Following the 2016 Market Abuse Regulations (MAR), followed by MiFID and GDPR in 2018 and the impending changes to be implemented under SM&CR and the Conduct rules, one of the key focuses of the regulator is how the business identifies and manages their MAR and conduct risk.
An effective MAR and conduct risk management framework can be difficult to implement in a small firm that may not have the budget for the latest sophisticated technology to detect potential conduct risk, or a large risk and compliance department to provide oversight of all aspects of the businesses operations.
So how does a small firm ensure they are managing MAR and their conduct risk effectively, and is able to demonstrate their compliance to the regulations?
A smaller firm needs a practical (not theoretical) framework that is:
- Economical and quick to implement
- Fits the size, structure and complexity of their operations
- Easy to embed within the existing daily processes
- Has the tools to enable management to fully understand the risks and better control their risks.
The key elements of your framework should be:
- A clear and simple Conduct Risk and MAR Policy
These policies should set the tone, the responsibilities of your staff, and the elements that make up your conduct risk and MAR framework from culture and behaviours, risk appetite, MAR and conduct risk identification and controls to reporting and governance. The policies should be easy to understand by all staff in your organisation.
1RS can create the right MAR and conduct risk policy for your organisation, which can be used to support and align to the conduct risk training you give your staff.
2. A comprehensive Conduct Risk & Control Assessment across your key activities
Without a full understanding of the MAR and conduct risks and the level of impact and likelihood of these risks within your processes and operations, you will not be able to appropriately manage conduct risk. It can be very time and resource intensive to identify and assess all risks and make sure you have the appropriate mitigating controls.
1RS has developed standard MAR and conduct risk & control libraries with all key MAR and conduct risks identified which cover operations and functions within financial institutions, together with best practise mitigating controls. This enables very effective and efficient identification of the conduct risks relevant to your firm and the appropriate mitigating key controls that should be in place.
3. Key Risk Indicators and reporting dashboards
An effective MAR and conduct risk framework has Key Risk Indicator’s (KRI’s) reported on a transactional, daily, weekly, monthly basis (as applicable). These KRI’s alert management to any potential or actual breach of MAR or conduct for their appropriate attention and/or action.
It is essential that you have the right KRI’s in place and they are reported in a clear format for tracking and monitoring.
1RS know what KRI’s should be monitored for each conduct and MAR risk in the 1RS risk and control library. We quickly implement the right KRI’s and reporting dashboards for your organisation.
4. Appropriate MAR and conduct risk governance and escalation
Governance of MAR and Conduct risk needs to be both top down from the Board and bottom up from the areas where it first materialises. The governance of MAR and conduct risk can be both informal and formal within the business and functions (1st and 2nd Line of Defence -LoD). The key is clear understanding of responsibilities for oversight and governance, the escalation protocols, and the appropriate action taken from that point.
1RS implements conduct risk oversight into all aspects of existing 1st and 2nd LoD governance structure. 1RS identifies any changes required to support the appropriate level of governance of conduct and MAR for your organisation to ensure management are informed timely and appropriately.
5. Training, training, training
It can take time to embed MAR and conduct risk frameworks within a firm. This cannot be done by training in isolation, but also by promoting the correct culture and demonstrating the correct behaviours in all endeavours, at all levels of the organisation.
1RS provides tailored and highly effective training and workshops for your staff to drive positive changes in culture and behaviour and embed understanding of conduct risk and the impact on the individual, the firm, the client and the markets.