The newsLINK Group - Cure for the Common Culture

Editorial Library Category: Banking & Finance Topics: Branch Banking Title: Cure for the Common Culture: How to Build a Healthy Risk Culture Author: Ryan J. Dent, PwC, Banking & Capital Markets Partner Synopsis: The rise of the digital consumer and the high cost infrastructure of physical banking locations are leading to a declining ROI for many branches. If the branch model stays on its current course, it could become a financial burden to banks, cutting into cross- channel profitability. Editorial: Cure for the Common Culture: How to Build a Healthy Risk Culture 4064 South Highland Drive, Millcreek, Utah 84124 │ thenewslinkgroup.com │ (v) 801.676.9722 │ (tf) 855.747.4003 │ (f) 801.742.5803 Editorial Library | © The newsLINK Group LLC 2 Financial Institutions , September 2, 2014 , www.occ.gov , accessed October 6, 2014) . Establish a Walk-the-Talk Risk Culture—from Top to Bottom. Nearly 90% of survey participants agree or strongly agree that leadership promotes “core values” over growing the bottom line. However, 30% of respondents do not agree that management actions consistently align with their communications regarding risk management. In our view, this likely reflects a disconnect between the tone at the top and how middle management executes on risk policies. Leading financial institutions see risk culture as a multidimensional issue that needs to be supported by a combination of people skills, policies, and tools. We see leading banks: • Developing clear protocols for what good risk management looks like. • Opening channels for escalating risk issues. • Underscoring a zero-tolerance policy for retaliation. • Finding new and better ways to attract talent with the right risk mentality. • Building risk-savvy approaches into the institutions’ training policies and development programs. For example, some banks are requiring employees to participate in risk-related projects as part of their annual goals. These efforts are paving the way for stronger, more sustainable risk cultures going forward. Make Change Stick Through Better Incentives and Consequences. Regulators are pushing banks to change their incentive structures, including compensation, development opportunities, and recognition. Leaders have started to take the following steps: Dealing with compliance violations quickly and consistently. By holding themselves and employees accountable for demonstrating the right behaviors, bank executives send a clear message about the importance of risk management and compliance. Aligning incentives with desired risk behaviors. By integrating risk metrics into how employees are compensated, assessed, and developed, leaders are demonstrating their commitment to promoting “good” risk behaviors over short-term profits. Maintaining ongoing communication. Leaders are communicating frequently with regulators, shareholders, recruiting candidates, and employees to reiterate their commitment to risk culture and the behavioral expectations that come with it. Create More Integrated, Real-Time Reporting While 80% of survey respondents agree or strongly agree that adequate controls are in place to identify potential risk violations, institutions continue to struggle in their efforts to identify emerging risks across business units and geographical regions. Most risk systems function in silos that formed as business units responded to one-off risk requirements. What’s more, today’s systems often lack the ability to access highly granular levels of data—a demand that could not have been foreseen when these systems were being developed. The result? Executives are unable to get the single view of risk that they need to see how risks taken across the organization are correlated—and their cumulative impact on the organizational risk profile. Forward-thinking financial institutions are investing in more consolidated, real-time risk reporting. Some have invested in internal tools, while others have taken advantage of the increasingly sophisticated risk technology offered by third parties. In either case, their goals are the same:

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