5 Conduct Questions feedback

The 5 Conduct Questions are part of our strategy for supervising wholesale banks.

The 5 Conduct Questions are:

  1. What proactive steps do you take as a firm to identify the conduct risks inherent within your business?
  2. How do you encourage the individuals who work in front, middle, back office, control and support functions to feel and be responsible for managing the conduct of their business?
  3. What support (broadly defined) does the firm put in place to enable those who work for it to improve the conduct of their business or function?
  4. How does the Board and ExCo (or appropriate senior management) gain oversight of the conduct of business within their organisation and, equally importantly, how does the Board or ExCo consider the conduct implications of the strategic decisions that they make?
  5. Has the firm assessed whether there are any other activities that it undertakes that could undermine strategies put in place to improve conduct?

 

Find out more about the 5 Conduct Questions:

1. Conduct risk programmes

2. Question 1: Conduct risk identification

3. Questions 2 to 5: observations

 

In 2016 we introduced Annual Conduct Meetings (ACMs) for the largest firms to help us understand:

  • how they have considered the 5 Conduct Questions
  • what measures they’re taking to improve conduct in their firms

The focus for the first round of meetings was on Question 1 (identifying conduct risks), but we also wanted to understand how firms are approaching the other 4 questions. This work connects to the broader FCA priority on culture and governance set out in our 2016/2017 Business Plan.

Recognising that no particular approach is ‘right’, this update provides a summary of what firms have told us about conduct risk and highlights some of the actions firms have taken that they believe have been effective.

Small wholesale firms

While our ACM programme focuses on larger firms, the feedback is also relevant for smaller wholesale banking firms.

We encourage all wholesale banking firms to read the feedback and consider if any of the approaches may be effective in their own organisations.

Summary

Across the industry:

  • significant progress has been made in identifying and managing conduct risk
  • firms believe that maintaining a reputation for the highest standards of conduct benefits their business
  • some initially UK-centric conduct and culture programmes are now being applied internationally
  • frontline business areas are taking greater ownership for conduct risk
  • firms should be aware that conduct risk may arise across the whole organisation and not just in the frontline business areas

Progress is encouraging, however it is too early to determine how effective these conduct risk programmes are, or will be, in the longer term.

We encourage firms and senior management to continue to focus on their programmes and embedding them throughout their organisations.

Next steps for the FCA

We will continue to hold ACMs with the large firms and will next focus on Question 2, ‘How do you encourage the individuals who work in front, middle, back office, control and support functions to feel and be responsible for managing the conduct of their business?’ This question is particularly relevant given the SM&CR and the future extension of the regime to all FSMA-authorised firms.

As well as focusing on the other questions, we will also consider the impact technology can have on conduct risk. While technology can provide firms with sophisticated monitoring and detection mechanisms, technological advances can also pose new and different conduct risks for firms to manage.

Find out more about conduct risk programmes.