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The Evolving Regulatory Landscape and Conduct Risk Management in Malaysian Banking

Regulatory Landscape: Shifting Focus towards Fair Treatment and Transparency

In 2018, regulators have been increasing pressure on banks regarding market conduct. The Bank Negara Malaysia (BNM) has proposed requirements for fair and transparent treatment of borrowers, protecting financial consumers from unfair loan or financing contract terms, and helping individual borrowers in persistent credit card debt.

• Key Requirements:
  • Fair and transparent treatment of borrowers
  • Protection of financial consumers from unfair loan or financing contract terms
  • Help for individual borrowers in persistent credit card debt

The effective dates of these requirements will be by end-2019, indicating a growing emphasis on ensuring that banks operate with integrity and transparency.

Conduct Risk Management: A Critical Concern for Banks

Conduct risk is defined as the risk that a firm’s employees or agents may harm customers, other employees, the integrity of the markets, or the firm itself. Common drivers and behaviors that could lead to detrimental conduct-related outcomes include:

• Challenges Faced by Large and Complex Organizations:
  • Diverse and detached teams
  • Employees not held accountable for poor conduct
  • Weak systems for monitoring and surveillance

Banks must understand misconduct taking place in their workplace and the role of culture in shaping good and bad conduct before building detective and preventative capabilities to identify and manage misconduct.

Key Takeaways

Regulators are increasing pressure on banks regarding market conduct, and banks must prioritize fair and transparent treatment of borrowers. Conduct risk management is a critical concern for banks, and they need to develop effective programs to address this risk. Banks must understand the role of culture in shaping good and bad conduct and build detective and preventative capabilities to identify and manage misconduct.

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