The Risk Management Association is an organization serving risk professionals at financial institutions through education, products, and community since 1914. RMA’s mission is to advance the use of sound risk management principles in the financial services industry. Recently, RMA and Ncontracts partnered to conduct a survey to capture the current state of culture and conduct practices across a range of RMA member institutions.
Two of our experts at Ncontracts, Rafael DeLeon, SVP of Industry Engagement, and Monica Bolin, Risk Management Expert, sat down with Steven Krasowski, RMA’s Communications Manager, to discuss survey results.
When asked about how governance and culture are progressing in the banking industry, Bolin emphasized that financial institutions are realizing the impact of decisions they make based on good risk culture and communication: “We still have some work to do, but everybody is really moving in the right direction.”
There were some surprises in the survey. Bolin noted that although policies and procedures are regularly updated by FIs, there could be more attention paid to training—an essential step in change management that helps ensure that policies and procedures are carried out properly. She suggested asking questions such as “Is the curriculum current?” and “Does it match the culture and risk appetite?”
As a former regulator, DeLeon observed that one of his biggest takeaways from the survey was the upward trend in financial institutions that were integrating risk management into their culture. “We've known that banks are evaluating their risk culture and taking [culture and conduct] into account. Given the numbers that turned out in the survey—75% of the respondents have been evaluating risk culture for three or more years and more than 50% have been looking at it regularly for five years or more— it says to me that evaluating the risk culture is becoming part of the DNA of a lot of financial institutions.”
This survey also brought to light the increasing importance of ESG for financial institutions. After reviewing the results of the survey, Bolin noted “reputation risk and ESG oversight needs to be a focus and there needs to be a plan…you don’t have to spend a lot of money to address your risks, but look at internal ones like hiring, promotional, and educational opportunities.” For FIs wondering how to go about incorporating ESG into their strategy, DeLeon advised them to go ahead and start the conversation—rather than overthink “what ESG should look like,” FIs could simply talk about the practical steps they’re taking to impact their communities in a positive way, and “the rest will fall into place.”
Our experts also discussed the potential impacts of global events such as COVID-19 and the conflict between Ukraine and Russia. “Risk changes rapidly,” said DeLeon, “I think we're going to see continued increases in terms of where financial institutions are spending money and where they're investing in risk management.”
The survey generated a lot of insights on how leadership drives and communicates culture and conduct for financial institutions. DeLeon and Bolin agree that these elements will continue to play a key role in risk management going forward. DeLeon pointed out, “A strong risk management culture is really about leadership and that leadership that creates value. And we've seen by a number of different studies that long-term equity value of a company is really perceived as having good leadership, and that could increase your book value by almost 30% at least.” Bolin added, “We're really building the future leaders and managers of our institutions and our communities, too. So if [leadership] demonstrates that to your entire team now, it's going to help build a foundation for emerging leaders down the road.”