Financial Crime World

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Ireland’s Financial Firms Must Prioritize Conduct Risk Management Amid New Regulatory Requirements

The Central Bank (Individual Accountability Framework) Bill 2022 is set to elevate conduct risk further up the Board’s risk agenda prioritization in 2023 and beyond. As part of this legislation, regulated financial services firms will be required to demonstrate proactive management and mitigation of conduct risk.

Conduct Risk Obligations

The Bill introduces specific conduct risk obligations on:

  • Firms: Requirements to act in the best interests of customers, ensure clear and accurate communication, assess customer needs, and operate in compliance with market conduct standards.
  • Senior Executive Functions (SEFs): Responsibilities for SEFs will be clarified to ensure accountability for conduct risk management.
  • Employees: Employees must understand their roles and responsibilities in managing conduct risk.

The Cost of Poor Conduct Risk Management

The cost of poor conduct risk management is significant. In Ireland, the Central Bank of Ireland has imposed financial sanctions totalling €298 million since 2006, with €228 million of these sanctions issued in the last three years alone. Globally, a study by CBR Conduct Costs Project at CASS Business School estimates that 20 global banks incurred conduct costs exceeding £377 billion between 2008 and 2018.

What is Conduct Risk?

Conduct risk encompasses the impact a firm has on:

  • Its customers
  • Its employees
  • The integrity of markets

Effective management requires a framework that incorporates both top-down and bottom-up approaches, including:

  • Defining a conduct risk strategy
  • Providing tools for proactive identification and management
  • Articulating roles and responsibilities across three lines of defence

Forvis Mazars: A Leading Conduct Risk Management Consultant

Forvis Mazars, a leading financial services consulting firm, has significant experience in assessing, designing, and implementing conduct risk management frameworks. The firm is well-positioned to advise firms on enhancing or developing their own conduct risk management framework and accountability framework as they prepare for the requirements of the Bill.

By prioritizing conduct risk management, financial firms can balance their legitimate interests with those of customers, ensuring a more sustainable and responsible business model.