Conduct risk: a lesson from the banks | KPMG | UK
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Conduct risk: a lesson from the banks

Conduct risk: a lesson from the banks

Banks have focused on minimising conduct risk in the past decade, but the experience of other organisations shows they need to look at culture and customer experience too.


Chris Steele

Director Banking Risk and Regulation

KPMG in the UK


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Conduct risk

Conduct risk is a huge headache in the financial services sector. A wave of misconduct and mis-selling scandals has shaped attitudes towards steering clear of trouble. Often it is compliance rather than a culture of “doing the right thing” that drives a bank’s approach to conduct risk. 

Yet conduct risk is seldom the sole cause of problems. Poor culture within an organisation and a strategic failure to put the customer at the heart of the business have a comparable capacity to undermine.   

Conduct, culture and customer experience should be thought of as the three legs of a tripod. They are of equal importance, interdependent. Remove or weaken one and there is no longer a stable base for sustainable business. 

Many banks have developed strategies to improve conduct, culture and customer experience. But all too often, they address the three ‘C’s in isolation – overlooking the opportunity to combine them for competitive advantage. 

This is far less of an issue for the challenger banks, which typically don’t tend to be hampered by a silo mentality. Customer experience is regarded as paramount and clearly defined culture helps manage conduct risk. 

Hindrance, not help

By contrast, many established players are so focused on managing conduct risk that it proves a struggle to fix issues relating to culture or customer experience. For instance, tight controls on process may hinder frontline staff from delivering the level of service customers desire.

Taking a strategic, holistic approach to the three ‘C’s brings significant advantages. Streamlining governance helps banks prune back excessive, over-prescriptive compliance and in so doing increase operational efficiency by avoiding duplication of effort.

There are also major returns to be made from boosting business performance by placing greater emphasis on a customer-centric agenda. The Nunwood 2016 Banking Sector Briefing found that if any one of the Big Four banks broke into the top 100 UK companies for customer experience it could generate an additional £3.7 billion in revenue. 

Starter’s orders

Our expertise in rethinking strategy around risk means we are well placed to help organisations develop the right kind of tripod for their situation and needs. The starting point for this journey varies from firm to firm and depends on management style, whether any pressing concerns require immediate attention and agreed business objectives. 

Here are three potential options:

  • Culture as a lens for conduct and customer. Using sophisticated analytics tools to measure, interpret and understand culture, including employee sentiment and behaviour. And applying this insight to establishing a customer-focused culture that drives good conduct and enhances customer experience. 
  • Integrated software: the Cs merge. Beneficial for organisations with a clear vision of how the three ‘C’s interact. This is a technically complex approach that makes use of real-time information and predictive analytics. Once fully implemented, it helps decision-makers develop fully-informed strategies for driving enterprise-wide improvements.
  • Tactical interventions. The three ‘C’s model can be used to target worrying hotspots, such as problems within certain channels, customer journeys or specific employee groups. Tackling hotspots may also highlight broader issues across the organisation. Making improvements is easier if an independent taskforce is established that understands the links between the three ‘C’s. 

A weak or wonky tripod won’t suffice. Banks must keep conduct, culture and customer experience in balance to satisfy regulators; delight, retain and nurture customers; and keep challengers at bay.


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