Embedding an effective conduct-focused culture in wholesale market firms

In this article, we summarise key expectations arising from the CBI’s thematic assessment of the embeddedness and effectiveness of conduct-focused culture at a cross-sector cohort of wholesale market firms.

While the latest assessment targeted MiFID firms, the CBI has expressed the expectation that all regulated entities should consider the findings.

This assessment followed CBI industry communications in 2019 and 2020, concerning the management of market conduct risk and securities market conduct risk respectively, as well as the 2021 publication of findings from the CBI’s review for compliance with Market Abuse Regulation (MAR). The CBI published its third annual Securities Markets Risk Outlook Report in March 2023, detailing key conduct risks to securities markets.

Key Themes and related Takeaways

1.     Leadership and decision-making

To promote a firm’s desired culture, values and behaviours, leaders and management should lead by example, continuing to ensure a strong ‘tone from the top’.

Independent Non-Executive Directors should objectively challenge proposals, and the Board should adequately evidence the assessment of conduct risk, beyond “noting” conduct-related matters in meeting minutes.

2.     Governance structures

Boards and Senior Management should demonstrate active ownership of conduct risk governance, including ensuring the effectiveness of frameworks for the identification and management of conduct risk.

3.     Identification, assessment and monitoring

Boards should proactively ensure that conduct-related MI and reporting is appropriately granular, to enable an informed view on the embeddedness of desired culture (in Groups, the specifics of the local legal entity should be adequately assessed).

4.     Responsibilities and expected behaviours

Firms should consider delivering tailored communications to staff, setting out expectations with regards to the management of conduct risk; and  disseminating “lessons learned” from the firm’s errors management process, where applicable.

Delivery of relevant training can “cascade cultural values and expected conduct”, however firms should give due consideration to the frequency and timing of such training.

Senior Management responsibilities in relation to conduct risk management should be clearly articulated and understood.

The introduction of a Board-approved culture strategy is recommended. This should be supported by an implementation plan and monitoring of related initiatives and outcomes.

5.     Speak-up culture

Firms should foster an inclusive "speak-up" culture and Group protected disclosure policies should contain adequate information on channels available for making protected disclosures and provisions specific to the local legal entity.

6.     Hybrid working

Specific to their business models, firms should formally identify, assess and monitor the conduct risk considerations that arise in the context of hybrid working. Policies and procedures should formalise the management of conduct risk specifically arising from hybrid working arrangements.  

Recommended next steps:

As a starting point, firms should consider sharing the outcome of the CBI’s thematic assessment with the Board, supplemented by a self-assessment against the expectations raised.

Our Services and Contacts

As part of its conduct risk offering, Grant Thornton regularly advises firms on the design and implementation of conduct risk frameworks and related governance arrangements. Our multi-disciplinary team has deep expertise and is comprised of cross-jurisdictional retail and wholesale conduct and risk professionals (including individuals with significant wholesale market industry experience, and some formerly holding senior supervisory roles at the CBI and the Prudential Regulatory Authority).

We are positioned well to assist your firm with conduct risk and culture-related matters, including assessing your firm against the CBI’s expectations and recommendations.

Examples of how we can practically support you include:

Governance and Risk Management Framework support

• Board effectiveness assessment
• Wholesale Market Risk Framework design, development, training and implementation
• Wholesale Market Conduct risk inspection/thematic review preparation
• MI framework development, and dashboard design  (including assisting in the development and calibration of early warning indicators and risk appetite limits)
• Risk Mitigation Plan (RMP) - remediation support 

Culture 

• Organisational culture and behavioural assessment
• Organisational culture framework design
• Risk culture awareness (including in-depth interviews, board reviews and tailored training)
• Identification of cultural and behavioural drivers
• Culture reviews as part of an internal audit plan

IAF

• Advice and support on IAF readiness, including implementation assurance