The Changing Nature of Conduct Risk

Evolving Financial Services Landscape

The financial services landscape has been evolving significantly with the emergence of new FinTechs, the digital transformation and the changing expectations of customers in terms of the personalised experience and continuous improvement of offerings provided by Banks.

While this dynamic landscape marks a significant shift in reshaping the Financial services industry, it also brings forth heightened risks including but not limited to mis-selling, misleading of customers, inadequate disclosures, and products misaligned with customer needs.

To mitigate these risks stemming from the evolving landscape, the Central Bank of the UAE (CBUAE) has taken proactive measures by issuing regulations on consumer protection with a keen focus on conduct risk. This strategic approach aims to promote transparency, integrity, and customer-centricity within the financial sector, ensuring a more resilient and trustworthy ecosystem for all stakeholders and safeguarding of customer interests.

Aligning regulator, customer and key stakeholder expectations to broader customer centric strategies is key to an effective conduct risk management, enhancing the customer experience and market differentiation. By managing conduct risk strategically, Banks would be able to deliver a compelling customer outcome and protect the integrity of the markets.

What is the expectation?

Conduct risk management focuses on providing appropriate products, to the right customer, through the right approach.

To this end, Banks should develop a tailored conduct risk framework to address the specific risks that their business is exposed to.

The key elements of the conduct risk framework would include the following:

Strategy: where a clear relationship between conduct risk and business strategy are established;
Risk appetite: where the overall risk appetite for conduct risk is defined;
Governance and oversight: where the proper layers of governance arrangements in terms of management and committees are defined and effective oversight is achieved in terms of how issues are being handled and by whom;
Culture: with the key indicator of Culture being the tone from the top;
Policies and procedures: with effective and adequate controls put in place;
Risk Assessment: covering risk identification, gap analysis, development of implementation roadmap, controls implementation and ongoing monitoring; and
Conduct Risk Monitoring and reporting: through utilisation of a Management Information reporting framework with the objective of identifying holistic trends, driving open and honest communication, focusing on results, providing regular, accurate and appropriate reporting and taking timely and effective corrective actions.

While the transformation to achieving a holistic conduct risk management is a significant undertaking requiring changes to the Bank’s culture, governance, risk assessments, controls, systems and monitoring, the rewards are substantial. Such a holistic approach offers numerous benefits, including:

Enhanced insight into alignment with customer needs;
A tailored customer experience fostering strong customer relationships;

Increased customer retention and profitability per customer;
Streamlined processes and products; and
Reduced risk of conduct failures.

How PwC can help

We have extensive experience and the right skillset to help you achieve your Conduct risk management objectives.

End-to-end conduct risk framework and control reviews:
- Review existing processes and controls to highlight areas of enhancement.
- Support in updating and developing policies and procedures.

Developing conduct risk framework:
- Design and implement conduct risk frameworks across governance, processes, systems, people and reporting.

Conducting risk assessments:
- Perform conduct risk assessments across the three pillars of customers, products and activities.

Management Information Solution Implementation:
- Develop relevant reports and early warning indicators for monitoring of conduct risks.
- Optimise Conduct Risk MI governance and reporting dashboards.

We can effectively support you in identifying deficiencies in your Conduct Risk management framework through deployment of our Conduct Risk management assessment tools.