Asset 1
Good Conduct is Good for Business

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More and more, clients are making it clear that a culture of good conduct and risk control is an essential part of the value proposition offered by their banks.

Since the financial crisis of 2008, bank clients have become more aware of the level to which conduct and governance at the banks that provide them services can affect their own bottom lines, especially for businesses that tend to rely on long-term relationships, like in transaction and securities services.

“Increasingly, those clients are asking to meet control teams as part of their RFP’s [requests for proposals],” said Adam Tyrrell, senior vice president and head of compliance for EMEA at State Street, at the Chief Control Officer’s panel discussion.

“That’s twofold. First of all, they’re comparing each individual bank, not just from a price or service perspective, but from the broader control perspective. And also because some of these clients have seen what certain banks have done in the past, and so they want to build their ability to trust. In those sorts of services, there’s a significant amount of trust involved. They are potentially outsourcing some of their decisions or activities to the bank that’s given the RFP,” Tyrrell said.

That evolution is good for both sides of the business. “Your culture is an area where you can develop your competitive advantage,” said Ian Fisher, managing director and head of the culture and conduct programme at Société Générale at the “Conduct vs Control vs Culture” panel.

Nicholas Lovett, managing director, head of global markets controls and chief operating officer for EMEA at Credit Suisse, bolstered the point, saying that demonstrating your worthiness of that trust is fundamentally beneficial to commercial viability.

“We all hear from our clients, where they complain or suggest they’ve been less than satisfied with everything from pricing and execution right through to settlement and things further down-stream,” Lovett said. “Where we see things going wrong or where there are controls that have been missed or not effective, the impact on the markets and clients response to that is a clear commercial driver.

“Clients are one part of it, but if you think about a good controls environment as being linked to well-designed, effective and efficient process, stable and resilient technology and well informed, aware people, for me that underpins a well-run commercial and profitable business. And that’s the objective for all of us here,” he continued.

But more needs to be done to provide staff with a carrot, not just a stick, panellists said, saying that many institutions haven’t done enough to show how positive the benefits of good controls are.

“The market within which we operate has inherent risk associated with it,” said one senior bank official attending the Summit. “In the environment that we’re in, without ability to navigate those conduct risks, you’re going to be prohibited from activities in certain areas, or the downside risk of operating in them will be prohibited.

“By having a culture that can think through conduct, you can open up more commercial opportunities to your staff and therefore to your clients.”

Such a culture has to permeate throughout the entire organisation. Perhaps surprisingly, panellists and other attendees praised the Senior Manager’s Regime, often the target of criticism in the past for its draconian approach to forcing senior staff into taking full responsibility for the conduct in their businesses, as being a powerful force in facilitating firm-wide cultures of conduct.

“The SMR is probably the best piece of regulation I’ve seen,” said the senior bank official. “The individuals who are the SMRs take it personally they take it seriously. There are individuals in the first line of defence on the trading floor who have the respect of those around them, and it makes a difference.

Lovett agreed. “Its simplicity works. The senior managers at the top have to rely on that middle layer and they in turn have to put the right processes and frameworks in place to evidence that,” he said. “That then drives the awareness and culture and good decision making throughout the organisation.”


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1LoD provides intelligence for risk and control professionals across the three lines of defence in financial institutions globally. It delivers this information via conferences, training and digital media. For more information visit www.1lod.com