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 │ │ (v) 801.676.9722 │ (tf) 855.747.4003 │ (f) 801.742.5803 Editorial Library | © The newsLINK Group LLC 1 The challenge of building a corporate culture that prioritizes risk management, ethical behavior, and smart decision- making continues to weigh on banks. Banks have invested significant resources into multiple programs to foster a healthy risk culture. Despite this, allegations of misconduct, regulatory challenges, and fines have persisted. Why are their efforts falling short? How can they inspire true behavioral change and cultural health? To find out, we tapped global banking executives to better understand their views on the severity of risk culture shortcomings, what’s causing them, and how they can be addressed. Their views were expressed in PwC’s 2014 Global Banking Risk Culture Survey, which draws on insights from 504 executives and managers across the United States, the United Kingdom, Hong Kong/Singapore, Brazil, and Australia. A large number of C-suite leaders have placed risk culture squarely on the agenda in response to the regulatory environment, recent highly publicized missteps, and subsequent reputational and brand damage. Yet, we were alarmed to find that, on average, participants in PwC’s Global Banking Risk Culture Survey graded themselves the equivalent of a C+ on their risk cultures. We would have expected at least an A-, given the effort and investment committed to date. Banking leaders have an opportunity to shape a healthy risk culture that will help them proactively identify and mitigate risks, protect their brand, and unlock new growth options. Based on our analysis of survey results, we’ve identified five themes for banks to focus on in this effort: 1. Create a true seat at the table for the risk function. 2. Establish a walk-the-talk risk culture—from top to bottom. 3. Make change stick through better incentives and consequences. 4. Create more integrated, real-time reporting. 5. Develop a consistent global approach to risk management across regions. Create a True Seat at the Table for the Risk Function Our survey indicates an overwhelming recognition by respondents that risk culture is a critical part of a successful, competitive financial institution. More than 70% of survey respondents recognize risk assessment as integral to key business decisions in their organization. Leading institutions are elevating the standing, credibility, and authority of the risk management function to protect the business from unacceptable levels of risk. They are taking these practical steps: Changing the Risk-Business Partnership Dynamic Leading banks are working to change how the business sees the risk function, shifting it away from a policing role toward a risk advisory role. While it’s hard to change these long-held beliefs, leaders are making headway by focusing on relationship skills and developing stronger knowledge of business operations on their risk teams. Embedding Risk into Business Decisions Executives and regulators are asking their business units to take a more active role as the first line of defense against risk. This involves clarifying risk roles and responsibilities, identifying risk triggers, and seeking risk counsel as part of key business decisions—not as an afterthought. Reviewing Reporting Relationships The OCC’s risk governance framework, finalized in September 2014, seeks to elevate the stature of CROs (or the multiple Chief Risk Executives that fill the role of the CRO at some banks). Leaders are taking a look at where risk sits on the org chart and creating direct lines of communication for the CRO to the CEO and board ( OCC Finalizes Its Heightened Standards for Large