On 21 January 2020, the Central Bank issued an industry letter identifying areas in which firms operating in the wholesale market have failed to meet its expectations for managing conduct risk.
Central Bank's expectations for managing conduct risk in the wholesale market
Regulated firms are already subject to an extensive set of rules governing their conduct, including under the MiFID and Market Abuse regimes and the Central Bank's Fitness & Probity regime. To be successful in meeting these obligations, however, the Central Bank states that:
"compliance efforts must be underpinned by an equally systematic approach to ensuring that a culture prevails within firms that supports the objectives financial services regulations seek to achieve. This means fostering an approach that seeks the outcomes being worked towards not just because that is what the rules say, or the fear of being caught, but because it is the right approach based on acceptable outcomes and customer interests. It also means taking a careful look at how decisions affecting users of financial services are actually made within your firms and who is making them."
The following is an analysis of the Central Bank's expectations, and the good/poor industry practices it has identified, in respect of the identification, management and mitigation of wholesale market conduct risk (MC risk).
As part of its 2020 supervisory work programme, the Central Bank has noted that it will be "focussing on regulated entities' ability to identify market conduct risk; the extent to which they are sufficiently well controlled to govern wholesale market conduct risk; and the flow and escalation of conduct-specific information within and across regulated entities and groups"