2023 COMMENTS, CONTRIBUTIONS & CONCLUSIONS | The costs of misconduct

In the opening Preamble to our “Costs of Misconduct” Deeper Dive, Professor Tom Reader of the London School of Economics draws a distinction between ‘misconduct’ (acts of commission, or things done wrongly) and ‘poor conduct’ (acts of omission, or things not done rightly). Broadly speaking, we consider acts to constitute misconduct if they are in some way harmful, morally objectionable, and transgress clear lines that separate right from wrong, he argues. Poor conduct may also result in harm, but it often lacks the element of conscious intentionality that marks out misconduct. Regulators are taking a hard line with regard to such breaches, nevertheless.

Regulators are under intense public pressure to be tough on misconduct — and to be seen to be tough. As such, and perhaps frustrated at seeing the same mistakes made repeatedly, they are increasingly signaling tougher penalties for instances of misconduct and poor conduct alike. There seems to be a growing consensus that, if banks fail to adequately invest in governance, risk, and compliance, they should be held to higher standards for the consequences of their failures. In part, this means more punitive fines. But regulators are also baring their teeth by showing a willingness to restrict the activities of scandal-plagued firms, as the OCC’s Michael Hsu outlines in our Preamble here.  [Preamble to the 2023 Compendium]