Conduct risk is defined by the International Association of Insurance Supervisors (“IAIS”) as “the risk to customers, insurers, the insurance sector or the insurance market that arises from insurers and / or intermediaries conducting their business in a way that does not ensure fair treatment of customers.”

As regulators make their expectations for change in the financial services sector clear, boards look for insight and customers demand a new way of conducting business, it is more important than ever to proactively embed fair customer treatment into all aspects of a firm’s activities. We have seen over the years the major reputational and business impacts that a lack of customer focus has had on firms. KPMG reflects here on the crucial need for firms to strategically align people and risk in their longterm objectives. 

People mistake compliance with culture when it comes to conduct risk. If compliance is the bare minimum, proactively implementing an appropriate culture into the organisation is where the challenge lies. A holistic approach to culture must be taken for firm and customer interests to align.

Gillian Kelly
Risk Consulting at KPMG

Key considerations

These reflections are important as regulators have highlighted the need for firms to embed conduct risk and a customer-focused culture into their long-term strategies. With heightened regulatory focus in the area and the constant evolution of consumer protection challenges (e.g. differential pricing, vulnerable customers and complaints reviews) it is necessary for firms to work towards providing efficient responses to potential conduct and culture risks.

In light of the tracker mortgage and other restitutions, focus has been renewed on customer treatment and global regulatory expectations have been raised in the financial services sector. The release of the Consumer Protection Outlook Report in March 2021 by the Central Bank of Ireland (“CBI”) has set out the main risks facing firms in this sector. For more information, please read our article Dealing with Consumer Protection in 2021.

Based on our analysis the key considerations for firms include:

  • Culture: A customer-centric culture must be developed, with consumer interests considered when designing, marketing and pricing products. Fair treatment of customers must be considered throughout the product lifecycle; 
  • Robust oversight: Firms must put robust compliance and risk management measures in place. They should have strong internal governance arrangements over their control environment and oversight of algorithms, ensuring transparency and accuracy; 
  • Transparency: Clear information must be provided to customers in a timely manner across all engagement channels; and 
  • Suitability: Firms should ensure suitability throughout the consumer lifecycle, including at the product design stage, with particular care taken to identify and manage relationships when engaging with a vulnerable customer. 


In addition, the introduction of the Individual Accountability Framework (“IAF”) and the associated legislation will intensify the requirements and subsequent actions for firms on these key considerations. This regime will integrate individual responsibilities to the regulatory landscape and provide enhanced enforcement actions, as well as new conduct risks for individuals and firms to consider. 

Global themes

Historically, firms have failed to address conduct risk in the way they operate their business and set their strategic objectives. This can lead to regulatory actions and fines but also to reputational damage and customer loss that can impact the business for years. Conduct risk is not a new concept but one that gets a lot of focus around the globe. In our report below, we outline some of the main themes being addressed globally in conduct risk.

Get in touch

The pace of change is challenging leaders like never before. To find out more about how KPMG perspectives and fresh thinking can help you focus on what’s next for your business or organisation, please get in touch with our team below. We’d be delighted to hear from you. 

Consumer reform series