Banks: Conduct costs, cultural issues and steps towards professionalism
Banks: Conduct costs, cultural issues and steps towards professionalism
Roger McCormick
A central flaw of pre-crises financial services was the mismanagement of legal and especially conduct risk. Financial services firms failed not only to manage the conduct risk to the bottom line but to appreciate its corollary with firm-culture, stakeholder "trust and confidence" and sustainability. This article explores this link through the prism of a firm's conduct costs, drawing on research published by the LSE Conduct Costs Project. A definition of conduct-costs and the LSE's research is explored and conclusions drawn. Evidenced by the research, the authors critically analyse the prudential significance of the "conduct costs story", presenting lessons for conduct and regulatory risk management. Finally, the article uniquely draws together conduct-costs with the central issue of culture and ethics in banking and looks to the future in terms of conduct cost reporting and disclosure, as well as the Banking Standards Review's endorsement of this metric in benchmarking the industry. In closing, the authors argue for better conduct costs control and the need for comparative analysis in the move toward the "professionalization" of banks.
Law and Financial Markets Review, Vol. 8, No. 2, Apr 2014: 134-144.