OpRisk Europe: Regulators should focus on management behaviour

Regulators should focus more on the behaviour of senior executives than capital requirements, industry experts have said.

Speaking at an OpRisk Europe conference, Richard Pike, senior market manager at service provider Wolters Kluwer, said: “I would certainly like to see the regulatory focus to be less about capital, particularly in the non-financial risk areas because it’s a very difficult thing to do, and be much more about behaviour,” said .

“I’m talking about behaviour at the senior executive level, to force them in some way, shape, or form to take it very seriously,” he added.

Stuart Mills, director of group operational risk at RBS, agreed.

“I think fundamentally it should be less about capital and more about behaviours, engagement and leadership. If it’s not ever seen as a leadership exercise then I think it’s doomed to fail from the start,” he said. A challenge, Mills added, is that decisions within financial institutions are often based on cost or revenue rather than risk.

Involving senior executives in scenario analysis is a possible solution to the issue.

“The more we can get senior executives involved in scenario workshops, the more it wakes them up to the problems or the possibilities,” said Pike.

Shahab Syed, senior vice president and head of operational risk in the credit and risk group at Abu Dhabi Commercial Bank, said looking at real events as opposed to hypothetical cases helps to engage senior management.

“We do these exercises on a regular basis. We see a loss in the industry, it may or may not be related to us, but we will still look internally at our processes and at our systems and say are we exposed to this kind of thing and if it happens what could be the impact?”

And Janice Piacente, chief compliance and risk officer at Coca-Cola Enterprises, said the involvement of management is key within her organisation.

“We try to re-emphasise that managing risk is the responsibility of management,” she said. “Our focus [has been] providing the audit committee with the oversight and knowledge they need to know that management is considering risk in some of the key transactions and decisions that they’re making.”

In financial institutions, Mills said operational risk professionals need to act now in order to engage senior management.

“From an op risk perspective the time to impact in terms of the organisation you’re within is right now,” he said. “I don’t think you’re going to get a better time because the regulatory landscape is skewed towards it, particularly in the US and the UK, and I think internal management are aware of it. If you don’t pick up the ball and run with it now there’s probably not another time that’s going to come like this.”


This article was first published on Risk


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