For investment banks, inappropriate conduct can erode confidence, compromise integrity and have major repercussions on reputation and performance. You needn’t look further than the recent spate of high-profile scandals, felt initially in Europe and now in other geographies, for proof. In fact, oversight and control has been a major theme of financial markets since 2008’s market collapse, as regulators have sought to increase transparency and investor confidence. Yet, even with this increased focus on conduct risk, it continues to remain an acute operational challenge for investment banks, so much so that it’s one of 10 we’ve identified in the top challenges for investment banks in 2014.

The rise of conduct risk

Many firms struggle to mitigate conduct risk because of inconsistency in control processes, control testing or management reporting, which are often reinforced by unclear roles and responsibilities.

Clearly, the drivers of conduct risk are significant, but taking a “wait and see” approach in this heavily scrutinized environment is not an option for investment banks. The consequences of not establishing an effective mitigation approach are severe, including penalties from regulators. Banks must rise to the challenge now to avoid further damage to their reputation and financial results.

Surveillance, both pre- and post-trade, is a powerful way of combating this damaging behavior and is the topic of next week’s post. Join me then when I take a closer look at the five components of trade surveillance.

Until then, to learn more, visit:

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