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Internal Auditors and Conduct Risk

Regulators have an expectation that firms – financial services operators – treat consumers respectfully and with regard to customers’ reasonable expectations. This means that firms have to imagine or try and imagine what reasonable expectations might be from a consumer perspective – and these expectations might vary depending on the financial sophistication of the customer. This is part of the new world of conduct risk.

So who challenges products and services from the customer’s perspective? What internal process exists to represent the customer/consumer’s perspective?

Internal auditors should check that there is a provision for appropriate Customer Challenge to be made (inputs coming from appropriate stakeholders [possibly NEDs, customer representatives, or representatives from regulators] to help ensure Customers’ interests are fairly represented) during a Product’s Lifecycle and in the approach to Product Design, Product Distribution and Product Service.

It may not be necessary to do this for all products, but it would be wise to do this for products that are defined as ‘high risk’ products or for those where it would be reasonable to assume that the customer’s financial sophistication level was low.

To quote the FCA: ” The Financial Conduct Authority (FCA) will put consumers’ needs at its heart and will focus even more on ensuring there is a fair deal between firms and their customers.”

In part this means that firms must learn to think like customers, in part this means that firms must pay greater attention to conduct risk and, taking both factors together, a pretty good reason for firms operating an internal customer challenge function.

Reports – compelling or dull?

Reports – compelling or dull?

audit report writingReports often contain no obvious structure or roadmap and comprise page after page of mind-numbing boring text. Reading these is not my idea of having a good time. The trouble is that human beings are highly visual and naturally seek out waypoints, imagery and something that provides a sense of direction. Ask most people ‘how to get there’ and within seconds they will be drawing a map on a scrap of paper or waving wildly with their hands.

Why then do we insist, so often, on producing business or audit reports that are devoid of visual indicators or any sense of direction? Who in their right mind would choose to spend their time reading fifty pages of full width A4 text?

Why not include a process model, flowchart, table, image or carefully chosen histogram in your report – and then tag them with a highlight box or callout and transform the subject matter for the reader into something they can follow?

And if the report is technical or voluminous then why not break it up into sections, consider two column formats and include plenty of white space to give the reader relief when reading?

And remember, the easier the read, the more likely it is that the reader will appreciate your style and the more likely, in turn, that the reader will lean towards your view! And, as one wise old owl said: “The less you write the easier it is to get to grips with the content and the less there is to challenge”.

Our sister company Mindgrove runs regular training courses in audit report writing, and these one-day events are acknowledged as providing an excellent foundation for those with less experience in writing compelling and engaging reports.