ABA Banking Journal - May/June 2015 - (Page 30)

FEATURE > EUGENE LUDWIG Sound Risk Culture and Risk Culture Programs: An Evolving Necessity BY EUGENE LUDWIG, FOUNDER, PROMONTORY FINANCIAL GROUP, AND FORMER COMPTROLLER OF THE CURRENCY A SOUND risk culture is a vital component of an overall risk framework, and it is increasingly becoming a regulatory necessity. As Federal Reserve Bank of New York President William Dudley recently told a supervisory conference, "Improving culture in the financial services industry is a necessity." Similar sentiments have been voiced by virtually all other regulatory leaders. A successful risk culture that satisfies regulatory expectations requires strong formal risk management and compliance programs. Attempts to shape a sound culture without strong, formal risk and compliance programs will miss the mark. Regulators are looking for a risk culture that does not just foster good attitudes, but it produces results that support risk management and compliance efforts. Regulators have underlined this point both on and off the record. A strong risk management framework today must include: * Astrongriskappetitestatement; * Astrongboardgovernanceprocess,includingcredible challenge; * Astrongthree-lines-of-defensesystemconsistentwith heightened regulatory standards; 30 ABA BANKING JOURNAL | MAY/JUNE 2015 * Astrongcomplianceprogram,includingBSA/AML and sanctions, FATCA, and consumer issues * High-integrityrisk-relateddataandsystems;and * Forthelargestbanks,successfulCCAR,CLAR,and resolution and recovery programs. It is up to the board and senior management to ensure that such a framework is in place. Without it, it is hard to envision a successful risk culture that produces the kind of outcomes that the regulatory community would like to see. But a risk management framework that is not aligned with a strong culture will not work. If a financial entity's employees do not display the ethics, behavioral norms, and attitudes that align with its governance and risk management policies, those policies will not be successfully implemented. The risk-culture norms and program discussed below are meant to align with the emerging regulatory standards in this area. These standards are becoming less theoretical and more about behaviors and outcomes. Tone will always be important in terms of direction, as will institutional values. But increasingly regulators are looking for a positive alignment of tone, effort and-most important-concrete outcomes.

Table of Contents for the Digital Edition of ABA Banking Journal - May/June 2015

CHAIRMAN’S VIEW
UPFRONT
ECONOMIC OUTLOOK
LEGAL BRIEFS
PICTURE THIS
CELEBRATING A TRADITION OF INNOVATION
SOUND RISK CULTURE
AN INTERVIEW WITH FDIC’s MARTIN GRUENBERG
NEW RESPA/TILA MORTGAGE DISCLOSURES
BANK DOMAIN ROLLOUT
INVESTOR PERSPECTIVE
MARKETING/RETAIL
PAYMENTS
ADVOCACY
ABA COMPLIANCE CENTER INBOX
CYBERSECURITY
MORTGAGES
OPERATIONS
BOARD MATTERS
FROM THE STATES
BANKER RECOMMENDED READING
INNOVATIONS IN SOCIAL RESPONSIBILITY
INDEX OF ADVERTISERS

ABA Banking Journal - May/June 2015

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