Financial Risk Management

CHAPTER 19Hot Questions Still Pending

The conduct risk index developed in this book results from a major study with an investment bank that is attempting a process of this kind. The methodology is grounded on the author's consulting experience, working with strong global players in the banking industry. The conduct risk index has been well received by most risk‐takers (mainly, traders and sales) within the banking institution. Specifically, the conduct risk index approach helped them to clarify what was expected of them and identify the key organizational weaknesses that needed to be fixed. It should be said, however, that some hot questions are still pending or only partially solved. In what follows, we list some of them and suggest the beginnings of an answer.¹

• Who is going to carry out the conduct reports/scores? Who is rating whom, how and with what frequency?

The rating of risk‐takers is carried out through a 360‐degree performance assessment carried out by the bank's HR department. It is performed by the various persons who are related to the trader and sales in scope (i.e., middle office, compliance function, head of desks, sales working with the trader, legal department, etc.). This 360‐degree assessment is performed once a year, but this is only one source of information. Another source comes from the various quarterly and monthly reporting that the bank has in place. This includes front‐office supervision, monthly audit reports, monthly/quarterly conduct risk management ...