The human factor: Is conduct risk on your radar?
A speech by Greg Medcraft, Chairman, Australian Securities and Investments Commission at the Institute of Internal Auditors Australia International Conference (Sydney, Australia), 25 July 2017
Thank you very much for having me at your conference today.
It is probably a common misconception that regulators hate risk. Not so – risk is a part of all business activity.
Investors put money into markets where this capital is employed productively at some risk – from which the investor hopes to achieve a return. This is critical to allow markets to fund the economy. But conduct risk – when it crystallises in misconduct – can have a significant impact on the trust and confidence of investors and consumers.
Misconduct happens when someone in the firm at some point decided to do the wrong thing for their customers, often because they were incentivised to do the wrong thing and put personal or shareholder interests ahead of those of customers. Or sometimes it can be that systems and processes failed, or were not designed correctly.
This is a type of risk that investors or customers did not agree to take on. It can also – as I will explain – have a significant impact on the businesses in which misconduct occurs.
So today I'd like to speak to you about what ‘conduct risk’ means, why ASIC cares about conduct risk, and the relationship of conduct risk to culture. Then I’d like to talk about what ASIC is working on regarding conduct risk.