Regulatory Environment

Since the financial crisis emerged, regulation in the more advanced geographies has increasingly included elements relating to Conduct Risk. For example, the Capital Requirements Directive IV (CRD IV), although focused on capital standards and measurement, also includes a cap on bankers’ bonuses. Moreover, regulations such as the European Market Infrastructure Regulation (EMIR), which aims to reduce the risks associated with the derivatives markets, helps to protect customers against large scale failures. In addition, there are many other regulations that include large sections dedicated to conduct requirements or that are exclusively focused on Conduct Risk.

United Kingdom


United States

  • Requirement to clearly describe the service offered and properly disclose charges
  • Enhancement of professional standards for advisors including a code of ethics
  • Reform of practices to make the mortgage market more robust and customer focused
  • Enhanced practices including more comprehensive affordability checks, stricter conditions over interest only mortgages and the requirement for most interactive sales to be advised
  • Further consumer protection measures including increased transparency of how and where money is invested
  • Enhancement of the Consumer Credit Act
  • Higher standards particularly for High-Cost Short-Term Credit (HCSTC)
  • Price cap to ensure customers do not face excessive charges when taking out HCSTC
  • Additional documentation requirements
  • New client money segregation requirements ensuring compliance with the Client Assets Sourcebook
  • New rules aimed at discouraging irresponsible risk-taking and short-termism in senior management
  • Includes the introduction of clawback rules and the extension of deferral periods
  • Clarifies standards for purchasing goods/services and remediation options
  • Revised requirements over unfair contract terms
  • Other industry specific provisions
  • Senior Managers Regime (SMR) to ensure more structured accountability
  • Certification Regime (CR) to hold all individuals to appropriate standards of conduct
  • Rules for how to manage and report customer complaints
  • Rules include an extension of time for dealing informally with a complaint, requirement for banks to send written communication and report/publish all complaints
  • Rules on how to build an effective whistleblowing network
  • For example the introduction of whistleblowing champions
  • Requirements for minimum standards for conduct in business, safekeeping of investments and authorisation of fund managers
  • EU-wide framework of conduct rules for banks offering first and second charge mortgages 4Requirement for banks to implement new pre-contract disclosures and withdrawal/reflection periods –
  • Requirement for regulators to implement an admissions regime for intermediaries
  • Harmonises rules across the EU regarding depository duties, eligibility and liabilities
  • Aligns UCITS framework to AIFMD procedures in force for non-UCITS funds
  • Requirement that all customers have access to basic accounts
  • Increased transparency of payment accounts fees
  • Establishment of minimum standards for switching
  • Prohibition of any attempt of insider dealing and market manipulation 
  • Minimum criminal sanctions for market abuse and requirements for cross border cooperation between all EU member states
  • Requirement to provide a key information document for packaged retail investment and insurance products
  • Introduced new investment protection/distribution measures, increased transparency and stricter controls on market processes
  • Internal conduct rules on conflicts of interest, record keeping risk management etc.
  • Enhancement of customer protection with external business conduct rules
  • Increased transparency through real time trade reporting
  • Requirement to have policies and procedures in place to review trading activity and stop patterns of self-trades from the same origin (e.g. trading desk)
  • Enhancement of sanctions against those who commit fraud or make unsuitable recommendations to customers
  • Ban on proprietary trading by commercial banks – whereby deposits are used to trade on the bank’s own accounts (includes bypassing the rule via hedge/private equity funds)
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