Risk consulting: a regulatory perspective

Risk consulting: a regulatory perspective

Increasingly financial regulators have an expectation that financial institutions have a sound organisational culture.

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Risk culture – why is it important?

Increasingly financial regulators have an expectation that financial institutions have a sound organisational culture. Reports on control failures in recent years, from individual issues such as the LIBOR scandal to broader industry reviews such as the Irish statutory reviews of the banking crisis, cite an inappropriate organisational culture or the absence of a risk culture as contributory factors.

In Ireland, the emphasis on organisation and risk culture as a means of mitigating risk is reflected in a focus by the Central Bank on culture as part of its normal supervisory activity. Indeed, the Central Bank has recently conducted themed inspections examining “behaviour and culture” at local banks, along with actively inspecting banks’ compliance with the internal governance guidelines set out by the European Banking Authority in its GL44 paper.

The problem facing financial institutions across the various sectors is that “culture” is a nebulous concept, not to mention a subjective one, far removed from concrete regulatory issues such as solvency, credit risk modeling and risk weightings.

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