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Risk Culture

Risk culture can be defined as the system of core values and behaviours present in an organisation which influence risk taking positions or business decisions. The higher an individual in an organisation, the more accurate (or strict) this philosophy must be embedded into his conduct. However, it has been advocated more and more by financial regulators that a solid and healthy risk culture, in order to be effectively implemented, must be introduced top down, being that the Board of Directors of a given organisations must set the tone and influence all employees in the organisation. An example of a dynamic financial regulator is the Financial Conduct Authority (FCA), which regulates financial markets in the United Kingdom.

Employees working in an organisation with a strong Risk culture will have a constant sense of balance, consciousness and risk management acumen when facing decisions on their day to day routines. This extends to all employees where a strong sense of “first line of defence” will prevail.

Key aspects of a healthy risk culture in an organisation include:

  • the board of directors and senior management attitude towards risk, ethics and compliance
  • the soundness and clarity with which this culture is communicated and propagated from senior staff throughout the firm
  • the formality and recognition that Risk Management must be included in decision-making processes
  • existence of  formal and regular Risk Management staff training
  • the extent to which incentive schemes reinforce good risk management

 

Articles about Risk Culture