Identifying and Measuring Conduct Risk

Paul Brady and Gabriella Barker

A key step in managing conduct risk and meeting regulatory expectations is understanding where conduct risk exposure lies in a business and what the extent of that exposure is. Without an adequate understanding of where conduct exposure lies it is impossible to appropriately manage and monitor the risk. This involves both identifying and measuring conduct risk, and it is these concepts that are explored in this chapter, beginning with an examination of why it is important to effectively identify and measure conduct risk.

The second section in this chapter discusses how a firm might go about identifying conduct risk. We shall look at the key elements involved in conduct risk identification, and stress the importance of looking at all the elements to ensure the specific nature of the conduct risk is understood and can therefore be addressed.

The third section focuses on measuring conduct risk exposure. We highlight the importance of measuring conduct risk to ensure an accurate picture of the conduct risk exposure of a firm is created. An inaccurate measure of conduct risk exposure can lead to inappropriate or disproportionate conduct risk management.

Conduct risk