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Measuring conduct risk in South African banks

Antje Hargarter (Department of Risk Management, North-West University, Potchefstroom, South Africa and School of Investment and Banking, Milpark Education, Johannesburg, South Africa)
Gary Van Vuuren (Department of Risk Management, Faculty of Economics and Management Sciences, North West University, Potchefstroom, South Africa)

Qualitative Research in Financial Markets

ISSN: 1755-4179

Article publication date: 3 June 2019

Issue publication date: 13 August 2019

410

Abstract

Purpose

This paper aims to examine the problem of conduct-risk measurement for banks, using South Africa as an example of a developing market. Conduct risk is a new and complex phenomenon in global financial services and could negatively impact various stakeholders. There are concerns about new regulations and potential misconduct fines affecting profitability and sustainability for banks. While presenting a serious problem, especially in developing markets, with the added challenge of financial inclusion, conduct risk and its measurement have not been researched sufficiently. If the measurement problem could be solved, the management could be facilitated.

Design/methodology/approach

Based on a literature review, existing surveys and new interviews, a best-practice proposal for measuring conduct risk was developed. The approach was exploratory and inductive and added primary insights.

Findings

Measuring concepts like conduct is a global challenge. This aside, South African banking customers are concerned about fraud and safety and administrative service hassles, rather than conduct in the regulatory sense. Best-practice measurement must account for these findings by working with a scoring for behavioural, organisational/procedural and perception indicators and with suggestions for specific surveys.

Research limitations/implications

Analysing the data measured and deciding what action should be taken if conduct risk is detected could be considered for additional research.

Practical implications

South African banks are guided in measuring a difficult and unique concept at a time of regulatory change, stakeholder pressures and limited existing knowledge.

Originality/value

The authors believe this is the first study on a critical and new challenge in banking risk measurement in a developing market.

Keywords

Citation

Hargarter, A. and Van Vuuren, G. (2019), "Measuring conduct risk in South African banks", Qualitative Research in Financial Markets, Vol. 11 No. 3, pp. 282-304. https://doi.org/10.1108/QRFM-03-2018-0027

Publisher

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Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited

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