FSB Publishes Conduct Risk Mitigation Toolkit

The Financial Stability Board (FSB) has published Strengthening Governance Frameworks to Mitigate Misconduct Risk, which provides a toolkit that firms and supervisors can use to tackle the causes and consequences of misconduct.

The toolkit completes an important element of the FSB’s 2015 Workplan on Measures to Reduce Misconduct Risk to promote incentives for good behaviour through standards and codes of behaviour, such as the FX Global Code, and reforms to benchmark-setting practices. 

It also offers a toolkit of measures to address misconduct in wholesale markets developed by the International Organization of Securities Commissions (IOSCO), based on national approaches; and the FSB’s guidance on the use of compensation tools to promote good conduct, which will be followed up by recommendations on national data collection on compensation and conduct.

Mitigating misconduct requires a multifaceted approach, FSB says, adding that the toolkit identifies 19 tools that firms and supervisors could use to strengthen governance frameworks in three overarching areas identified by the FSB as part of its earlier work on misconduct.

These are:

  • Mitigating cultural drivers of misconduct – including tools to effectively develop and communicate strategies for reducing misconduct in firms and for authorities to effectively supervise such approaches.
  • Strengthening individual responsibility and accountability – including tools that seek to identify key responsibilities or functions in a firm and assign them to individuals to promote accountability and transparency.
  • Addressing the “rolling bad apples” phenomenon – including tools to improve interview processes and onboarding of new employees and for regular updates to background checks to avoid hiring an individual with a history of misconduct.

The toolkit also provides a set of options based on the shared experience and diversity of perspective of FSB members in dealing with misconduct issues.

Jeremy Rudin, Canada’s superintendent of financial institutions and chair of the FSB’s working group on governance frameworks that led the work says, “This toolkit provides firms and supervisors with practical approaches and techniques to improve conduct and strengthen accountability and governance frameworks. It will contribute to financial stability by promoting behaviours that will inspire public confidence in the global financial sector.”


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Colin Lambert

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