Transcript Title of Presentation

Regulatory Olympics
Why Conduct Risk Matters
Moderator:
Sharon O’Connor-Clarke
Director
FICO
© 2014 Fair Isaac Corporation. Confidential.
This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent.
Regulatory Olympics: Why Conduct Risk Matters
The definition of conduct risk is nebulous and
specific to each institution. How do we develop
industry best practices uniquely for each institution
and yet acceptable to multiple regulating entities in a
global financial environment?
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© 2014 Fair Isaac Corporation. Confidential.
Agenda
►Introduction
of Panelists
►Framing
the Issue
►Defining
Conduct Risk
►Organizational Approach
►Product
Design
►Customer
Interactions
►Processes
►Key
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and Procedures
Takeaways
© 2014 Fair Isaac Corporation. Confidential.
Panel
Andrew Smith
Partner
Morrison and Foerster
Kevin Moss
EVP, CRO
Consumer Lending
Wells Fargo
David Malcolm
CRO
Westpac,
New Zealand
Anna Napier
Director, Presales
Consulting
FICO
© 2014 Fair Isaac Corporation. Confidential.
This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent.
Framing the Issue
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© 2014 Fair Isaac Corporation. Confidential.
UK Conduct Risk
► “The
risk that firm behavior will result in poor outcomes for customers”
► FSA,
2011 Retail Conduct Risk Outlook
► Product
► Sales
design
process
► After-sales
process
► Culture
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© 2014 Fair Isaac Corporation. Confidential.
US Conduct Risk: Trade Regulations
► Credit
and Deposit Accounts: UDAAP
► Unfair,
deceptive, or abusive acts or practices
► Insurance:
trade rules and suitability
► Securities:
business conduct rules and suitability
► State
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laws: “unconscionable” business practices
© 2014 Fair Isaac Corporation. Confidential.
Unfairness
► A trade
practice may be unfair if it
► “Causes
or is likely to cause substantial injury to consumers
► “Which is not reasonably avoidable by consumers themselves and
► “Not outweighed by countervailing benefits to consumers or to competition.”
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© 2014 Fair Isaac Corporation. Confidential.
Deception
► “There
must be a representation, omission or practice that is likely to mislead the
consumer;”
► “We
examine the practice from the perspective of a consumer acting reasonably
in the circumstances;”
► “The
representation, omission, or practice must be a ‘material’ one.”
► “The
basic question is whether the act or practice is likely to affect the consumer's
conduct or decision with regard to a product or service.”
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© 2014 Fair Isaac Corporation. Confidential.
Abusive Practices
► Interferes
► Takes
with consumer understanding
advantage of:
► A lack
of consumer understanding
► The inability of the consumer to protect his or her own interests
► The reliance of the consumer on a financial institution to look after the consumer’s
interests
► “Abusiveness”
► Little
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is a new concept
or no guidance has been provided
© 2014 Fair Isaac Corporation. Confidential.
What Practices Might Present Conduct Risk?
► Design
► Add-on
products, credit protection, payment protection
► Sales
► Misrepresenting
benefits
► Targeting consumers who will not receive a benefit
► Churning or flipping to generate new premium
► After-sales
(servicing)
► Unauthorized
billing
► Rebuttals, preventing cancellation
► Claims processing
► Culture
► Loss
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ratios
© 2014 Fair Isaac Corporation. Confidential.
“The risk that firm behavior
will result in poor outcomes
for customers”
FSA definition of Conduct Risk (2011)
Defining Conduct Risk
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© 2014 Fair Isaac Corporation. Confidential.
Organizational Approach
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© 2014 Fair Isaac Corporation. Confidential.
Product Design
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© 2014 Fair Isaac Corporation. Confidential.
Customer Interactions
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© 2014 Fair Isaac Corporation. Confidential.
Processes and Procedures
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© 2014 Fair Isaac Corporation. Confidential.
Key Takeaways
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© 2014 Fair Isaac Corporation. Confidential.
Thank You!
Sharon O’Connor-Clarke
[email protected]
© 2014 Fair Isaac Corporation. Confidential.
This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent.
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© 2014 Fair Isaac Corporation. Confidential.
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Sharon O’Connor-Clarke
[email protected]
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© 2014 Fair Isaac Corporation. Confidential.