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The Basics of Conduct Risk: 3 Things to Know


1) Conduct risk is typically associated with human misbehavior. 

Conduct risk is a form of business risk that refers to potential misconduct of individuals associated with a firm. Examples of conduct risk include improper trading or an employee and a third-party sharing material non-public information (MNPI). 

2) Regulators across jurisdictions and around the globe are making conduct risk an examination and enforcement priority.  

The Foreign Corrupt Practices Act (FCPA) requires listed companies to make and keep books and records that accurately and fairly reflect transactions that could considered bribery. 

The Securities and Exchange Commission (SEC), Rule 204A-1, commonly called the “Code of Ethics Rule,” requires registrants to establish a standard of business conduct of all supervised persons. This rule is one of the five most common reasons for a deficiency letter after a SEC exam.

In the UK, the recently extended Senior Managers and Certification Regime (SMCR)  increases accountability for senior members of financial services firms for their conduct. 

3) Regtech can help. 

A growing number of firms are using software solutions to better manage conduct risk. Such solutions help firms track and monitor conduct-related compliance process flows, with a centralized command control dashboard, behavioral risk scoring, document management, reporting, alerts as well as comprehensive approvals processing.

Conduct risk management systems demonstrate to regulators that a company is serious about monitoring its supervised persons, and can be used in defense of a conduct breach—which can occur in even the most thoughtfully safeguarded organizations.

For more read on Conduct Risk challenges, common scenarios and how regtech can help, download the free Whitepaper, What is Conduct Risk and How Can Technology Mitigate it?