Conclusion
In my previous article, I wrote about the conditions, policies and business practices that may contribute to the rise of bad behavior within organizations. Deloitte’s Center for Regulatory Strategy identified these drivers of misconduct based on the findings of various conduct-related enforcement actions, regulatory reviews and firm remediation programs in the financial services sector. But as I mentioned in the first article in this series, organizations from other industries can pick up insights from these findings that will help them fortify their operations against poor conduct.
Now, let’s look at some of the ways organizations and regulators can restore trust and regain reputational capital in relation to the eight drivers of misconduct I’ve identified.
Ensure that customer needs and suitability steer product lifecycle decisions
In the financial services sector, some firms are developing new training modules on needs and suitability so that their employees are better able to offer products based on what the client actually wants and even on the client’s level of financial sophistication. Other firms are working on improving their post-sale customer surveys/analytics, and complaints and escalation procedures, and tightening their rules on how to treat customers to ensure that consumers are protected and that employees always act in the customer’s best interest.
Build ‘balanced scorecards’ for human resource decisions
During the hiring process, consider an individual’s ethical, compliance and regulatory
history in addition to the other factors that play into a candidate’s suitability. Some firms are building structures to encourage positive conduct, such as linking performance objectives to ethical codes and incorporating nonfinancial objectives—e.g., customer satisfaction—
into performance assessments. On the regulatory side, the Monetary Authority of Singapore is adding an ethics and skills component to the professional examination for financial
advisors to underscore the importance of understanding ethical principles even in the absence of explicit rules.
Ensure that individuals and leadership are responsible and accountable for conduct
Make sure that the individual business units in your organization—your first line of defense—own the risks in their respective business lines and are capable of assessing and managing those risks before they can affect the rest of the organization. Creating a robust incident management program and a strong antiretaliation policy, or in other words, a “speak up” culture, will empower employees to report concerns about unethical conduct and will demonstrate your commitment to the highest ethical standards.
Be proactive in identifying and managing conflicts of interest
In 2018 a revised version of the Markets in Financial Instruments Directive (MiFID II) —the European Union legislation that regulates firms providing services linked to financial instruments—will be released with this additional requirement: that “all appropriate steps be taken to identify and to prevent or manage conflicts of interest”. The MiFID II was crafted specifically to strengthen investor protection. For firms, leaders may want to consider conducting an enterprise-wide review of where conflicts may occur and designing controls to manage those conflicts, such as physically segregating teams or ensuring supervisory oversight of conflicts.
Create a cohesive organization with a conduct-aligned business model
The isolation or remoteness of business units or branches must no longer be accepted as an excuse for instances of misconduct. When developing a governance, conduct and risk management framework, business leaders should ensure that this is applied throughout the entire organization and that there are direct lines to the executive.
In Japan the Financial Services Agency (FSA), the government body that regulates banks, has adopted a more holistic approach to its mandate: Instead of addressing individual instances of misconduct, it now looks at the total picture of the organization in an effort to find—and address—underlying root causes of the unethical behavior.
Automate and streamline processes and procedures
In an effort to address the tediousness of compliance processes, some firms are simplifying, rationalizing and optimizing them to come up with fewer, but better, rules. Other firms are using technology to automate manual routine tasks and ease the burden on employees.
Strengthen and modernize monitoring and surveillance capabilities
This is another area where technology is playing an increasingly important role: Some firms are using sophisticated technology and analytics to create systems that can predict and prevent misconduct. In many key jurisdictions, regulatory bodies have ramped up the requirement for firms to record, monitor and report transactions.
Define and embed a clear unified culture
Perhaps the most important action leaders can take in the effort to curb misconduct is to improve the firm’s culture. Management should be consistent in upholding the highest ethical standards and should craft a purpose statement that includes support for customers and the broader society. Ultimately, the most robust and well-meaning structures, policies and processes will fail if, at its core, an organization is not driven to do what is right.