Conduct Risk in Swiss Insurance
Customers, Culture, Compliance
In this paper we study the concept of conduct risk and the emergence and evolution of related regulations within the Swiss financial services industry. We highlight the recent significant penalties for misconduct and the rising global cross-sectoral regulatory focus on the topic before discussing the key regulatory developments in Switzerland.
Publications and supervisory expectations from the Swiss Financial Market Supervisory Authority (FINMA) are increasingly pointing towards a strengthened conduct supervision framework. FINMA defined the “promotion of integrity, transparency and client protection in business conduct as one of FINMA’s strategic goals”.
Misconduct or Conduct Risk can be understood as a category of risks arising from any action of an organisation that results in customer detriment, negatively impacts market stability or is in breach of applicable laws and regulations. For insurers, the International Association of Insurance Supervisors (IAIS) defines Conduct of business risk as “the risk to customers, insurers, the insurance sector or the insurance market that arises from insurers and/or intermediaries conducting their business in a way that does not ensure fair treatment of customers”.
Clearly, businesses should be run ethically without any external nudges or intervention. Reality is that Financial Services today are regulated by a complex, interwoven network of regulatory authorities and Conduct of Business is almost consistently at the core of every supervision agenda. Identical to the trends we observed in banking, emerging regulations in insurance have recently focused on increased customer protection, greater consistency between national regulations, clearer cross-border procedures for insurance markets, monitoring of remuneration disclosures, stringent product oversight and governance rules for product manufacturers and distributors.