Risk Culture in the Enterprise Environment
With increased regulation and federal oversight, chief risk officers (CROs) able to effectively communicate their goals have become crucial to an institution’s longevity. These professionals are responsible for ensuring a unified approach towards risk management throughout their enterprises, and communicating the importance of adhering to best risk management practices.
Of course, depending on the nature of an institution and the CRO’s personal approach, success can vary. The ninth biennial “Global Financial Services Risk Management Survey” from Deloitte Touche Tohmatsu Limited (DTTL) polled 71 financial institutions from around the world with aggregate assets of approximately $18 trillion to gain a better understanding of the industry’s approach to mitigating risk.
According to the survey, 60 percent of CROs have made efforts towards instilling a risk culture across their enterprise. These efforts often included implementing incentive compensation plans to consider alignment of risks with rewards, promoting open discussions on risk topics and disseminating regular risk reports to teams. While this may seem like a moderate achievement, it shows that as many as 40 percent of polled institutions have significant work ahead of them to protect against market and credit risks.
This gap is expected to swiftly close, as risk management continues to demand greater attention and resources. Compared to the last edition of the survey two years ago, 85 percent of respondents report their board now devotes more time to oversight of risk.
“Regulators are looking beyond solely quantitative measures of market, credit and liquidity risk to evaluate risk programs and assess whether institutions have created a culture that encourages employees to take appropriate risks and that promotes ethical behavior more broadly,” Edward Hida, a Deloitte Advisory partner in Deloitte & Touche LLP, and global leader, Risk & Capital Management, was quoted as saying in the press release. “Banks are responding to the regulatory focus on culture by establishing new oversight committees, offices and policies, while also struggling to develop the right approaches to measure and assess risk culture.”
If your institution is looking to make its approach to risk management more deeply embedded in its culture, you will need the right tools to foster buy-in from employees. Advanced risk management software and the right technology infrastructure helps streamline operations while ensuring protection against unnecessary risk.