FSB toolkit to mitigate the risk of misconduct
On 20 April 2018, the Financial Stability Board (FSB) published a toolkit for firms and supervisors on how to mitigate the risk of misconduct, and forms part of a wider initiative to reduce misconduct risks in the financial sector and to promote incentives for good behaviour.
Regulatory Newsflash | 15 May 2018
- Aim of the toolkit
- 19 tools to mitigate conduct risk
- Tools for firms
- Tools for supervisory authorities
- Download this article in PDF
Aim of the toolkit
The toolkit is aimed at firms and national authorities to help them strengthen governance frameworks to tackle the causes and consequences of misconduct. It provides a useful reference point for firms and authorities globally in applying practical approaches for mitigating misconduct.
The report is an important component of the workplan introduced by the FSB in 2015.
19 tools to mitigate conduct risk
The toolkit contains 19 tools to mitigate the risk of misconduct, both for firms and authorities. The tools are grouped into three overarching categories that were identified by the FSB as particularly important from a financial stability perspective. The techniques provided by the toolkit can be applied separately or in combination.
Tools for firms
Mitigating cultural drivers of misconduct
To develop and communicate misconduct reducing strategies effectively, the FSB suggests that a firm’s senior leadership could:
- Articulate a clear cultural vision to guide the right behaviour
- Identify significant cultural drivers of misconduct by reviewing a broad set of information using multidisciplinary techniques
- Take actions to shift behavioural norms to mitigate cultural drivers of misconduct attitudes
Strengthening individual responsibility and accountability
To promote accountability and transparency, firms could:
- Identify and clearly assign key responsibilities, including for mitigation of misconduct risks
- Hold individuals accountable for their actions
- Assess the suitability of individuals holding key responsibilities (including e.g. integrity and professional competency)
Addressing the ‘rolling bad apples’ phenomenon
This refers to individuals who engage in misconduct but are able to obtain subsequent employment elsewhere, without disclosing their earlier misbehaviour. With this in mind firms could:
- Communicate conduct expectations early and consistently in the recruitment processes
- Enhance interviewing techniques
- Take into account multiple sources of information before hiring
- Regularly re-assess employee conduct
- Conduct exit reviews