The Evolution of Conduct Risk in the Irish Regulatory Environment
The concept of “conduct risk” is receiving increasingly more attention from executives within financial services organisations over the last number of years. Throughout this article we will explore the evolution of conduct of business regulation and the supervision of conduct risk both in Ireland and in the UK. This article will be beneficial if you are a C-Suite Executive or new to the area of conduct risk. As part of this piece we will consider approaches adopted over the years, reflecting on the lessons learned from our experience both in Ireland and in the UK with a view to looking forward and enabling the establishment of a framework to manage conduct risk as part of the day to day business activities of a financial services organisation.
So why is conduct risk so important and why is it particularly relevant in financial services?
“The fast pace of financial innovation has created a complex world for consumers, where the range of available financial products is broad, and the consequences of financial choices are significant. Coupled with this, the typical household tends to have a limited personal track record in making financial decisions, since the purchase of financial products happens only infrequently. This is problematic, since the demands for financial sophistication and knowledge are sizeable if a consumer is to navigate safely through the options put forward by providers of financial services. Financial decisions often require consumers to assess risk and uncertainty, for example, and to consider trade-offs between the near term and the long term.” The Role of Financial Regulation in Protecting Consumers - Governor Philip R. Lane - 23 Feb 2017 Speech.
Amongst the things money can buy, there is a distinction between a good and a service i.e. something tangible that lasts, whether for a long or short time and a service that someone performs for you. A financial service is not the financial good itself but something that is best described as the process of acquiring the financial good. In other words, it involves the transaction required to obtain the financial good.
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