
- It enables accurate calculation of who requires remediation or not, and what the amounts should be
Surface hidden vulnerabilities by assessing structured and unstructured data
- It enables the use of key risk and opportunity indicators, to discover or predict conduct concerns
Enhance monitoring and supervision to allow for better returns on control dollars
- It allows data to enable risk based controls over large sample populations.
Conduct analytics can be used to improve remediation, prevention, and controls.
The result? Better outcomes for stakeholders, and if sustained over time, improved trust.
Make a choice to know
Harnessing the power of data is the first step to increase your capacity to know. If you do not know, you cannot act, and it is no longer good enough to claim ignorance.
Senior management and boards need to demonstrate that they have made a choice to know what conduct vulnerabilities exist in their organisation. Conduct analytics is an invaluable risk management tool, and it can also be effectively used to improve the products and services of an organisation.
By analysing customer needs and product design, vulnerabilities can be turned into opportunities for improved customer satisfaction and better products and services.
Similarly, control weaknesses can be identified and fixed to create a more outcome-intelligent control strategy and operating model.
How can you know?
There are many techniques that work together to provide an increasingly clear picture of your stakeholders and their needs.
However, you can't build palaces on swamps. Even the most advanced analytical techniques are dependent on data integrity. Unfortunately, many organisations suffer from the challenges of poor data and fragmented or outdated legacy systems and data repositories. That is why conduct analytics is often best combined with a measured and systematic approach to improved data management.
In doing so, conduct metrics and tolerances can be refined, reporting can become more real-time and reliable, and efforts can be directed to creating algorithms or hypotheses to predict the presence of opportunities and risk, rather than only discovering the fires of today.
Do you choose to know?
- To what extent do you apply data analytics to ensure that remediation programs are optimised and can withstand regulatory scrutiny?
- To what extent do you apply data analytics to discover or predict conduct vulnerabilities in your organisation, which includes identifying vulnerable clients, employees or other stakeholders?
- To what extent do you apply data to improve the operating and cost effectiveness of monitoring and supervision?
Be fit for future
Proactive regulatory relationships
Is your organisation appropriately valuing it relationships with regulators?
One way for an organisation to show it is living its commitment to its customers and other stakeholders is through good relationships with regulators.
Formulate a regulatory engagement strategy
Many organisations are rightfully concerned about the impact of regulation on their business activities.
It is good practice to have a proactive regulatory engagement strategy in place because of the escalating regulatory risks associated with poor conduct. Such a strategy should allow an organisation to anticipate regulatory requests and be efficient in responding to them.
It also makes good commercial sense to do so, especially given the pervasiveness and increasing complexity and impact of regulation on some business models.
Maintaining proactive relationships with regulators is one way of ensuring they appreciate the commercial impacts of existing or prospective regulation on your sector.
Be forward looking - think data
Regulators worldwide seek to enhance their abilities to be predictive and preventative, and are for these reasons becoming more technology, and data-orientated in their approach.
Therefore, investing in technology that will provide the type of data regulators will typically be interested in, is highly prudent.
Fortunately, this does not entail building information systems only for regulatory use. The technology that can improve your organisation is often the same technology that could be used to provide data to regulators.
There is also value for organisations in considering whether they are analysing their data with the same lens that regulators are, or would do. This includes, most fundamentally, understanding customer (and other stakeholder) outcomes.
Take ownership - demonstrate ethical leadership
Culture is a dominant driver of conduct. Regulators are increasingly focused on culture and the tone set by directors and other members of management.
Important indicators of culture include the differences between formal and informal standards of behaviour, whether management looks for deviations from those standards, and whether management rectifies known issues in a timely fashion.
Ensuring your board or c-suite deliberate and oversee your attempts to find and fix vulnerabilities, is an important dimension to demonstrating ethical leadership.
These can be powerful engagement topics when senior representatives of your organisation meet with regulators to discuss current and emerging issues.
Be deliberate and pragmatic
It is of limited use to have a coherent regulatory engagement strategy, if there is no coherent strategy to manage conduct within your organisation.
Globally, rules and regulations tend to become less prescriptive and more principles-based. Neither the law nor regulators will provide all the answers but expect regulated entities to be able to demonstrate that they are running coherent internal programs to manage conduct.
Maintaining a conduct framework is one way of demonstrating coherency and focus. The framework should be comprehensive, not unnecessarily complex, and should define conduct objectives and the resources necessary to achieve them. It would also need to demonstrate the necessary control capability to detect conduct vulnerabilities on a granular level.
Case study spotlight
A franchise group knew that a regulator was focusing on conduct matters in its sector. The group faced no regulatory action and was not aware of specific conduct concerns in its business. However, investors and financiers were asking questions about how the group planned to mitigate sector conduct risks, while they grow the business.
The group received professional help to improve its monitoring and supervision practices to better detect unethical conduct in its business network.
Through this work, the franchise group was able to identify a number of solutions to run a better business, set its governance and control environment up for the next stage of business growth, and craft a regulatory engagement strategy to help respond proactively to rising regulatory risks in the sector.
Explore further conduct themes: