Following
serious and widespread episodes of misconduct in the financial services industry,
regulators, international standard-setting bodies and financial institutions worldwide
have been discussing opportune approaches to deal with conduct risk. Identifying,
analysing and tackling this risk have become the keywords to make financial
firms take proactive steps against a common problem. Significantly, the way misconduct
risk is understood will determine the ways for dealing with it properly. Given
the incentives and guidelines that regulators and policymakers have so far provided
within the conduct risk debate, it is natural to review their appreciation of such
a risk. In practice, this paper addresses the question of whether their
interpretation constitutes a solid, clear and consistent basis for financial
firms’ understanding and management strategies.