embedding risk culture and conduct - ernst & young · 2015-10-12 · accountability, ey’s...

Embedding risk culture and conduct Rethinking risk management Conduct is at the top of the agenda for banking boards and CROs, but banks must move beyond protect-and-survive if they are to deliver sustainable returns. © 2015 EYGM Limited. All Rights Reserved. EYG no. EK0391 Rethinking risk management: Banks focus on non-financial risks and accountability, EY’s 2015 risk management survey of major financial institutions, is the sixth annual study of risk management practices conducted in cooperation with the Institute of International Finance (IIF). A total of 51 firms across 29 countries participated in this year’s study. Help your bank adapt to a new risk management order Visit ey.com/bankingrisk Banks are changing their approach to risk management, creating proactive methods to manage non-financial risks and making front-office staff more accountable. Compliance risk remains top of the agenda for 61% of boards and 57% of CROs consider conduct risk a major non-financial risk 57% 67% 89% of banks report an increased focus on non-financial risks 61% Board CRO 70% 52% 36% 32% 32% 30% Banks recognize conduct risks run deep across the firm What is the highest conduct risk going forward? Regulatory expectations, culture weaknesses and public perception are driving fundamental business-model shifts But de-risking only goes so far 63% 54% 44% 44% Reducing complexity of products Exiting some types of products Exiting some types of transactions Reducing activities with some customers 24% Exiting countries Sanctions Financial advice Unauthorized trading Market abuse Money laundering Product mis-selling Enhancing measurement Strengthening second line of defense Increasing business-line accountability Focusing on new products Enhancing risk assessments 67% 62% 60% 56% 49% ... with specific initiatives underway to measure and monitor conduct risk 54% 54% 39% 37% 34% Many banks are taking proactive steps to serve clients and deliver returns ... Creating scorecards for parts of conduct risk Improving data collection on past events New risk-and-control assessments by risk management and compliance Improving forward risk assessment New risk-and-control self-assessments by businesses Behaviors need to change View consistency between organizational culture, risk culture, employee behavior and risk appetite as the key driver of change 75% 81% 83% Firms in the process of changing their culture Report cultural change is a work in progress Culture is at the root of misconduct and banks agree the key to transformation is striking a balance between a sales-driven front office and the new risk management paradigm. Progress is underway. Five ways to increase front-office responsibility 77% of banks list increasing front-office accountability as their top risk-culture initiative Clear, streamlined governance structures, enabled by effective processes and policies, to make the front office truly accountable Increased capacity for the front office to better assess and manage risk More effective communication around values, compensation and training Emphasis on the range and magnitude of acceptable risk using a fully embedded risk appetite framework Alignment of incentives with risk objectives and enforceable disciplinary action for breaches in rules and misbehavior 1 2 3 4 5

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Page 1: Embedding risk culture and conduct - Ernst & Young · 2015-10-12 · accountability, EY’s 2015 risk management survey of major ﬁnancial ... is the sixth annual study of risk management

Overhauling risk oversightRethinking risk managementey.com/bankingrisk

Embedding risk culture and conductRethinking risk management

Conduct is at the top of the agenda for banking boards and CROs, but banks must move beyond protect-and-survive if they are to deliver sustainable returns.

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Rethinking risk management: Banks focus on non-financial risks and accountability, EY’s 2015 risk management survey of major financial

institutions, is the sixth annual study of risk management practices conducted in cooperation with the Institute of International Finance (IIF). A total of 51

firms across 29 countries participated in this year’s study.

Help your bank adapt to a new risk management orderVisit ey.com/bankingrisk

Banks are changing their approach to risk management, creating proactive methods to manage non-financial risks

and making front-office staff more accountable.

Compliance risk remains top of the agenda for

61% of boards and 57% of CROs

consider conduct risk a major non-financial risk

57%

67%

89% of banks report an increased focus on non-financial risks

61% Board CRO

70%

52%

36%

32%

30%

Banks recognize conduct risks run deep across the firmWhat is the highest conduct risk going forward?

Regulatory expectations, culture weaknesses and public perception are driving fundamental business-model shifts

But de-risking only goes so far

63% 54% 44% 44%

Reducing complexity of products

Exiting some types of products

Exiting some types

of transactions

Reducing activities with

some customers

24%

Exitingcountries

Sanctions

Financial advice

Unauthorized trading

Market abuse

Money laundering

Product mis-selling

Enhancing measurement

Strengthening second line of defense

Increasing business-line accountability

Focusing on new products

Enhancing risk assessments 67%

62%

60%

56%

49%

... with specific initiatives underway to measure and monitor conduct risk

54%

39%

37%

34%

Many banks are taking proactive steps to serve clients and deliver returns ...

Creating scorecards for parts ofconduct risk

Improving data collection on past events

New risk-and-control assessmentsby risk management and compliance

Improving forward risk assessment

New risk-and-control self-assessments by businesses

Behaviors need to change

View consistency between organizational culture, risk culture, employee behavior and risk appetite as the key

driver of change

75%

81%

83%

Firms in the process of changing their culture

Report cultural change is a work in progress

Culture is at the root of misconduct and banks agree the key to transformation is striking a balance between a sales-driven front office and the new risk management paradigm. Progress is underway.

Five ways to increase front-office responsibility77% of banks list increasing front-office accountability as their top risk-culture initiative

Clear, streamlined governance structures, enabled by effective processes and policies, to make the front office truly accountable

Increased capacity for the front office to better assess and manage risk

More effective communication around values, compensation and training

Emphasis on the range and magnitude of acceptable risk using a fully embedded risk appetite framework

Alignment of incentives with risk objectives and enforceable disciplinary action for breaches in rules and misbehavior

234

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