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While risk management has always been top of mind for leaders at financial institutions, the global financial crisis of 2008 has piqued renewed interest in the role of risk culture. Risk culture denotes an organisation’s self-awareness of how it navigates the fine line between risk-taking and control. It is dynamic in nature and evolves over time - in tandem with changing business objectives and market conditions. For most CEOs, CROs and Boards who monitor changes in the internal authority of the risk function, recruiting and training risk managers, and designing and implementing risk-training programs is a top priority.
Financial services firms that engage in proactive exercises to influence their risk culture are strongly positioned to create organisation-wide change. To this end, it is critical to position risk management as a shared goal - between an organisation’s risk function and business units. Formal training programmes offer an effective way to build an open risk information environment, and reduce the distance between the risk function and business units. Here are three ways financial institutions (FIs) can leverage training to shape the risk culture of their organisation:
Provide training on risk management best practices:
Mitigating systemic risks at FIs is critical to organisational security posture. Training initiatives that focus on leveraging industry best practices to overcome operational risks are a great way to raise awareness about the weak links in the organisation’s systems and processes. Such training also deepens employee understanding of internal audits and credit risk controls, and helps develop an effective enterprise risk management framework to mitigate fraud and risks.
Following a Government of India directive, executives and managers from public sector banks attended a three day training workshop on bank’s systems and processes, with an emphasis on proven risk management practices. The training focused on industry best practices, operational risks that banks face, and the best systems they can leverage to mitigate chances of fraud.
Train employees in key risk areas:
High profile breaches are putting increased pressure on FIs to establish a risk culture where employees thoroughly understand the risk involved in their processes and functions. Before deploying technology-based risk management solutions or processes, training employees in key risk areas as well as the technology solution is a must.
Bank of Baroda has rolled out a risk training program for its employees to help them analyse their functions and activities from a risk perspective and identify gaps in risk control. This has helped them develop a working risk culture and monitor bank’s processes and functions more effectively.
Develop employee’s cognitive abilities:
Bank of America has established a culture where each employee takes ownership of risk management. Effective training to develop cognitive abilities such as critical thinking and conscious awareness is key to building a workforce that can effectively address uncomfortable and challenging situations. Training that combines knowledge of risk taxonomy with development of cognitive and social abilities ensures that employees are trained to interpret the warning signs to proactively identify an unfolding crisis.
Driven by growing regulatory pressure to tighten governance and risk management, organisations across the financial services industry are focusing on building a robust risk culture. The process should begin with rigorous training and include a host of activities - from holding extensive meetings to creating internal communications. Risk training should be viewed as an enculturation vehicle to promote the ethics of risk control and create greater awareness of what is at stake.