Article

Internal Audit’s role in the refocused regulatory agenda

Wholesale Conduct Risk

April 2016

There is a very strong expectation that conduct risk management arrangements in wholesale market participants will have been significantly enhanced since the financial crisis, and firms can expect regulators to be increasingly intrusive and challenging of firms’ approach to Wholesale Conduct Risk.

Since the global financial crisis, regulators globally have been grappling with a multitude of conduct related matters, which have put the integrity of wholesale markets under investigation. High profile examples include:

  • Manipulation of benchmark borrowing rates, the LIBOR ‘scandal’;
  • Investigations into the integrity of FX markets; and 
  • Investigations into the sale of wholesale products to non-wholesale customers, for example the interest rate hedging product review implemented in the UK by the Financial Conduct Authority.

Poor conduct amongst firms and employees is a common factor in many of these issues that have arisen since the financial crisis. Thus the term ‘Conduct Risk’ was borne by regulators. While regulators may have previously primarily focused on the conduct of firms interacting with retail customers, as exemplified by the Financial Services Authority’s ‘Treating Customers Fairly’ initiative, there is now a strong realisation that the potential knock-on effects of wholesale market misconduct are so great that heightened regulatory scrutiny of wholesale markets is necessary.

There is a very strong expectation that conduct risk management arrangements in wholesale market participants will have been significantly enhanced since the financial crisis, and firms can expect regulators to be increasingly intrusive and challenging of firms’ approach to Wholesale Conduct Risk.

Related articles

2016 planning priorities for internal audit in financial services
Key planning priorities that internal audit departments should be covering in 2016.
Read more

Internal Audit and retail conduct risk
Key considerations for internal auditors when approaching conduct risk in their organisation.
Read more

 

Did you find this useful?