Financial Institutions Face Uncharted Risks in Rapidly Changing Market
As the global financial landscape continues to evolve at breakneck speed, Japanese financial institutions are grappling with new and unregulated risks that threaten their stability and reputation.
Conduct Risk: A Growing Concern
The Japan Financial Services Agency (JFSA) has issued a warning about “conduct risk,” a term that refers to the potential risks arising from behaviors of financial institution executives and employees that can harm users, compromise market integrity, or spark social criticism. Conduct risks can manifest in various ways, including:
- Behaviors that deviate from social norms
- Violation of business practices
- Lack of user perspectives
These misbehaviors can lead to significant impairment of corporate value and even financial losses for institutions.
Proactive Approach to Monitoring Compliance Risks
To address these emerging risks, JFSA is adopting a proactive approach to monitoring compliance risks. The agency will gather intelligence from a wide range of sources, including:
- News articles
- Complaints received from the public
- Consultations with experts
JFSA will analyze the specific risks faced by each financial institution, taking into account their business models, operations, and organizational frameworks.
Enhancing Risk Management Framework
To enhance its risk management framework, JFSA is working closely with financial institutions to share its views on potential risks and obtain mutual understanding of the issues at hand. The agency will also engage in dialogues with relevant departments and outside directors to ensure that institutions are adequately equipped to manage conduct risks.
Analyzing Complaints
In analyzing complaints received from the public, JFSA will pay particular attention to trends and patterns, using IT tools to link individual information and identify potential warning signs.
Conclusion
As the financial landscape continues to evolve at a rapid pace, it is essential for JFSA and financial institutions to stay ahead of the curve and proactively address emerging risks. By doing so, they can maintain trust and confidence in the financial system while minimizing the risk of future misconducts.