http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/fca-risk-outlook-2014/
Source: http://www.fca.org.uk/risk-outlook
Copyright © 2014 FCA. All Rights Reserved.
Tuesday, 1 April 2014
FCA Risk Outlook 2014 - http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/fca-risk-outlook-2014/
IRM GRC SIG session on 1 May has Dr David Hillson talking about ABC meeting GRC - http://www.chaordicsolutions.co.uk/blog/irm-grc-special-interest-group/irm-grc-sig-session-on-1-may-has-dr-david-hillson-talking-about-abc-meeting-grc/
http://www.chaordicsolutions.co.uk/blog/irm-grc-special-interest-group/irm-grc-sig-session-on-1-may-has-dr-david-hillson-talking-about-abc-meeting-grc/
This session continues our exploration into risk culture and the possible role it plays in effectively orchestrating governance, risk and compliance activities.
It covers David’s latest thinking on risk culture, followed by a discussion about its relevance to GRC, or not. Specifically it examines the links between risk culture and GRC implementation, based on the A-B-C Model (ie Attitudes-Behaviour-Culture).
Some people see GRC as a set of external Behaviours, but of course these are driven by individual Attitudes as well as not by focusing only on the external B, but by also addressing the A and C – right?
Overview:
Everyone knows that culture is important – but why? What about risk culture? What should you do if your project or organisation is too “risk-averse”?
Starting from first principles, this presentation unpacks the key characteristics of culture, explaining what it is – and what it is not. Culture arises from repeated Behaviour – if we do the same things over and over again we will develop a shared approach to “how we do things around here”. But behaviour is based on our underlying Attitudes – how we think shapes our actions. This gives us the A-B-C model of culture: Attitudes shape Behaviour which forms Culture. There are also feedback loops as the prevailing Culture also influences how we think and act.
The A-B-C model is also true of our approach to risk. If we want to develop a risk-mature culture, we need to behave in an appropriate way towards risk. But this in turn will be driven by our risk attitudes.
This presentation explores the central role of risk attitude as a key underlying driver of risk behaviour and risk culture, and shows how to change risk culture by actively managing risk attitude.
Biography:
Dr David Hillson is The Risk Doctor, and Director of The Risk Doctor Partnership. He is recognised internationally as a leading thinker and expert practitioner in risk management. He writes and speaks widely on the topic, with nine books and many papers.
David Hillson has been working in the area of risk culture, risk appetite and risk attitude for about a decade, and has published his ground-breaking insights on these topics in a range of books.
You can book your place NOW using this link: http://bit.ly/1dMZgIv, either for a place in London at the offices of RBS or via our Audio/Weblink.
More… http://bit.ly/1dMZgIv
Wednesday, 19 March 2014
Overview of Conduct Risk - http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/overview-of-conduct-risk/
http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/overview-of-conduct-risk/
Conduct risk is one of the hottest topics in financial services but what exactly is it? This great article from Jane Walshe of the Compliance Complete service of Thomson Reuters Accelus explores the various definitions of the concept, which can be hard to pin down, put forward by regulators and international standard setting bodies.
More: http://blogs.reuters.com/financial-regulatory-forum/2014/03/19/conduct-risk-an-overview/
Monday, 17 March 2014
Embrace the hidden power of governance, risk and compliance ... but not in the way you think! - http://www.chaordicsolutions.co.uk/blog/from-our-grc-consultants/embrace-the-hidden-power-of-governance-risk-and-compliance-but-not-in-the-way-you-think/
http://www.chaordicsolutions.co.uk/blog/from-our-grc-consultants/embrace-the-hidden-power-of-governance-risk-and-compliance-but-not-in-the-way-you-think/
DOWNLOAD PDF copy of this Insight Blog Article
CHALLENGES
Many would claim our current economic climate is partly or wholly due to a significant number of corporate failures which have challenged the very foundations of the global economic system. These failings can be argued as being evidence of an ineffective approach to managing governance, risk and compliance activities. Transparency, sustainability and ethicability are words that now dominate the corporate landscape … but trust seems to have been fatally wounded. Clearly, there is much that needs to be improved about the way we run our modern organisations.
Over the last ten years or so, the acronym GRC has been used to describe an integrated approach to managing these components. During this period, the Open Compliance and Ethics Group (OCEG) has emerged as the only non-profit organisation dedicated to promoting a framework to support this. However, it is important to recognise that there are other ways of achieving a similar level of integration which should also be considered.
A coordinated approach to managing this complexity makes sound sense and in isolation, on paper, can be easily justified. However, the barriers to effective implementation are many and need to be better understood. The realities of the new world in which we all now live and work are such that we can no longer accommodate inefficiencies in our critical functions and processes.
OPPORTUNITIES
The time has come for us to look at our organisations in a different, much more holistic, synergistic and sustainable way. An integrated approach to managing governance, risk and compliance provides us with a way of achieving this, but only if we learn from the past and provide the correct environment for our efforts to succeed.
Last year, the Institute of Business Ethics (IBE) published very interesting research about the state of governance and ethical behaviour across the European Union. In this report there is a great graphic on page 7 that shows IBE’s view on the ethical aspects of corporate governance and provides further clarity on the pivotal, leading role it provides.
So let’s start to have a look at why these areas are so important:
G – GOVERNANCE
From research conducted last year by the author, it is clear that one of the biggest barriers to the effective harmonisation of these essential organisational elements is culture. Subsequent research has suggested that specifically it is the culture of the boardroom… governance culture… which determines the extent to which harmonisation efforts can be achieved. But how do you influence governance culture to make it more receptive to harmonising governance, risk and compliance activities… the silos that traditionally constrain the extent to which organisational activities can be optimised?
There are no easy answers or solutions to this conundrum. Recently, exciting initiatives such as ethical leadership and OCEG’s Principled Performance approach may provide part of the solution for achieving this. But it is clear than none of these are quick-fix solutions and require considerable, sustainable commitment of board members to bring about the required changes.
In some circles, the G in GRC is now being replaced by P representing the importance that performance plays in bringing about the required changes in organisational behaviour. This is possibly a good move as there still seems to be some considerable confusion as to what governance really means. From the authors own real-life experience it often simply represents the various facets of corporate leadership which ultimately set the scene, the tone at the top, that the organisation has to operate within. It is for this reason that ethical leadership may provide an important part of the solution which is needed. Of particular interest in this area is the work of Roger Steare, Linda Fisher Thornton and others, who are now actively challenging the way in which our organisations are led by pushing for a more ethical driven approach.
Another interesting development is the growing recognition of something called conduct risk. This has recently received further emphasis by the publication of the UK Financial Conduct Authority’s (FCA) Risk Outlook 2013 in which consideration attention is given to discussing the drivers of conduct risk and the evolving conduct risk landscape.
R – RISK
An example of how the lack of a joined-up approach can cause problems is found in the way risk is sometimes handled. The management of risk can easily fall victim to the use of a siloed approach to running a business. There have been many recent business failures that can be directly attributed in whole or part to this siloed and disjointed approach to managing risk.
The absence of a risk-friendly appetite and culture can also create very real barriers that prevents board and other key stakeholders from seeing a complete joined-up picture of what is really happening within their organisation.
In the last couple of years there has been significant attention given to this and these related challenges of risk appetite and culture; one of the main contributors to this thought leadership debate has been the work of the Institute of Risk Management (IRM). However, producing thought leadership materials is one thing but actually implementing them is another completely different matter. It is for this reason that the author is particularly interested in how the culture … particularly, governance culture … can be influenced to enable it to be more receptive to actually successfully implementing the required fundamental changes in attitudes, behaviour and ultimately, culture.
C – COMPLIANCE
The threat of regulatory failure has created a culture in some organisations where it sometimes seems as if sight of the bigger picture has been lost. There are now even case studies available about organisations who previously held best practice, world class positions only to find that because of changes in their approach to compliance and other factors, their culture changed so significantly that they not only lost these enviable positions but also got fined by regulators for breaches in compliance; in some extreme cases, they now appear in text books as to how quickly you can lose your reputational standing if you don’t keep in touch with the bigger picture and what is really happening in your organisation!
It is so easy in the current climate to create a culture where individuals blindly follow processes and procedures at the expense of common sense. With the increasing amount of regulation and standardisation, it often seems as if individuals have lost the ability to behave ethically. The result can be an increasingly disengaged workforce that sometimes appear to mentally switch-off on arrival at work and who only really wake up again when it is time to go home!
A recent TED Talk by Yves Morieux from BCG provides a supporting and slightly controversial view as to why people feel so miserable and disengaged at work. In his view, it is because today’s businesses are increasingly and dizzyingly complex, and traditional pillars of management are obsolete! However, he proposes six key rules to encourage employees to cooperate in order to solve long-term problems. Yves believes that it isn’t just about reducing costs and increasing profit, it’s about maximising engagement through all levels of an organisation.
The increasing amount of regulation seems to be a reflection of the backward facing approach that is quite often adopted by our regulators. Unfortunately, instead of improving the situation and reducing risk, this approach sometimes creates more risk and on occasions, even encourages unethical behaviour. In response to this, there are an increasing number of people who are now suggesting we need less not more regulation and a return to a much simpler Aristotelian based approach to ethical corporate leadership.
CONNECTING THE DOTS
In trying to make sense of all of this, it can become very frustrating. From looking at real-life experiences in this area, there appears to have been much talking and even more selling but very few tangible examples currently that clearly demonstrate the business benefits of adopting such an integrated approach.
That doesn’t mean they aren’t out there, simply that they are difficult to find.
Everything we do involves a combination of governance, risk and compliance… from the biggest undertaking to the smallest activity … in the boardroom, at the project, portfolio or programme level, and everywhere else in the organisation. So the time is now right for us to unleash and embrace the hidden potential of these powerful elements … but possibly in a different way to how you have been thinking about doing it previously.
READY FOR CHANGE?
Our unique ORDER™ approach is truly scalable, leveraging the terrific potential of applying this more holistic, synergistic and sustainable approach to any challenge … at whatever level it might exist within the organisation.
If you want to explore these or any other of our services then contact Robert J Toogood direct at robert_toogood@chaordicsolutions.com or on +44 (0)1983 617241 for a no-obligation, confidential discussion about how we can help.
REFERENCES
Open Compliance and Ethics Group (OCEG): http://www.oceg.org
Institute of Business Ethics (IBE): https://www.ibe.org.uk
Roger Steare – Corporate Philosopher: http://www.thecorporatephilosopher.org
Linda Fisher Thornton – Leading in Context: http://leadingincontext.com
UK Financial Conduct Authority (FCA) – Risk Outlook 2013: http://www.fsa.gov.uk/static/pubs/other/fcarco.pdf
TED Talk – Yves Morieux, BCG: http://bit.ly/1cjJ1fJ
Institute of Risk Management (IRM): http://www.theirm.org/publications/PUpublications.html
IRM Special Interest Group (SIG) in GRC – Web Page: http://www.theirm.org/events/GRC_SIG.htm
IRM Special Interest Group (SIG) in GRC – Presentation from Last Session: http://www.theirm.org/events/documents/GRCSIGpresentation160114.PDF
AUTHOR
Over the last twenty-five years, Robert has recognised the increasingly important role that governance culture plays in providing a foundation for organisational success. His recent masters research into the barriers to implementing an integrated approach to governance, risk and compliance has provided tangible evidence to support this view.
In conjunction with his ongoing consulting activities, he is now developing practical solutions to address these barriers through his part-time doctorate research activities. However, in undertaking this further research he is passionately committed to making sure his activities remain firmly on the ground and solve real-world not purely academic challenges.
DOWNLOAD PDF copy of this Insight Blog Article
© Copyright 2014. All Rights Reserved
Speaker on Jersey International Business School CPD Plus Seminar Series 2014-15 Programme - http://www.chaordicsolutions.co.uk/blog/from-our-risk-management-consultants/speaker-at-jersey-international-business-school-cpd-plus-seminar-series-2014-2015-programme/
http://www.chaordicsolutions.co.uk/blog/from-our-risk-management-consultants/speaker-at-jersey-international-business-school-cpd-plus-seminar-series-2014-2015-programme/
CPD Plus Seminar Series 2014–2015
Jersey International Business School has a reputation for delivering high quality training solutions. The CPD Plus Seminar Series has a legacy of providing essential updates for professionals delivered by internationally recognised experts. This series will comprise twelve monthly sessions including eleven seminars of 60 minutes followed by a 15 minute Q&A, plus one highlight event.
More Details: http://www.jerseyibs.com/CPD-Series/CPD-Plus-Seminar-Series-2014-2015/
Copyright © 2014 Jersey International Business School
FCA Risk Outlook 2013 - http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/fca-risk-outlook-2013/
http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/fca-risk-outlook-2013/
Source: http://www.fca.org.uk/your-fca/documents/fca-risk-outlook-2013
Copyright © 2014 FCA. All Rights Reserved.
Thomson Reuters Survey Highlights Companies’ Uncertainty Around Conduct Risk - http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/thomson-reuters-survey-highlights-companies-uncertainty-around-conduct-risk/
http://www.chaordicsolutions.co.uk/blog/from-our-conduct-risk-consultants/thomson-reuters-survey-highlights-companies-uncertainty-around-conduct-risk/
Thomson Reuters Accelus surveyed more than 200 compliance and risk practitioners from financial services firms across the Americas, Europe, Africa, Asia, Australia and the Middle East to find their views on how the industry is defining and dealing with conduct risk. Respondents represented firms from across the financial services sector including banks, insurers and fund managers.
Key findings from the report include:
- 84 percent of respondents did not have a working firm-specific definition of “conduct risk”.
- Firms were in broad agreement on what constitutes conduct risk. Culture came out on top (76%), closely followed by corporate governance (74%), then conflicts of interest and reputation (both at 68%). Firms in Europe and Australasia have done the most work to address conduct risk, while the North America and the Middle East have done the least, according to the survey.
- Most of the changes made have been implemented in the last 12 months, suggesting that firms’ awareness of conduct risk is growing and that the emphasis which regulators are placing on consumer protection and having the right corporate culture is beginning to take hold.
- Almost two-thirds of respondents have implemented arrangements to deal with conduct risk while just over 50% of the firms surveyed reported having no, or a partly developed conduct risk appetite in place.
“The last 12 months have shown increased focus on conduct risk which is not surprising due to ever-demanding regulatory requirements,” says Chris Perry, managing director, Risk, Thomson Reuters. “Good conduct is good business. The cost of poor conduct is high; not just in terms of enforcement actions, now totaling in the billions of dollars, but also in the reputational damage and the wider erosion in trust that this creates across the industry, as the Thomson Reuters Trust Index reveals,” added Perry. “As the public looks to more transparency in our banks, and banks look to preserve and create value, firms and senior managers need to be able to define and measure what “good” looks like in terms of culture and customer outcomes in order to understand and respond to the implications of the regulatory focus on conduct risk.”
What is Conduct Risk
Since the financial crisis, regulators have been working to put policies in place to improve the behavior of risk management within firms. Although there is no universal definition of conduct risk, it is generally agreed that the concept encompasses the risks associated with the way in which a firm and its staff conduct themselves. It incorporates matters such as culture, tone from the top, governance, how customers are treated, remuneration of staff and how firms deal with conflicts of interest.
The survey shows that over 84% of firms reported the absence of a working definition of conduct risk indicating the infancy of the field. When respondents were asked their view as to what the key components are to conduct risk, culture was the most important (76%) followed by corporate governance (74%) then conflicts of interest and reputation (both at 86%). Remuneration was also shown as a key component to conduct risk, meaning the way in which staff are rewarded and incentivized to behave in the right way are significant factors that contribute to a firm’s culture.
Progress to address Conduct Risks
The results show that the majority of firms around the world have begun to address conduct risk. Most of the changes have been implemented in the last 12 months indicating that firms’ awareness of conduct risk is growing and the emphasis which regulators are placing on corporate culture and consumer protection is beginning to take hold.
Over the last year, half of the firms surveyed have reassessed their approach to culture. South America had the highest change rate with 67% of respondents indicating change and 65% in Australasia. By contrast, only 35% of firms in North America and 38% of firms in the Middle East had reconsidered their approach to culture in the last 12 months.
Since the financial crisis of 2008, remuneration and incentive practices have become increasingly controversial. A recent review conducted by the UK Financial Conduct Authority found that sales rewards and incentive schemes were likely to have exacerbated the risk of poor sales practice. According to the survey, 66% of firms said that they had reviewed their approach to incentives since 2008, the majority of which (48%) had done so in the last 12 months. Just over half of firms had made changes to their remuneration policy, a third of them in the last 12 months. A further 10% of firms plan to make changes in the next 12 months.
Finally, 22% of firms surveyed said that their organization had not made any changes to address conduct risk. Again, the results show many regional variations with 50% of firms in the Middle East and 1/3 of firms in North America saying they had made no changes. By contrast only 11% of firms in Europe and 12% in Australiasia had done nothing to address conduct risk.
Measuring Conduct Risk
In order for conduct risk to be effective, organizations need to establish and be able to monitor and progress good outcomes for customers. The survey shows that the most popular way to measure good outcomes is by the analysis of complaints with the majority saying this was undertaken through compliance monitoring programs. 25 % reported that they did not do any specific analysis of customer outcomes.
Monitoring conduct risk is extremely important to gauge the success and failures of an approach. The majority of respondents said there was a healthy degree of assessment by risk management functions. Corporate governance (42%), the treatment of customers (39%) and financial capabilities (34%) were the top three issues that were captured in monitoring programs.
Board involvement is also critical to the successful implementation of conduct risk. The survey showed that boards did set the appropriate cultural and governance message with 83% of respondents responding positively. Board focus on conduct risk has also increased in the last year in 44% of firms—this is largely driven by greater regulatory focus in the area.
For a copy of the Thomson Reuters Conduct Risk Report 2013, visit: http://info.accelus.thomsonreuters.com/2013ConductRiskSurveyReport Thomson
© 2013 THOMSON REUTERS
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