Conduct Risk in South African Banks: Aligning Regulatory Compliance with Business Sustainability

Antje Hargarter, Gary van Vuuren


Regulators have imposed heavy penalties on banks for conduct failures since the global financial crisis occurred in 2007/2008. Banks play an important role in the economy, and it is therefore in the interests of both the public and government that banks have an effective conduct-risk approach in place; one that complies with regulation and ensures business sustainability. Current conduct-risk approaches are inadequate, and literature is sparse—especially regarding developing economies. The goal of this research was to explore ways in which banks can manage and mitigate conduct risk, while ensuring sustainability. The qualitative design of this study used South Africa as an example of a developing market; and it employed primary and secondary data. The analysis shows that banks have been focused on developing a suitable high-level strategy but have neglected the lower level (where employees and customers meet). Consequently, they have exposed themselves to conduct risk. Based on these findings, this article suggests that banks’ strategies should be tackled in a top-down fashion, while they simultaneously pursue customer outcomes from the bottom-up. This study is crucial, as banks must prepare for new legislation, avoid fines, and strategically position themselves to satisfy clients and remain sustainable. Since the last self-assessment by the (then called) Financial Services Board in 2013, no formal assessment of conduct risk in the South African banking industry has taken place.


Banks; Conduct Risk; Financial Regulation; Twin Peaks Model

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Copyright (c) 2018 Antje Hargarter, Gary van Vuuren

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