Making Conduct Risk [Good] Business As Usual
-
Upload
andrew-smart -
Category
Business
-
view
1.768 -
download
0
Transcript of Making Conduct Risk [Good] Business As Usual
Making Conduct Risk [Good] Business as Usualtaking a strategic approach to Conduct Risk Management
Scottish IOR Conference1st November, 2013
Page 2
Introduction
15 years plus in strategy and risk management
CEO & Founder of Manigent (consultancy)
CEO & Founder of StratexSystems (software)
2006/07 -12 month / 21 organisation research project into the integration of strategy and risk management
2008 - Created the Risk-Based Performance Management methodology during various strategy and risk related engagements in the city
Page 3
Agenda
The emerging regulatory landscape
Implementation of a Conduct Risk Management framework
Taking a strategic approach to Conduct Risk
The emerging regulatory landscape
Page 5
With the creation of the FCA, Conduct Risk becomes central to the regulatory agenda
3 Pillars Regulatory Approach
Outcomes
Firm Systematic Framework (FSF)
1. Consumers get financial services and products that meet their needs, from firms they can trust;
2. Markets and financial systems are sound, stable and resilient, with transparent pricing information; and
3. Firms compete effectively, with the interests of their customers and the integrity of the market at the heart of how they run their business.
FCA Objective
To make relevant markets work well so consumers get a fair deal.
Event-driven work Issues and products
CONDUCT RISK
Page 7
FCA has a range of new powers
Power to; ban products or restrict
sales stop misleading
financial advertising tell the public earlier
about enforcement action
Better tools to regulate markets
“The key difference between the future and now is we (the FCA) are being given the power to shoot first and ask questions later”
Martin Wheatley to the Association of British Insurers, September, 2012
Page 8
Business Model and Strategy Analysis
The FCA has new regulatory tools
Stage 1Are the interests of customers and
market integrity at the heart of how the firm is run?
Governance and Culture
Product Design
Sales Processes
Post-sales/services and transactions handling
Stage 2
Page 9
What does the FCA really want from firms?
“We will have a greater expectation of a strategic approach to the conduct agenda and senior management and board engagement in it.”
Clive Adamson, Director of Supervision, Conduct Business Unit, FSA, January 2012
“We accept the FSA has not been as effective a conduct regulator as it could have
been”
“Led in many cases to a tick-box and overly legalistic
compliance culture within firms, encouraged by what has
been seen as a tick-box regulatory approach”
Clive Adamson, Director of Supervision, FCA, 19/4/2013
“We accept that firms need to be able to generate acceptable returns for shareholders, and have to
be financially robust but this is about ‘good profits' rather than profit at any cost - either to
firms' own stability or their customers’ best interests.”
Martin Wheatley, FCA CEO
Page 10
What does the FCA really want from firms?
“We will have a greater expectation of a strategic approach to the conduct agenda and senior management and board engagement in it.”
Clive Adamson, Director of Supervision, Conduct Business Unit, FSA, January 2012
“We accept the FSA has not been as effective a conduct regulator as it could have
been”
“Led in many cases to a tick-box and overly legalistic
compliance culture within firms, encouraged by what has
been seen as a tick-box regulatory approach”
Clive Adamson, Director of Supervision, FCA, 19/4/2013
“We accept that firms need to be able to generate acceptable returns for shareholders, and have to
be financially robust but this is about ‘good profits' rather than profit at any cost - either to
firms' own stability or their customers’ best interests.”
Martin Wheatley, FCA CEO
Customers at the heart of your firm’s business model and strategy
A strategic approach with strong senior management and board engagement
Good profits
Stability and accountability
Page 11
How are you responding to the Conduct Risk agenda?
Embedding Conduct Risk Management into
the existing Management approach
Specific Conduct Risk Management Framework
Vs.
Which approach has your firm taken?
Page 12
How are you responding to the Conduct Risk agenda?
To truly put customers at the heart of your
business
To meet regulatory requirements Vs.
What is your firms motivation?
Page 13
What we have seen over the last few months
“We have created a Conduct Risk Management framework which adds 175 new indicators to our monthly MI” – Director of Operational Risk
“Conduct Risk is been handled by the compliance team – CEO”
“We don’t see a real need to change, Conduct Risk is just TCF 2.0” - CRO
Specific Conduct Risk Management Framework
To meet regulatory requirements
Page 14
We believe Conduct Risk represents a big opportunity for your firm and for the Risk Management profession
Drive strategic and operational change to drive improvements is customer satisfaction and profitability
Embed risk management as a core part of your firm’s strategic and operational execution culture
Drive improvement across management processes, information and decision-making
Raise your professional profile and that of your team
Embedding Conduct Risk Management into
the existing Management approach
To truly put customers at the heart of your
business
Implementation of a Conduct Risk Management framework
Page 16
Developing a Conduct Risk Management framework is an understandable response by firms
Page 17
However, we believe a specific Conduct Risk Management framework is an sub-optimal responseCreating a new, specific Conduct Risk Management framework can have a number of potential pitfalls:
Can create significant duplication and confusion
Can significantly increase the amount of data been collected and reporting…but reduce the amount of insight generated
Perpetuates the tick-box approach and culture
Misses the opportunity to: Drive real business change and improvement Put risk management (and customers) at the heart of strategic and
operational execution
Taking a strategic approach to Conduct Risk
Page 19
An integrated model for Strategy and Risk Management
Stra
tegi
cAl
ignm
ent
Ope
ratio
nal
Business Drivers Strategy Map Strategic Risk Map
Operational Risk Map
Appetite Alignment Matrix
Process Alignment Matrix
Initiative Alignment Matrix
Process Architecture Initiative Portfolio
Page 20
An integrated model for Strategy and Risk Management
Stra
tegi
cAl
ignm
ent
Ope
ratio
nal
Business Drivers Strategy Map Strategic Risk Map
Operational Risk Map
Appetite Alignment Matrix
Process Alignment Matrix
Initiative Alignment Matrix
Process Architecture Initiative Portfolio
What our Business Objectives?
What our Strategic Risks?
What our Operational Risks?
Are we operating within Appetite?
What are our key value drivers?
Are our initiatives aligned?
Are our BAU processes aligned?
What are our key BAU
processes?
What are our key change initiatives?
Page 21
Central to this integrated model for Strategy and Risk Management is the Strategy Map
Page 22
The Strategy Map is a leading tool to enhance the communications, execution and monitoring of strategy
Improve Shareholder Value
Productivity Strategy Revenue Growth Strategy
Improve Cost Structure
Increase Asset Utilization
Enhance Customer Value
Create Value from New Products & Services
Human, Information, and organisational Capital
Shareholder ValueROCE
Cost per Unit Asset Turnover Customer Profitability New Revenue Sources
Price
Product/Service Attributes
Strategic Competencies
Strategic Technologies
Climate for Action
Operations Theme
Customer Value Proposition
Quality
Low Total Cost
Customer Solutions
Product Leader
Customer Satisfaction Customer Acquisition Customer Retention
Time Function Service Relations Brand
Relationship Image
� Market and Account Share
Customer Management Theme
Innovation Theme Regulatory and Society Theme
To satisfy our shareholders and customers, what
business processes must we excel at?
To achieve our vision, how should we appear to our
customers?
To achieve our vision, how will we sustain our ability
to change and improve?
To succeed financially, how
should we appear to our
shareholders?
Page 23
The Strategy Map articulates how an organisation creates valueFi
nanc
ial
Cust
omer
Inte
rnal
Pr
oces
sLe
arni
ng &
G
row
th
Drive sales execution
Sustainable Growth
“We align our incentives to our
appetite & desired behaviours”
“Their fees are clear and fair”
Deliver Revenue Growth
Objective KPIs InitiativesTargets
Drive sales execution
YTD % Increase in income 25%
Implement new sales process
Objective Statement of what
strategy must achieve and what’s
critical to its success
KPIs How success in achieving the
strategy will be measured and
tracked
Targets The level of
performance or rate of
improvement needed
Initiatives Key action programs
required to achieve Priorities
Page 24
However, to create value, risk-taking must be aligned to strategy…Fi
nanc
ial
Cust
omer
Inte
rnal
Pr
oces
sLe
arni
ng &
G
row
th
Sustainable Growth Objective Appetite AlignmentExposure
Drive sales execution
Objective Statement of what
strategy must achieve and what’s
critical to its success
Appetite How much risk
are we willing to run to achieve the
objective?
ExposureHow much risk
are we currently running?
Alignment Is our current risk-taking aligned to
appetite?
Moderate High Over-exposedDrive sales execution
“We align our incentives to our
appetite & desired behaviours”
“Their fees are clear and fair”
Deliver Revenue Growth
Page 25
Effective risk management supports value creation and value protection...Fi
nanc
ial
Cust
omer
Inte
rnal
Pr
oces
sLe
arni
ng &
G
row
th
Sustainable Growth Objective Risks MitigationThresholds
Drive sales execution
Mis-selling resulting in reputation loss
Appetite Tolerances
Controls Initiatives Policy &
procedures Processes
Objective Statement of what
strategy must achieve and what’s
critical to its success
RisksThe threats and
opportunities (risks) exist which may
impact achievement of objectives
ThresholdsThe appetite and
tolerance thresholds used to monitor risk
Mitigation The activities undertaken to manage risk
Drive sales execution
“We align our incentives to our
appetite & desired behaviours”
“Their fees are clear and fair”
Deliver Revenue Growth
Page 26
The Strategy Map can be used to demonstrate the role customer outcomes play in the firm’s strategy
Fina
ncia
lCu
stom
erIn
tern
al
Proc
esse
sLe
arni
ng &
G
row
th
Drive Shareholder value
Deliver Revenue Growth Control Costs
“We received good value”
“Their fees are clear and fair”
“Their solutions continue to meet our
changing needs”
“We have quick, convenient access to
our financial info”
Drive sales execution
Ensure effective Complaints handling
Deliver outstanding customer service
@ POSContinuously seek to
understand client needs
“We align our incentives to our appetite & desired
behaviours”
“We sell the right products, to the right
people, the right time”
“We leverage our data to deliver positive customer
outcomes
Information Capital Cultural Capital Human Capital
Page 27
The Strategy Map can be used to demonstrate the role customer outcomes play in the firm’s strategy
Fina
ncia
lCu
stom
erIn
tern
al
Proc
esse
sLe
arni
ng &
G
row
th
Drive Shareholder value
Deliver Revenue Growth Control Costs
“We received good value”
“Their fees are clear and fair”
“Their solutions continue to meet our
changing needs”
“We have quick, convenient access to
our financial info”
Drive sales execution
Ensure effective Complaints handling
Deliver outstanding customer service
@ POSContinuously seek to
understand client needs
“We align our incentives to our appetite & desired
behaviours”
“We sell the right products, to the right
people, the right time”
“We leverage our data to deliver positive customer
outcomes
Information Capital Cultural Capital Human Capital
Having clear and achievable financial objectives is critical to ensure the firm is sustainable and will be around to provide on-going service
By convention, customer outcomes are expressed is phases you would like to hear your customers use to describe your firm and products/services
To deliver financial and customer outcomes, we must be clear about the key processes which will enable us to deliver those outcomes.
Underpinning the delivery of the key processes, financial and customer outcomes is the organisational culture.
Page 28
‘Slice’ the Business Strategy by Customer Perspective to get a ‘Conduct Risk’ view
Page 29
Customer related processes and initiatives are aligned to customer objectives via alignment matrix’s
Page 30
The Strategy Map can be used as a starting point in the definition of risks & controls related to customer outcomes
Fina
ncia
lCu
stom
erIn
tern
al
Proc
esse
sLe
arni
ng &
G
row
th
Deliver Revenue Growth
“Their fees are clear and fair”
Drive sales execution
“We leverage our data to deliver positive customer
outcomes
Information Capital
Page 31
Use the same approach at an operational level to wrap a risk & controls framework around customer related processes (and initiatives)
31
Processes
KPIs Actions Key Risks
KRIs Actions Assessment Key Controls
KCIs Actions Assessment
Events
Certification
Risk Appetite
From a Conduct Risk perspective, define, manage and monitor key customer
processes, such as New Product Development, Sales Execution,
Customer service, Complaints handling etc.
Page 32
Apply the RACI model at a Strategy and Operational level to clarify and embed accountabilities for Customer outcomes
“The buck stops here”
Those with Yes/No authority related to the objective, risk or
control.
“Keep in the loop”
Those involved prior to decisions or action related to the objective, risk or control.
“The doers”
Those people working on delivering the objective, managing the risk or applying the control.
“Keep in the picture”
Position(s) that need to know about decision or action related to the objective, risk or control.
PP
Page 33
Line of Sight Dashboards which require Accountable sign-off reinforce a culture of accountability
Page 34
Using existing management ‘tools’, Conduct Risk can be embedded within your existing management approach
Stra
tegi
cAl
ignm
ent
Ope
ratio
nal
Business Drivers Strategy Map Strategic Risk Map
Operational Risk Map
Appetite Alignment Matrix
Process Alignment Matrix
Initiative Alignment Matrix
Process Architecture Initiative Portfolio
What our Customer
Objectives?
What our Conduct Risks?
What our Conduct Risks?
Is our Conduct Risk Appetite aligned to
our Strategy?
What drives customer value?
Are our initiatives aligned to customer
outcomes?
Are our processes aligned to customer
outcomes?
What are our key BAU
processes?
What are our key change initiatives?
Page 35
Why take a strategic approach to Conduct Risk?
Our experience (with Financial Services and non-Financial Services firms) shows the benefits of taking a strategic approach: Significant improvements in Board and Senior
Management engagement Significant improvements in Management
Information and Insights – shaping the focus on the ‘vital few’
Improved regulatory engagement Activities to deliver your Conduct Risk
requirements have the additional pay-off of driving real business value
Enables the CRO/Risk Team to demonstrate real business value via enhanced risk management practices
Integrating Strategy & Risk Management an Introduction to Risk-Based Performance Management
Page 37
Risk-Based Performance Management (RBPM) is a holistic and integrated approach to strategy execution and risk management
Performance Management
Risk Management
Strategy Management
Appetite
What are we trying to achieve?
Are we on track?
What is our Risk Appetite?
Are we operating within appetite?
Governance & Communications
Culture
Page 38
The Risk-Based Performance Management (RBPM) methodology is based on seven management disciplines
Business Drivers
Shareholder Value
2. Manage Performance
3. Manage Risk
1. Set Strategy
5.Governance
6.Communications
7.Culture
Capital ?Income
Share Price ?Economic value add
4. Appetite Alignment
Reputation
Profit
Appetite Appetite
Page 46
The Risk-Based Performance Management (RBPM) roadmap can be used to guide the implementation of an effective response to the Conduct Risk agenda
Define Strategic
Goals
Define Strengths & Weaknesses
Define Business Drivers
Define the Strategy
Define Processes
Define Initiatives
Define Operational
Risks
Define Operational
Controls
Define Indicators
Assess Risks & Controls
Monitor Appetite
Alignment
Define Strategic
Risks
Define Strategic Controls
Define the Business Model
Define Risk Appetite
Align Risk Appetite &
Strategy
Define Strategic
Objectives
Board Executive
Formulation Execution
Page 47
Contact details
Andrew SmartCEOManigent & StratexSystems
Email: [email protected]: www.riskbasedperformance.comWeb: www.manigent.com |
www.stratexsystems.com LinkedIn: http://uk.linkedin.com/in/ajsmartTwitter:@AndrewJSmart