Governance as the driver of culture change and risk management

Abstract

Banks and other financial firms have suffered great reputational damage and intense regulatory and public scrutiny as an aftermath of the financial crisis. After the crisis, the most extensive revamp of global financial regulations has been put in place since the Great Depression in order to restore stability. Markets have since stabilised, but there has been a steady and never-ending stream of scandals and enforcement actions against these same firms. As a result, both regulators and the public are now insisting that firms fix their culture and improve their governance. This paper first explores the governance failures that preceded the crisis and then considers the characteristics regulators are looking at when evaluating a firm’s culture and risk management programme. It also reviews some recent steps taken by regulators that mandate changes to governance and culture. The paper then provides practical suggestions for creating a sound culture and improving governance around enterprise risk.