Conduct Costs Definition
The following definition of Conduct Costs is that proposed by the Conduct Costs Project and is the basis for the compilation of related findings, published on this website.
Conduct Costs means all costs borne by a Bank in connection with any of the following:
(i) Regulatory proceedings, specifically (but not exhaustively):
a) fines or comparable financial penalties imposed on the Bank by any Regulator;
b) any sum paid to a Regulator or at the direction of a Regulator in settlement of proceedings of any kind;
c) any sum paid to, or set aside to be paid to, any third party or parties to the extent required by any Regulator; and
d) any sum paid, or set aside, for the purchase (or exchange) of securities or other assets to the extent required by a Regulator and (if such information is available) to the extent such sum exceeds the open market value of such securities or other assets as at the date of purchase;
(ii) any costs, losses or expenses which are directly related to an event or series of events or conduct or behaviour of the Bank or a group of individuals employed by the Bank for which any fine or comparable penalty has been imposed or any censure issued by a Regulator;
(iii) any sum that has become payable as a result of, or in connection with, any breach of any code of conduct or similar document entered into, or committed to, at the request of, or required to be entered into or committed to by, any Regulator or any public, trade or professional body;
(iv) any loss of income or other financial loss attributable to a requirement imposed by a Regulator to place money on deposit with a central bank or other institution at below the market rate of interest, being a requirement imposed in connection with a breach of law or Regulatory requirement;
(v) any sum paid in connection with any litigation (whether ordered to be paid by a court or tribunal or in settlement of proceedings) where the litigation involved allegations of material wrongdoing or misconduct by senior officers or employees of an institution which were not refuted;
(vi) any other sum, cost or expense, not falling within any of (i) to (v) above that is paid pursuant to an order or requirement of a Regulator and which is a result of any breach of any regulatory requirement or law.
The Conduct Costs Project welcomes the Fair and Effective Market Review's proposal that "...a single, objective, industry-wide definition of costs arising from misconduct and its transparent disclosure in firms’ annual (and/or corporate social responsibility) reports...be explored as a way of incentivising improved ethical behaviour across the [financial sector]." (See the FEMR Consultation Document, section 5.5 paragraph 4(a)(ii), available at http://www.bankofengland.co.uk/publications/Pages/news/2014/140.aspx.)
This definition, the Project's research and indeed, the broader objectives of the CCP Research Foundation serves to further this proposal. We welcome comments from our stakeholders on this definition and how it might be used for conduct cost reporting purposes.