Rethinking risk culture in the financial services sector

Rethinking risk culture in the financial services sector


Nous recently hosted a series of roundtable discussions with financial services executives to explore evolving practices in risk culture. This article outlines some of the insights that arose from the discussions.  

If you have been working in a financial services organisation over the last few years it can feel like you are on a ship in a storm, wave after wave of disruption, new entrants, market volatility, media scandal and government inquiry crash over your bow. You work furiously to steady the ship, calling on all your experience and knowledge, and that of your crew, to make sure that you are not overwhelmed. Through it all you also discover that the ship that you thought seaworthy is not quite up to the standard you expected, there are fractures in the ship’s integrity, at times for each wave that you manage to hold, a new leak threatens to burst. An already busy crew must redouble their efforts.

And then, for just a moment, there is calm.

During this calm you close your eyes and picture your ship in its entirety, big or small, it doesn’t matter, this weather doesn’t discriminate based on size. You see all of its parts working in various degrees of harmony, the parts that are strong, the parts that are weak, the parts that don’t quite work with others as they should. You come to the realisation that this time presents a unique opportunity not just to weather the storm but to use it to strengthen. In a storm you can’t always speak to each person individually, you need each crew member to make good decisions; decisions aligned with your purpose, values and your risk management framework.

These are not all new waters, but often you need to replot your course in order to make the most of the calm. So what are the navigation points that will help you thrive?

1. The whole is greater than the sum of its parts

Culture is widely accepted as the glue that binds an organisation together and so logically when we seek to strengthen risk in our organisations we formulate a risk culture strategy. More often than not risk culture strategies join a queue of other culture strategies: one for service; one for high performance; one for innovation; one for inclusion; and one for agility to name a few. Multiple stand-alone culture strategies have the potential to encourage competing priorities, diffuse effort and may lead to poor decision making. Risk culture should not stand alone, rather it should fit within the organisation’s overall desired culture.

An overarching organisational culture should enable individuals and teams to deliver on a range of business priorities. To achieve this, organisational culture must be both clear in its behavioural expectations and flexible and adaptable enough to maintain relevance across different parts of the business. Additionally, it must take into account the requirements of different roles and areas of the business; cross-cultural differences; and relationships with suppliers of outsourced activities. Risk culture as a component of overall culture must be similarly flexible and well considered so it can translate to all work teams and job types, from teller to trader. For financial services organisations to thrive it is not a case of either risk or customer, sales or service, it is each of these together. This will require first and second lines of defence to work together collaboratively and to place risk culture initiatives in a broader context.

Circle diagram showing different parts of the organisational culture

2. There is a person at the centre of your risk culture strategy

It is a common experience when designing interventions to improve risk culture that we start and end with organisational controls. The successful implementation of any control, or system, relies on the decisions that people make daily as to whether to follow the control, regulation or policy. Each individual brings to work their own personal needs, biases, capabilities and aspirations that can impact how they make decisions, including about risk.

Much weight has been placed on the role of incentives in that decision making process and there is no question that they play a role, but incentives are only part of the picture. There are a range of other important behavioural drivers for people including:

  • their professional reputation
  • the level of team inclusion or exclusion by acting a certain way
  • the extent to which people feel in control of their goals or targets
  • the response from their leader when they raise an issue.

The clarity and consistency of messaging deep into the organisation is a critical factor. It is often said that in today’s world we lead busy lives and that we do not always have the capacity or energy to make sense of competing organisational messages. Part of our work in culture change is to distil critical messages and embed them in all forms of communication, make the complex simple and the simple compelling.

When crafting risk culture initiatives it is important to understand the behavioural drivers that are active in your organisation and create an environment that amplifies conditions for people to make decisions aligned with your risk aspirations.

Messages driven from the top down verses personal needs impact response

3. Design thinking will help employees meet their obligations

Life as a frontline employee or leader in any business and especially financial services can be complex. There are numerous policies, processes and controls with which you are expected to comply. There is no one organisational owner for all these – human resources will own some, risk will own others, and finance will own more again. With all good intent the various specialist owners will design a procedure or control with some consultation from the frontline, and then in leading practice organisations, design a change program to assist with the implementation. Far too frequently however implementation falls short, often leaders with competing demands will make trade-offs when they believe they cannot meet the requirements of all stakeholders.

Design thinking is a way through this conundrum. Understanding the ‘user experience’ of your risk culture can also increase the accountability of individual employees. Issues with risk often occur when processes are complicated and people choose to work around them. By designing clear, user-centred processes, and guidelines that are integrated across the organisation (rather than in conflict), leaders can better empower employees at all levels to make the right risk decisions at the right times.

Riding the waves

Organisations are often focused on putting controls in place to manage risk, which can be can be perceived as limiting when it comes to innovation and maintaining a competitive edge in an increasingly fast-paced world. A healthy risk culture allows an organisation to take on an acceptable level of risk to realise the benefits of new opportunities, and to establish mechanisms to prevent risks that may hurt customers. It also promotes discussion on how to react when things inevitably do go wrong, and ensures that each individual employee feels accountable for and empowered to manage risk in their own role.

A strong risk culture is critical for financial services organisations, as pressure mounts from customers, regulators and the fast-evolving marketplace. Despite this, the opportunity to assess and rethink risk culture has not been fully leveraged. There is great potential in the use of contemporary human-centred design techniques to address the usability and clarity of risk culture decision-making frameworks, and ensure they integrate seamlessly with broader organisational culture.

Find out more about Nous’ approach to risk culture in complex and dynamic operating environments or get in touch to find out how Nous can help you redefine your risk culture using the latest techniques and thinking.