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‘Predict & Prevent’ replaces ‘Detect & Correct’ in Conduct Risk Management

20th May, 2021

Starling has released its 4th annual Compendium — a white paper summarizing global trends in the management and supervision of culture and conduct-related risks in the financial industry. A key takeaway from this year’s report is that after-the-fact mitigation of misconduct, and the social harm it may cause, is no longer seen as good-enough; there is now “insistence that firms demonstrate an ability to do social good.”

The report points to social and economic tensions and imbalances highlighted by the Covid-19 crisis as key factors that have contributed to the recent growing emphasis on ESG across global markets. “Concern for good governance and beneficial social outcomes, such as improved DE&I, are now especially prominent amidst the culture and conduct risk reform agenda,” it says.

A spate of governance failures and the Covid crisis have prompted heightened scrutiny by regulators on firm culture, however, the emphasis has shifted from “an examination of the inputs of good culture, governance and risk management to the outputs of relevant control measures.”

The Compendium also highlights the emergence and expansion of executive accountability regimes – notably in Singapore, Hong Kong, and Australia – which increase the individual liability for executives who oversee misconduct scandals. This has helped to foster a shift away from the traditional ‘detect and correct’ approach to conduct risk management and towards a ‘predict and prevent’ imperative.

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