Improper business practices related to customers and external markets
Below are the details of the operational risks covered within this selected sub-risk category:
Intentionally manipulating markets
Risk Description: -
Employees may collude with other employees or external market participants to intentionally manipulate one or more segment of markets where the firm operates. Examples of market manipulation may include: -
- Price fixing of products and services sold to customers.
- Artificially manipulate one or more key market indicator (e.g. inter-bank interest rate).
- Stage a significant artificial increase or decrease in share price of a customer firm.
Intentionally conducting business activities outside the scope of firm's business license
Risk Description: -
Employees may intentionally conduct business activities outside the scope of firm's business license. Examples of such activities may include: -
- Providing advisory services to customers, where the firm is not authorised by regulator to provide such services.
- Providing insurance products, where the firm is not authorised by regulator to provide such products.
- Providing mortgage products, where the firm is not authorised by regulator to provide such products.
Intentionally conducting business activities in geographies covered by international sanctions or embargoes
Risk Description: -
Employees may intentionally conduct business activities in geographies covered by international sanctions or embargoes. Examples of such activities may include: -
- Providing wealth management services to senior government officials of a country under international sanctions or embargoes.
- Establishing operations in country under international sanctions or embargoes.
Intentionally conducting business activities with individuals, firms or industries covered by international sanctions or embargoes
Risk Description: -
Employees may intentionally conduct business activities with individuals, firms or industries covered by international sanctions or embargoes. Examples of such activities may include: -
- Providing banking services to known terrorist firm.
- Providing insurance products to industry known for employing child labor.
- Providing financing services to a firm known for supporting government of country banned by international sanctions or embargoes.
Intentionally providing improper advice to customers
Risk Description: -
Employees may intentionally provide improper advice to customers, where such advice may result in financial harm for customers. Examples of such advice may include: -
- Providing improper advice on potential movement in interest rates in near future, during sales of mortgage products.
- Providing improper advice regarding potential attractiveness of investment stock or portfolio, when taking order for purchasing shares by a customer.
- Providing improper advice to customers regarding debt consolidation, during sales of credit card product.
Intentionally mis-selling products or services to customers
Risk Description: -
Employees may intentionally mis-sell products or services to customers, where such mis-selling may result in financial harm for customers. Examples of mis-selling may include: -
- Selling insurance policies to customers without fully assessing whether they need the protection provided by the policy.
- Selling high risk investment products as low risk investment products to customers, who do not have adequate financial knowledge.
- Selling mortgages to customers with hidden fees and charges, where such fees and charges are not communicated to the customer during the sales process.
Intentionally selling products or services, banned by laws or regulation, to customers
Risk Description: -
Employees may intentionally sell products or services to customers, where such products or services are banned by laws or regulations. Examples of such selling may include: -
- Selling certain types of mortgages, banned by regulator.
- Selling certain types of insurance products, banned by regulator.
- Selling certain types of investment products, banned by regulator.
Intentionally fail to deliver products or services to customers
Risk Description: -
Employees may intentionally participate in activities which result in failure to deliver products or services to customers. Examples of such failure may include: -
- Fail to deliver periodic credit card statement.
- Fail to send communication about expiring insurance policy.
- Fail to deliver insurance policy coverage documents after customers have purchased insurance policy with the firm.
Changes to structure of products or services, where such changes may be considered unfair by customers or regulators
Risk Description: -
Firm may change the structure or terms of customer accounts, where such changes may be considered unfair by customers or regulators. Examples of such changes may include: -
- Changes to calculation of overdraft fees, where such calculations maximize the charging of fees for the firm.
- Introducing additional charges for early repayment of loans and mortgages by existing customers.
- Increasing interest rate on credit cards for certain segment of customers.
Termination of existing business relationship with customers, where such termination may be considered unfair by customers or regulators
Risk Description: -
Firm may terminate existing business relationship with customers, where such termination may be considered unfair by customers or regulators. Examples of such termination may include: -
- Initiating foreclosure proceedings to evict customers from their homes, without following regulatory guidelines to provide customers with opportunities to modify their mortgage accounts or seek help from government funds.
- Terminating bank accounts of a customer, who publicly criticizes bank's strategy, products or services.
- Terminating insurance policy of a customer firm, when they fail to purchase other products or services from the firm.
Intentionally discriminate against customers
Risk Description: -
Firm may intentionally discriminate against customers based on their gender, religion, country of origin, occupation or publicly held views. Examples of such discrimination may include: -
- High interest rates for mortgages sold to customers from a certain religion.
- Ignore complaints submitted by customers from a certain country of origin.
- Increase fees or charges for customers from a particular religion, in response to a geopolitical event involving the targeted religious group.
Intentionally harassing customers or prospects
Risk Description: -
Firm may intentionally adopt business practices resulting in harassment of customers or prospects. Such harassment practices may include: -
- Using criminal gangs to recover bad debts.
- Calling prospects during inappropriate hours of day to sell new products/services.
- Call center staff utilizing customer details to call customers for building friendship or personal relationship.
Intentionally defrauding customers through products or services
Risk Description: -
Firm may intentionally launch products or services with intention of defrauding customers. Examples of such products or services may include: -
- Selling insurance policies where the firm intends to not settle any claims arising from such policies.
- Collecting funds from customers for a ponzi scheme run by the firm, where proceeds from new customers are used to pay returns to existing customers.
- Transferring funds from customers accounts without their knowledge and hiding these transfers by providing incorrect account balances and statements to customers.
Intentionally providing inaccurate information to market participants
Risk Description: -
Firm may intentionally provide inaccurate information to market participants such as credit rating agencies, stock exchanges, industry association. Such inaccurate information may be provided to: -
- Hide financial difficulty, which may cause significant reaction by market participants towards the firm.
- Create stronger perception in the market towards the firm to gain competitive advantage.