What type of risks does "conduct risk" encompass?

Conduct risk encompasses the risk arising from unethical and unlawful behavior within an organization, particularly in the context of financial services and professional conduct. This type of risk relates to actions taken by individuals and firms that may lead to mis-selling of products, breaches of rules, fraud, or other behavior that could harm clients, the integrity of the market, or the organization's reputation.

The concept of conduct risk highlights the importance of maintaining high standards of behavior among employees and representatives, ensuring that organizations act in the best interest of their clients while complying with regulatory frameworks. This encompasses practices such as transparency, honesty, and adherence to ethical guidelines, which are critical to sustaining trust and confidence in financial markets.

In contrast, conduct risk does not solely focus on legal risks, technical and operational risks, or purely financial risks. Legal risks may arise from conduct risk but are not synonymous with it. Technical and operational risks pertain to failures in systems or processes rather than moral or ethical failures. Financial risks typically refer to loss of money or assets, which again is not the primary concern of conduct risk. Therefore, focusing on unethical and unlawful behavior risks encapsulates the essence of conduct risk effectively.