Since the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in 2019, conduct risk has become a buzz word. But what is conduct risk, and what are conduct risk examples?

To better understand conduct risk and how to tackle it, we have compiled a list of conduct risk examples and looked at what factors can help mitigate different types of conduct risk.

What is conduct risk?

Conduct risk is the threat of damage to an organisation because of the behaviour of its people. Behaviour can be illegal, unethical or inappropriate, and it might be either intentional or unintentional. Damage can be financial, reputational or both, and can take the form of both sanctions (such as fines from regulators) and public backlash towards either reputation or sales.

Conduct risk examples

A recent example of unintentional conduct risk was seen in the Victorian police force when it was revealed that due to legislative changes and administrative errors, new police officers had been sworn into the force by acting assistant commissioners who didn’t have the delegated authority to do so. The far-reaching effect of this inadvertent conduct was to jeopardise current and historical police cases that involved the unsworn officers.

Improper conduct has also been seen in recent years in highly regulated industries such as banking and superannuation. As we know, the 2007 global financial crisis was caused in some part by unethical behaviour. Other recent examples include:

• Inappropriate mortgage lending
• Sales incentive schemes that unintentionally encourage unethical behaviour
• Insider trading and sharing of commercially sensitive information or data
• Inappropriately accessing customer databases and personal details of customers
• Charging deceased customers for services they couldn’t access
• Providing duplicate insurance policies that caused customers to pay for multiple policies unnecessarily
• Inappropriate financial advice and recommending products not fit for purpose

Why does conduct risk occur?

Culture is key in mitigating (or encouraging) conduct risk. Research conducted by Thomson Reuters in 2018 identified three key factors of conduct risk:

• culture, ethics, integrity (54%)
• corporate governance, tone from the top (44%)
• conflicts of interest (41%).

A culture of integrity, supported by company values, accountability, a clear conduct risk policy, training and leadership can work together to minimise conduct risk. Thompson Reuters identified that the greatest challenge to boards would be to establish and embed a conduct risk management framework in their organisation, and that 23% of firms interviewed had deployed or intended to deploy a regtech or fintech solution to help them manage workplace culture and conduct risk.

Stop the problem before it happens

Conduct risk breaches has seen billions of dollars paid out due to fines and the cost of remediation in recent years. The best plan of attack to avoid this danger is to create the right culture of trust and people development. This can reduce occurrences as well as develop a system that increases visibility when it does happen.

Energy Australia partnered with YakTrak to embed a leadership framework, conversation framework and conduct risk system across its frontline teams. One of the many benefits of this program was to improve visibility of conduct across the organisation as well as track and measure the subsequent coaching and remediation when a risk was identified. The consistent tracking and visibility of leadership and frontline behaviour contributed in part to EnergyAustralia being recognised as Australia’s number one sales contact centre  in 2020.

“YakTrak has allowed us… to see trends before they become problems.”

– Sean Francis, EnergyAustralia

YakTrak can provide improved visibility of conduct across your organisation and keep track of the development and coaching that your people are receiving. People don’t know what they don’t know, and inadvertent conduct risk can result from absent or unclear processes, rushed induction programs and limited oversight.

Use YakTrak to:

• Improve your conduct risk management
• Gain visibility into what your teams are (or aren’t) doing
• Obtain superior insights over the conversations your frontline is having with customers
• Identify the key areas that require immediate coaching and development
• Accurately track behavioural outputs and remediation activities
• Close capability gaps and improve performance
• Create workflows that mitigate risk and remediate breaches with coaching
• Develop a consistent rhythm for coaching to improve capability and performance

Contact YakTrak today to chat with Brad and learn more about how YakTrak can help your organisation manage conduct risk.