Compliance
Personal Liability Fears Deter Financial Firms' Bosses From Pursuing Profitable Business - Study

Fear of being held personally liable for regulatory and other failings is discouraging executives at financial firms such as banks from going after profitable business.
Bosses of financial organisations are worried that they are
personally liable for business decisions they take, with a
significant number declining profitable ideas to protect
themselves, according to a survey by Thomson Reuters.
The news and information service, in its recent Conduct Risk
survey, said there is a direct link between an organisation's
culture and conduct risk.
About a third of executives said they have turned down a
potentially profitable business opportunity because of fears of
becoming personally liable for compliance failings.
“The frank concerns and views shared by participants reinforce
challenges their peers face in all financial services sectors.
Neither culture nor conduct risk are new concepts but this year’s
survey emphasises how both remain at the top of firms’ and
regulator priorities, directly impacting strategy as they face
greater prospects of personal liability," Stacey English, head of
Regulatory Intelligence, Thomson Reuters and co-author of the
study, said.
For this year’s survey, which concluded in the fourth-quarter of
2016, Thomson Reuters Regulatory Intelligence surveyed compliance
practitioners at over 750 financial services firms including
banks, brokers, asset managers and insurers and including most of
the largest G-SIFIs, in Africa, the Americas, Asia, Australia,
Europe and the Middle East.
Around the world, regulators have sought to impose more duties -
and potential penalities - on executives at banks and other
bodies in a bid to prevent the kind of excessive risk-taking and
lax practices associated with the 2008 financial markets crash.
In the UK in 2016, for example, the Senior Managers &
Certification Regime went live. This regime is designed, its
framers say, to improve how financial organisations are run, make
senior managers take more direct responsibility for what their
firms do - with potential penalties. The system is enforced by
the UK’s Financial Conduct Authority and the Prudential
Regulation Authority of the Bank of England. The US Dodd-Frank
legislation's whistleblower provisons are also designed in part
to hold managers to tighter account, although there remains
debate on how effective that legislation will be in practice.
The study, Thomson Reuters Culture and Conduct Risk 2017
survey report, suggests that increased actions by regulators
worldwide are beginning to change behaviors of decision makers at
banks, brokerage and asset management firms, and insurance
companies. The 2017 survey was expanded specifically to cover
culture, as well as conduct risk, to reflect evolving regulatory
expectations.
Some 29 per rcent of firms have declined potentially profitable
business opportunities due to culture and/or conduct risk
concerns, compared with 37 per cent of respondents at global
systemically important financial institutions (G-SIFIs). A clear
majority, 77 per cent, said they took conduct risk factors into
consideration when determining business strategy.
Most executives (87 per cent) at G-SIFIs agreed that continued
focus on culture and conduct risk will increase personal
liability, compared with 73 per cent at other firms. The
disparity is potentially the result of a lack of consistent
definition for culture and conduct risk.
Respondents ranked culture, ethics and integrity (59 per cent) as
their top three concerns of conduct risk, followed by corporate
governance and tone from the top (52 per cent), and conflicts of
interest (49 per cent).