Conduct By Numbers

A case for analytics in managing conduct risk.

Risk Assessment

Shareable snippets

Terry, a top performing wealth manager meets new clients (a couple) recommended by a longtime client and friend. The markets have been climbing steadily over the past six months, and the new clients want a piece of the action. During the initial consultation, the clients share their dreams of imminent retirement in one year and their desire to put their money to work in a safe investment. Terry receives top commission for selling structured products, and having exceeded his sales quota for the quarter, is rewarded an additional bonus for revenue booked. Without hesitation Terry launches into a pitch for the strengths of a particularly complex and risky investment product, one which will reward Terry handsomely.  The couple leave Terry’s office chuffed with their investment. Terry makes a solid, immediate commission. Six months later the markets tank and the investment suffers a whopping loss. The couple is now forced to work two more years to fund their retirement.

Regulators are increasing their crackdown on such misconduct. Unlike market and credit risk, conduct risk (closely related to operational risk) is far less formulaic in definition and mitigation. Consequences from poor conduct can be catastrophic to the firm, its clients or the integrity of the market. The rigging of FX and other rates have cost firms across the globe about $20 billion in fines alone.

So how do firms ensure sound conduct?  All respected firms will have a “code of conduct”. This is often lost in the front line.  Relying on infrequent audits, lines of business are at risk of complacency and poor conduct as they face ongoing pressures to deliver revenue targets at any cost in often volatile environments with high staff turnover.

Let’s consider the value of data and analytics when managing conduct risk. Here, a thorough review of each business and product is undertaken. In Keeping with Basel Committee on Banking Supervision (BCBS292), three lines of defense are recommended when fighting operational and conduct risk. Here, the line of business will receive immediate alerts and frequent KPI’s according to their own business. They will be supported by risk management functions, who will have visibility of a wider group of business units.  Independent audit can then periodically check the effectiveness of the analytics, escalation and treatment of incidents as well as introduce new risks into the analytics.

Let’s examine the benefits of conduct analytics more closely

Conduct Analysis 


Being able to pivot the analytics to focus quickly on a particular product, advisor, line of business or location is a powerful ally in managing conduct.  Qlik’s associative model means that all your lines of defense can examine a hotspot in your business simply by searching for them and selecting them for further analysis. Importantly, analytics can also evolve as new threats are detected in the industry. By reviewing high profile instances of misconduct here are some common traits.

  • Large booking date profit
  • Large revenue during end of quarter
  • Frequent cancel / amended transactions
  • Low client investment holding period
  • Role change within the organization
  • Use of dormant portfolios
  • Working frequent odd hours
  • Overdue client reviews, or bulk renewals of client goals
  • Mismatch of risk tolerance and product risk/complexity profile (known as client suitability)

Prudent risk management involves listening to the incidents of misconduct globally, and building in new checks and data points to immunize your organization to these new threats. This approach benefits all groups in your firm as the new rules are employed universally.

Annual Review 


Analytics automatically load key data from across your business. This allows any emerging issues to be detected and dealt with before they become widespread and damaging to your business or clients.


By rolling out a consistent set of metrics, alerts and escalation processes, analytics can be used to break these inconsistencies in your business caused by culture or inadequacy of control staff in remote offices.


Automated analytics does away with the expensive and risky process of manual reporting. Also, by removing the human element from your conduct risk's analytics, you remove any risk of data being omitted, tampered with or otherwise left unreported due to fraud.


Role-based permissions to your analytics means that you need only build a single conduct app in conjunction with roles which govern access.  


Regulators are honing in on the conduct of bankers leveling hefty fines to firms and increasingly holding individuals accountable. These expectations are welcome at a time when FinTech affords clients new choice. While conduct does bleed into corporate culture and incentives, analytics plays a vital role in surfacing expectations and performance to staff across the business. Analytics allows your code of conduct, or tone at the top, to be consistent with your day-to-day conduct: better serving your clients and building trust.

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