Conduct risk is the broadest form of business risk as it relates to the activities of so many individuals, from senior executives and staffers to customers, vendors and other third-party affiliates.
What is the challenge?
Many employees are unaware of the ever-changing rules that apply to them, particularly as it relates to their outside business activities and relationships. Infractions occur because supervisors fail to make connections between supervised persons and outside affiliations. It takes just one unexpected infraction — even an unintentional one — to irreparably damage a company’s brand and bottom line.
In larger companies, conduct risk can exist because the left hand often does not know what the right hand is doing. An employee might give a gift to an executive at a company that unbeknownst to the employee is an acquisition target. A gift that would otherwise be an acceptable form of business courtesy could be construed as an act of bribery, triggering a potentially costly investigation.
Conduct risk may also be a direct consequence of poor risk culture, where a firm might enrich itself at the expense of its customers, rather than in pursuit of good customer outcomes. The big concern if that, left to their own devices, a firm’s structures, processes, controls and management culture and incentives will move away from putting the clients first and towards putting profit first, even at the expense of sub-optimal customer outcomes.
Reactive “swivel chair” compliance, pivoting across data silos to manage compliance is a common approach though labor-intensive and error-prone. It can be a poor use of constrained resources that would be better allocated to more value-added activities, like conducting data analyses, identifying trends, and revising policies or procedures.
Without integrated technology, compliance blind spots exist. Especially in larger organizations across physically dispersed teams, or teams that operate separately from others in the organization.
MCO’s fully integrated Conduct Risk Solution Suite enables organizations to seamlessly monitor, identify and remedy conflicts of interest and code of conduct issues. By automating the end-to-end management of request processes, compliance monitoring and exception management associated with conflict of interest policies, clients can be confident that they are embedding best-practices in their compliance program.
