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Towards a 3-D model of risk management: Why is the current focus on culture, conduct and senior management having so little impact?

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Since 2008, regulators and risk professionals have recognised that culture and senior manager behaviour are critical drivers of fair treatment of customers and effective risk management. However, despite this recognition, cultures are slow to change, and regulatory and risk management failures at financial institutions continue. This paper argues that the paradigms adopted by regulators and risk professionals in addressing culture are flawed and that the rationalist, pseudo-scientific approach that underlies most risk management cannot control these fluid, sometimes chaotic and always complex factors. We identify some key indicators of effective cultures and highlight the challenges to risk departments, which must become expert in assessing organisational learning, management decision making and future thinking.
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Keywords: banking; conduct; culture; finance; regulation; risk management

Document Type: Research Article

Publication date: October 1, 2016

More about this publication?
  • Journal of Risk Management in Financial Institutions is the essential professional and research journal for all those involved in the management of risk at retail and investment banks, investment managers, broker-dealers, hedge funds, exchanges, central banks, financial regulators and depositories, as well as service providers, advisers, researchers and academics. Guided by expert Editors and an eminent Editorial Board, each quarterly 100-page issue does not publish advertising but rather in-depth articles, reviews and applied research by leading professionals and researchers in the field on six key inter-related areas: strategic and business risk, financial risk, including traditional/exotic credit, market and liquidity risks, operational risk, regulatory and legal risks, systemic risk, and sovereign risk.

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