3 Ways to Mitigate ‘Conduct Risk’
Photo Credit: swisscan via Compfight cc


The new category of ‘conduct risk’, introduced by the Financial Conduct Authority to describe any actions taken by regulated firms that might undermine its ability to protect consumers, brings with it

new challenges for those who could be affected by its enforcement.


While the rules are designed to better protect consumers, they also carry significant reputational risks for regulated firms, as the FCA has indicated its intention to ‘name and shame’ those against whom action is taken, even relatively early in proceedings before a defence has been mounted.


In an article for Credit Today, Experian’s managing director of UK consumer information services Jonathan Westley outlined three problem areas within which regulated firms could proactively protect themselves against any such enforcement action.


Firstly, moving beyond a basic fraud check and towards a fully in-depth ‘Know Your Customer’ (KYC) procedure can help lenders to ensure their customers are suited to their products, avoiding any accusations of mis-selling.


Similarly, the lender’s product portfolio must be regularly assessed, to determine whether it is still meeting the needs of customers in light of changing circumstances.


Finally, any firms operating online must take extra care to ensure they apply the correct rules to each customer, even if those customers are never seen face to face.


Credit Today reports: “Taking the approach used for credit rating and identity verification, lenders could take an automated, score-based view of customers’ suitability for products.


“Suitability would be measured by affordability, attitude to risk, financial sophistication and a more detailed understanding of circumstances in the same terms as KYC.”

Leave a Reply

Your email address will not be published. Required fields are marked *