Global Conduct Regulation

What are the ways that conduct is regulated?

Conduct regulators don’t just look at legal certainty, as in the legally defensible value in a contract you’ve sold.  Conduct is interested in your vulnerability to changes in public opinion, for example, after the scandals in Australia and the Baltic States. Conduct approach is when regulators apply behavioural science to customer protection. It is not simply making decisions after negligent conduct has happened but rather it is used to prevent any future conduct violations.

How has conduct regulation become widespread?

Conduct regulation has grown at a furious speed globally since its UK launch in 2013 and there are other countries who have their own versions that predate this formal launch. Why is the Conduct regime taking over the world’s financial markets?  Well, to sum up ten years’ research in less than 20 words:  It’s popular with the voters, treasury ministers, and faster-acting than old-style econometric regulation.

Why does conduct regulation “work”?

1. Popular with Voters - It makes governments look good if they can put badly behaving senior financial managers under the spotlight. After the 2008 Financial Meltdown, banks and financial institutions have been seen in a negative light. By ensuring that they will be regulated, voters sense more trust with the government
2. Popular with Treasury Ministers - Windfall revenues from enormous conduct fines look good on the nation’s balance sheet. And faster-acting than old-style regulation because, under a Conduct regime, essentially a regulator can say straight to a senior manager in person, “see you in court”, on suspicion of misconduct, without having to build a complex technical product-based case against the firm as a whole

Who are some of the Financial Institutions that focus on conduct regulation?

1. The Central Bank of the Netherlands – De Nederlandsche Bank - The Netherlands has a strong history, over more than 30 years, of applying behavioural science to designing all kinds of law-making, not just financial regulation.  The Dutch pioneered the use of the behavioural lens. DNB’s work has a huge and continuing influence on other central banks and regulatory agencies
2. The New York Federal Reserve - The New York Fed is extremely important when looking at conduct regulation. Just recently, the New York Fed held its second annual conference on Reforming Culture and Behaviour in Financial Services. In this conference, they reference various points regarding how conduct should be regulated and the importance of holding financial institutions in check
3. Financial Conduct Authority - In the UK, the FCA lays claim to being the world’s first regulator specifically tasked with policing conduct in financial services, but as we’re beginning to see, there are other regulators around the world who had a head start on them.  The FCA has embraced behavioural science very keenly and has published a series of papers which show how they want to use it to challenge biases, protect consumers, and make sure that everyone takes personal responsibility for ethical consequences when selling financial services