{"id":28199,"date":"2022-08-30T11:30:00","date_gmt":"2022-08-30T09:30:00","guid":{"rendered":"https:\/\/frankfurt-main-finance.com\/?p=28199"},"modified":"2022-08-30T11:33:39","modified_gmt":"2022-08-30T09:33:39","slug":"risk-culture-and-ecb-expectations","status":"publish","type":"post","link":"https:\/\/frankfurt-main-finance.com\/en\/risk-culture-and-ecb-expectations\/","title":{"rendered":"Risk Culture and ECB Expectations"},"content":{"rendered":"\t\t
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It\u2019s long been known that culture drives behaviour, but recent years have seen an explosion of interest in the links between culture and risk among academics, investors, regulators and the public. This has only been reinforced by the environmental, social and governance (ESG) agenda and its emphasis on good governance.<\/p>

In the banking industry, weak culture has been linked to many historic incidents of loss or fraud. That has led European banking supervisors to increase their focus on risk culture. De Nederlandsche Bank (DNB), which began assessing banks\u2019 behaviour and culture in 2011, was a pioneer in this area.<\/p>

Today, questions about culture are increasingly integral to banking supervision, for example when assessing the strength of governance and risk management. Most notably, culture audits by specialised supervisory teams are becoming more frequent. These audits can target systemically important banks, or institutions where past incidents have raised questions over culture, but may also reflect thematic topics such as decision-making or customer centricity.<\/p>

Culture audits aim to generate discussion, share best practice and enhance other supervisory activities. Audit teams typically look for evidence that diverse views are being aired, that those voices are heard, that robust debate is taking place and that leaders are open to challenge. They make use of staff surveys, supplemented by interviews with leaders, key individuals, and second line professionals. Reviews of board minutes are common. Supervisors may also sit in on board meetings to better understand board dynamics and culture.<\/p>

Fortunately, banks don\u2019t need to wait to be audited before thinking about their culture. There is a powerful business case for a strong risk culture. Risk culture underpins banks\u2019 hard and soft controls, and determines how employees deal with risks \u2014 both individually and collectively. Research shows that a good risk culture can deliver:<\/p>