Is Conduct Risk the New Prudential Risk?

Supervisors have long required that financial institutions identify, assess and mitigate risks. Prudential supervisors — or, more accurately, regulators or supervisors with a responsibility for prudential oversight — have the task of Ian Johnston overseeing the safety and soundness of their regulated population and, to the extent appropriate, safeguarding that safety and soundness in the interests of depositors and customers.

But could the actions of the regulator itself pose a risk to the financial standing and even the soundness of an institution? Whether by way of regulator-imposed fines, orders for disgorgement or restitution, etc., or from third party litigation prompted by actions taken by regulators, financial institutions are now potentially exposed to financial liabilities to a greater extent than would have been the case in earlier periods.