FMSB Publishes Conduct Management Review

The Financial Markets Standards Board (FMSB) has published a Spotlight Review on Conduct and Culture Management Information (MI). The paper provides insight, on an aggregated and anonymised basis, on how 24 major global financial firms source and deploy their MI.

Oliver Wyman’s Olivia Richards chaired the working group that published the report, the group is made up of participants from across the wholesale markets. It is designed for their use and will equally aid board members and executives as well as risk and compliance teams in the financial industry, FMSB says.

The report observes that most firms have established MI around known areas of misconduct and sources of risk. Root causes were then addressed including both operational and behavioural weaknesses, and organisation-wide risk management frameworks were expanded and supported by extensive new oversight committee structures as well as dedicated conduct reporting.

The report says the early, accelerated pace of development of conduct risks metrics has shifted to more broadly include culture and behaviour. It adds that dashboard metrics most popular with management are those dealing with controls, breaches and sanctions. Some firms are content to maintain hundreds of metrics prepared to suit individual audiences. External information like complaints or some social media feeds are now included along with limited amounts of newly created data to address organisationally-specific issues, FMSB says, adding taxonomies are well-developed and analysis is progressing to include more advanced, potentially predictive measures. “However, reporting remains comprised of a patchwork of regional and function-specific initiatives rather than a singular, more cohesive approach for the firm as a whole,” the report states.

The review provides three stages of development for reference and reflects on progress on various aspects of oversight such as: outcomes-focused rather than just rule adherence, targeting specific behaviours for change; sophistication of analytics and implementation of change; and interpersonal development programmes. “Most firms are spread across Stages 1 and 2 with a few firms now exploring Stage 3,” the report states. “Organisations are beginning to explore how best to support staff at large to demonstrate good behaviour as the norm. This is recognised as an emerging area of potential competitive advantage.

The report observes that the word ‘behaviour’ can often substitute for ‘culture’. This serves more readily to focus attention on specific behaviours, topics and goals than the general concept of culture.

“Having established the boundaries of current practice, firms can now more confidently self- assess their relative progress and prioritise next steps in what will be a continuous, long-term effort to foster and maintain a healthy culture,” the report states. “Conduct and culture is not an exact science and metrics can most usefully be thought of as sources of insight into behaviour rather than measurement like a thermometer.”

For the founding research, some 24 firms provided a submission covering the following topics with many also providing redacted dashboard reports:

• Overall strategic drivers
• Management Information (MI) governance detail
• Data sources and collection
• Approaches to modelling data
• Conduct and culture reporting and decision-making
• Integration with broader conduct risk processes, and
• Overall assessment and future priorities

“My thanks go to the industry players who came together as FMSB members to create this Spotlight Review,” says FMSB CEO Myles McGuinness. “The excellent analysis was carried out with support from Oliver Wyman’s team. We are grateful to all firms who submitted their responses to enrich our collective knowledge.”

Richards adds, “Firms are looking to tie product-driven P&L metrics to conduct metrics to derive better insights. It is good to see that they are also looking to improve measures of culture and make a meaningful move toward ‘carrots’, understanding that there needs to be a more balanced approach which aims to understand and support the positive sides of behaviour.”

Finally, Standard Chartered’s Tracey McDermott, who is chair of FMSB’s conduct and ethics committee, says, “We have made substantial progress from where we all started on conduct and culture some years ago. This work provides insight from FMSB market practitioners on our collective progress; highlights ongoing challenges and the opportunities we now have to drive this agenda forward to ensure we bring about enduring changes in culture and behaviour.”

The full review can be read here.