Reducing bank fraud: strengthening conduct risk culture
- John R Childress
- Nov 15, 2024
- 3 min read
Updated: Jan 26
With audit, training and compliance programmes in place, why does unethical and fraudulent conduct persist?
This insight piece explains why traditional views of “conduct risk" miss the root causes of fraud in financial services and how a systems-based, analytics-led model can uncover hidden causal factors and prioritise meaningful change.
Why bank fraud keeps happening
High fines haven’t stopped unethical conduct.
In recent years, global financial institutions have paid hundreds of billions in fines for unethical and fraudulent conduct, from money laundering to systemic abuses.
Regulators have increased oversight and reporting requirements. Yet unethical behaviour continues. That’s because the problem isn’t just rogue employees as individuals, but the internal systems, policies and incentives that encourage unethical behavior.
Compensation and incentives are powerful drivers
Bonus structures can outweigh ethical considerations.
One of the most significant drivers of conduct risk in banking is compensation — especially large bonus opportunities tied to revenue or deal metrics. These incentives can make risky or unethical actions feel like rational choices, particularly when the personal upside is high and consequences are borne by the organisation rather than the individual.
Addressing fraud therefore requires attention to how policies and reward structures shape behaviour across the enterprise.
The gap in most culture assessments
Surveys and engagement scores don’t explain the why.
Traditional culture assessments often focus on employee attitudes, engagement and values statements. These describe attitudes at a high level but fail to connect culture to business performance or to the causal factors that create risky behaviour.
Leaders can know how people feel about risk, but still lack insight into what in the system is actually driving them to take shortcuts or justify exceptions.
Mapping conduct risk with culture analytics
Culture is a network of causal factors that can be modelled.
Rather than mapping “culture” in the abstract, PYXIS uses a risk culture model and software that uses company data to produce a visual ecosystem map of the drivers of conduct risk.
These maps:
Show how factors interact,
Indicate whether a driver is acting as a business enabler or risk,
Link causal drivers directly to business KPIs,
A systems lens reveals hidden risks
Policies, procedures and leadership behaviour interact in complex ways.
When culture is treated as a network of interlocking conditions — not just employee sentiment — previously invisible risks become visible. For example, compensation, board oversight, fear of speaking up, and weak risk understanding are shown to be frequent contributors to conduct breaches in banking scenarios.
A systems lens helps leaders identify hotspots where change will materially reduce risk, instead of chasing symptoms.
Shaping decisions to reduce conduct risk
Changing causal factors reduces incentives for risky choices.
Research by PYXIS emphasises that once organisations can locate the causal factors driving unethical or fraudulent behaviour, leaders can reshape policies, procedures, work practices and management objectives to reduce the incentives for risky behaviour.
This is the essential difference between traditional “compliance” or “culture” programmes and an evidence-led, analytics-driven approach.
What leaders should focus on
Governance, incentives and reporting climate matter.
To reduce bank fraud and other conduct risk, leaders should:
Align compensation and incentive structures to long-term, ethical outcomes
Strengthen board oversight that connects to culture drivers
Reduce fear of speaking up by ensuring safe, trusted reporting channels
Improve risk understanding at all levels, not just the front line
This focus helps bridge the gap between ethos and everyday decision-making.
Key topics covered in this article
Why fraud and unethical conduct persist despite regulation
The limitations of traditional culture assessments
How compensation and incentives shape conduct risk
Culture analytics and ecosystem mapping for risk culture
Making causal factors visible and actionable
Using culture drivers to prioritise targeted change
About PYXIS Culture Technologies
PYXIS Culture Technologies helps organisations understand and improve the cultural drivers of conduct risk, safety, and cyber resilience.
By combining deep research, operational experience, and advanced culture analytics, we help organisations close the gap between strategy and everyday behaviour.
Our approach is effective:
We treat culture as a systemic business issue, not an HR initiative.
We identify key internal business practices that create conduct and compliance risks and provide effective solutions you can immediately implement.
We link your conduct culture to business financial metrics, showing a clear ROI for strengthening compliance and ethical performance.
Connecting the dots
See how PYXIS models What-If scenarios to prioritise the fixes that move your numbers.