A practical approach to culture and conduct risk management

James Ross
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James Ross: Head of Regulatory Developments, EMEA and APAC, Columbia Threadneedle Investments, UK

Journal of Financial Compliance, 2019, vol. 3, issue 2, 118-137

Abstract: The regulation and supervision of individual conduct and group culture is under ongoing global regulatory scrutiny. There is, however, little guidance for institutions, consistency of approach across the globe and no global framework for managing culture and conduct risk, unlike the Basel accord on prudential regulation. A globally consistent approach is both desirable and achievable by updating the global approach to operational risk, with models of conduct risk which exists in aviation, construction and healthcare, the ‘just Culture’ model and behavioural science. Insights from behavioural science propose that the root causes of Culture and Conduct failure are as follows: (i) conformity to a bad leader, (ii) conformity to a bad group, (iii) sub-optimal group and individual thinking, (iv) bystander apathy and diffusion of responsibility, (v) operant conditioning, (vi) unaligned interests between principle and agent and (vii) too much or too little stress. This paper concludes with a proposed model of Culture and Conduct risk management.

Keywords: behavioural science; conduct; culture; just culture; risk (search for similar items in EconPapers)
JEL-codes: E5 G2 K2 (search for similar items in EconPapers)
Date: 2019
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