Risk-taking is the essence of banking. A good risk culture is one that manages risk correctly from the perspective of clients, counter-parties and investors. In such a culture, the bank treats customers fairly. It conducts itself with integrity in financial markets. It balances risk and reward, making sure that it is adequately compensated for the risks it takes. It complies with all applicable regulations. Hence, a good risk culture is about taking the right risks in the right way for the right price.
Culture counts. Doing things right is just as important as doing the right things. That’s one of the lessons that supervisors are drawing from the financial crisis and from the flaws in conduct and compliance that continue to emerge. For banks, this lesson is timely. Fines and settlements for misconduct have eroded capital, and remediation has preoccupied management. This is depressing returns and impeding growth.
To create the financial and managerial capacity to pursue a growth agenda, banks have to improve their risk culture. A better culture can help reduce, perhaps even eliminate, costly compliance breaches. That in turn will preserve the bank’s reputation, conserve its capital and free its management to focus on developing and implementing a strategy that will enable the bank to remain competitive.
We are delighted to contribute to the heightened debate around conduct issues through the attached thought leadership on culture in banking. It’s a global debate but with particular relevance to the challenges to our retail banks arising from the ongoing investigation into tracker mortgages. It is also going to be an area of concern for CBI in relation to capital markets as we continue to see new operations coming to Ireland in anticipation of Brexit.
Personal responsibility is the key area of focus for regulators with the Senior Manager Regime in the UK now being replicated in other jurisdictions, and raising questions about the adequacy of our Fitness and Probity regime.
We hope you find this thought provoking and would welcome your comments. Please download the report below.