What is an example of conduct risk?

Conduct risk refers to the risk of inappropriate, unethical, or unlawful behavior by individuals within an organization that can lead to negative outcomes, including financial losses, reputational damage, or regulatory penalties.

In this context, inappropriate actions by employees that result in financial loss exemplify conduct risk as it directly involves the behavior of individuals impacting the organization’s financial health and ethical standing. This risk can arise from a lack of oversight or a culture that does not adequately prioritize ethical behavior and compliance with regulations.

The other choices, while they may represent various types of operational or compliance risks, do not specifically focus on the actions and decisions of individuals within the organization. Delays in payment processing and technological failures are more related to operational risk, whereas failure to meet regulatory standards pertains to compliance risk. Therefore, the highlighted example encapsulates the core essence of conduct risk by illustrating the consequences of individual actions within a financial context.