Reputational Risk

Meme

Conduct Risk

Context

Regulators are also called to review their supervisory data for instances of unlawful debanking based on religion and refer such cases to the Attorney General. Institutions found to have encouraged politicized or unlawful debanking will face remedial actions, including fines or consent decrees, according to the order.

The order also calls for bank regulators to strike a particular kind of risk assessment from their guidance and supervision efforts known as reputational risk. Two federal bank regulators — the Federal Reserve and Office of the Comptroller of the Currency — have already eliminated reputational risk as part of their bank examination programs. The FDIC has signaled it plans to follow suit.

Comparisons

Here’s a clear contrast between **conduct risk** and **reputational risk**, based on regulatory insights and governance frameworks:

**Aspect**	**Conduct Risk**	**Reputational Risk**
**Definition**	Risk arising from a firm’s behavior that threatens consumer protection or market integrity	Risk arising from negative public perception that affects trust, desirability, or license to operate
**Source of Risk**	Internal actions: poor governance, unethical behavior, mis-selling, lack of transparency	External reactions: media coverage, stakeholder backlash, political disruption
**Regulatory Focus**	Defined by regulators like the FCA to promote fair treatment and market integrity	Often self-managed; regulators may respond if reputation affects systemic trust
**Measurement**	Assessed through behavioral audits, customer outcomes, and compliance reviews	Measured via sentiment analysis, media monitoring, stakeholder engagement
**Impact Scope**	Directly affects customers, markets, and regulatory relationships	Indirectly affects partnerships, investor confidence, and public trust
**Mitigation Strategy**	Internal controls, ethical training, conduct frameworks	Crisis communication, brand management, stakeholder engagement
**Overlap**	Can trigger reputational damage if misconduct becomes public	Reputation loss may expose underlying conduct failures

Governance Insight

• Conduct risk is about what you do**—your internal behavior and its consequences.
• Reputational risk is about how others perceive what you’ve done**—even if the conduct was compliant.

This distinction is crucial for designing **AI governance protocols**: an AI agent’s conduct (e.g., biased decision-making) may be technically valid but still trigger reputational fallout if perceived as unethical.